Back in December 2023, World Bank President, Mr Ajay Banga, called for the replenishment of the International Development Association (IDA) to be the “largest of all time”. The aim of this is to address the global crisis from the ongoing COVID-19 fallout and ongoing economic shocks.
Mr Banga reiterated this message at the IMF and World Bank Spring Meetings – stressing the importance of IDA in supporting low- and low-middle-income countries’ growth, ahead of the 21st replenishment in December. This would result in a 20 – 25% increase in donor contributions – bringing contributions to $28-30 billion, which could leverage at least $100 billion over the next three years.
IDA has the potential to be a key financing instrument for many African countries, as it provides concessional finance (i.e. low interest rates with long-term repayments). For example, since 2017, IDA can increase contributions by a 4:1 ratio. Indeed, 34 African countries can access IDA-only funding, with the African countries accounting for over 70% of IDA distribution.
Given that IDA21 is only a few months away, now is the time to take stock. What has IDA delivered for Africa? And how can it be improved to maximise the growth of African countries going forward? We have three takeaway points.
First, the scale of finance needs to be more ambitious. Whilst the headline number of $100 – $120 billion may sound significant – the data shows a different story. Since 2012, donor contributions to the IDA have declined steadily from $26 billion to $23.5 billion, as contributions of all but nine donors have decreased in absolute terms.
Moreover, considering inflation, contributions of all OECD donor countries have declined in real terms, with one or two exceptions. Thus, $28-30 billion, or even $35 billion, would not represent a significant increase relative to historical trends. Rather, it would barely restore previous levels of funding.
Second, demand outweighs IDA’s resource base. Take African countries, 39 of which are eligible to borrow from the IDA. The UN Economic Commission for Africa (UNECA) estimates Africa needs around $1.3 trillion per year to achieve the Sustainable Development Goals (SDGs) by 2030. Yet in the fiscal year 2023, they received just $25.8 billion from the IDA.
Although this is a welcome contribution and 75% of the IDA’s total commitments, it is a far from what is needed. $25.8 billion is barely more than the $23.6 billion per year that a single African country, Ethiopia, needs to spend on infrastructure alone to achieve its SDGs, according to our internal forecasting.
Third, IDA should contribute more to economic transformation. Over the years, IDA typically contributes to social funding – with health and social care accounting for the bulk of IDA finance at 26% in IDA19. Whilst this sector is important, funding should also be channelled into growth-producing assets, such as value-added manufacturing, or infrastructure. This will support African countries to achieve sustainable economic growth and avoid countries ‘re-graduating’ back into IDA in a few years.
At Development Reimagined, we have two core recommendations.
- Donor contributions to the IDA must rise significantly – by at least a doubling of donor contributions by December 2024. The G20 Independent Expert Group report recommended a tripling of resources by 2030 if the IDA is to effectively execute its mandate and meet the level of demand it is facing.
- The World Bank should reform its lending guidance and policies so its loans can be better used by borrowing governments. This includes extending maturities, reevaluating its debt sustainability assessment frameworks and reducing market-based policy conditions in order to better align with the interests of the borrower country.
For further reading, please find the article “$120bn isn’t enough. Here are 3 ideas for a truly bigger, better World Bank” for African Arguments, by Mr Trevor Lwere, Economist at Development Reimagined.
To find out how Development Reimagined can support you, your organisation or Government to review key economic policies, please email the team at clients@developmentreimagined.com.
Special thanks go to Trevor Lwere, Kenean Wase and Jade Scarfe for their work on the graphics, collecting/analysing the underlying data and sharing this accompanying article.
The data was collated from the World Bank. Our methodology is entirely in-house, based on analysis of economic growth, inflation and other trends.
