World Bank Could Unlock $7.5 Billion for Poorest Countries

WASHINGTON,D.C.(June 8, 2010)-A new working paper and memo released by the Center for Global Development (CGD) urges the World Bank’s two lending arms, the International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD), to rebalance their loans to low- and middle-income countries. The proposal could provide a surge of finance to the poorest countries.

According to the paper, the IBRD, which exclusively provides loans to middle-income countries, could take over a share of loans traditionally disbursed by IDA to emerging economies with ready access to international credit markets, so called IDA-blend countries, such as India and Vietnam. In exchange, IDA, which typically issues low-interest loans and grants to the world’s poorest countries, would ensure a smooth transition by covering these countries’ IBRD loan interest payments.

CGD released the paper, “IDA Blended Financing Facility,” just ahead of IDA’s replenishment negotiations on June 16, when representatives of donor countries will gather in Bamako, Mali, to determine funding levels and development priorities for the next three years. This will be the last IDA replenishment round before the Millennium Development Goals deadline in 2015.

Working paper author Ben Leo, a research fellow at CGD and former U.S. Treasury official, argues that better leveraging the IBRD’s balance sheet to support creditworthy countries could free up $7.5 billion for the world’s poorest countries over the next three years, at a time when donor money is tight and the need is great.

“Nearly every multilateral development bank is requesting funding from rich countries, but donors are still struggling with record budget deficits due to the global economic crisis and remain nervous about the impact of financial turmoil in Europe,” said Leo. “IDA donors should do everything possible to mobilize new funding while also pursuing innovative ways to maximize the impact of available World Bank resources.”

World Bank shareholders recently approved an $86 billion capital increase to support increased IBRD lending for emerging economies.

If IDA had applied the proposal to the current funding period, it could have mobilized up to an additional $7.5 billion for education, health, and infrastructure projects in the world’s poorest countries. Of this, African countries could have received about $5.5 billion of the additional funding. The World Bank would not be the first of the MDBs to leverage loans as the report proposes. The Inter-American Development Bank applied a similar approach several years ago.

“Aid donors and the multilaterals need to become much savvier about making the most of current aid flows,” said CGD president Nancy Birdsall. “This is a great example of how fresh approaches can make a big difference. I hope the IDA deputies will act on this straightforward proposal.”