Banga Shouldn’t Get His “Biggest” at the Cost of IDA’s Best

Last year, World Bank President Ajay Banga called for the largest-ever replenishment of the Bank’s soft-lending arm, IDA. Citing rising demand driven by a slow COVID rebound, the Ukraine invasion, and climate pressures, he asked donors to step up. “No amount of creative financial engineering will compensate for the fact that we need more,” he suggested, setting a $100 billion replenishment target. But as we approach the pledging session in December this yearwith donors looking distinctly tightfisted, it is vital that IDA does not try to resort to expensive financial engineering to meet Banga’s target at the cost of the quality of its support.

IDA has long been some of the very highest-quality financing provided by the global community. It is provided on generous terms to the countries that need it most, and delivers development through country-owned strategies and projects. In an age of declining quality for ODA, or official development assistance, IDA has stood as a bulwark. Donors should be providing far more resources to support it.

Earlier this year, Clemence estimated that a $100 billion replenishment would require about $28–$30 billion in donor contributions, with most of the rest provided by repayments of outstanding IDA credits and loans, transfers from other arms of the World Bank, and borrowing from the market. Last replenishment, a total of $93 billion involved $24 billion of new donor contributions.

Will donors provide the resources necessary to ensure IDA can provide $100 billion of high-quality finance over the next three years? Germany and France are slashing their aid budgets, the UK doesn’t appear to be recovering any time soon, Japan’s budget is flat, China—IDA’s fastest growing donor—has been coy, and there’s no indication so far that the US Treasury will reverse a long term trend of underwhelming pledges. We hope donors avoid short-sighted and self-harming cutbacks in IDA funding and instead help deliver at least an additional $6 billion in contributions compared to the last replenishment, supported by generous contributions from newer donors including China and Korea. But if they don’t, IDA should avoid compounding the harm by engineering its way to a larger headline number.

A worst-case scenario would be a reverse-Robin-Hood outcome where IDA grows its headline figure by charging the poorest countries more and rationing grants. This would effectively put the bill for the “largest IDA” on the world’s poorest, rather than the world’s richest, countries. At a time of debt distress and high interest rates, it would put both clients and IDA equity at greater risk.

Another mistaken option would be to borrow more to grow the IDA Private Sector Window, which provides finance to private sector projects (backed by World Bank arms IFC and MIGA) at subsidized rates. The Private Sector Window has failed to utilize its existing resources, and has not prevented a decline in IFC operations in IDA countries—itself a project portfolio delivering low development impact. The window needs considerable reform rather than expansion. IDA would be considerably strengthened, and IDA countries would receive considerably more finance, if rather than IDA subsidizing marginal IFC projects shareholders returned to transferring IFC profits to IDA. These transfers reached $213 million in 2021 but have since ceased entirely.

Donors are paying in an ever-smaller part of IDA replenishments, but want to claim ever-bigger headline numbers. It would be a shame if poorly defined dollar targets debase the quality of IDA finance, as they have climate finance and ODA overall. And the ubiquitous rich country policy-speak of wanting “big deliverables” without wanting to pay the bill is eroding what little trust there is left in the international development system. The better target to set for IDA would be a figure specifically for donor contributions that come in the form of unconditional grants. And if Banga’s $100 billion total replenishment target is met by making IDA more expensive, the champagne should remain corked. Far better for the World Bank’s president to declare that donors have failed the institution and the world’s poorest countries than to try to engineer a trainwreck to look like a triumph.