Soft Lending without Poor Countries: Recommendations for a New IDA

The International Development Association (IDA) of the World Bank provides low-cost loans to countries unable to borrow on international markets or from the bank's core International Bank for Reconstruction and Development (IBRD). IDA was created in 1960 when the model of aid was one of a small number of rich countries giving to many poor countries. Today, much has changed: most of the world's poor live in middle-income countries, previous receivers of aid are becoming donors, and many low-income countries are on the cusp of graduating from IDA eligibility.

The Future of IDA Working Group shows how IDA could adapt to changing circumstances. By 2025, IDA-eligible countries will be half as large in number and one-third as large in population; they will also be almost exclusively African and much lower performing economically. The working group explores the options available to IDA, from small tweaks to the status quo to bold alternatives for the future. In sum, they offer five big-picture recommendations:

1. Think beyond the next replenishment and don’t allow IDA to sleepwalk into the future. The IDA-17 talks should begin a hard-headed appraisal of IDA’s purpose, systems, and financing.
2. Adapt IDA to the new world. At a minimum, shareholders should revisit IDA’s performance-based allocation system and the World Bank’s working relationship with the African Development Bank, and they should drop the IFC net-income transfer.
3. Declare success and don’t be afraid to let IDA shrink. World Bank presidents have frequently defined their success through ever-larger replenishment campaigns, but this is no longer an appropriate expectation.
4. Embrace potential new donors—and consider changing contribution rules. Shareholders should consider improving the transparency of IBRD fees and explore alternatives to the current system of scoring new IDA contributions.
5. Consider creating a transitional “IDA+” window. To smooth countries’ graduation from IDA and help attack lingering pockets of poverty in middle-income countries, the World Bank Group could create a modest transitional window, with its own special rules, between IDA and IBRD.