Fast forward to the year 2025. IDA will begin negotiating its 21st Replenishment Agreement. As with every other replenishment since 1960, donor countries will sit around a table and haggle over what sectors to promote, how to measure IDA’s impact, and how to allocate its resources. And, they will be fiercely negotiating how much money to put in IDA’s hands. Nothing will have changed. That’s just how these negotiations work. However, there will be one huge difference this time around. IDA will be operating in a vastly different world. A world where its existing way of doing business may no longer make sense.
According to new research by Todd Moss and me, IDA’s client base is projected to change dramatically over the coming years. By 2025, there could be only 30 poor country clients left – down from roughly 70 now. There would be 1 billion people living in these countries – instead of 3 billion living in current IDA-eligible countries. Overall, the remaining clients will be overwhelmingly African – with only a few countries scattered across other regions. All of this will be driven by an expected, and much anticipated, wave of countries graduating from cheap IDA loans to borrowing from the international credit markets. Unlike other organizations, a successful IDA fundamentally means that it eventually will put itself out of business.
The expected departure of huge IDA recipients – such as India, Vietnam, and Nigeria – will have dramatic implications for IDA’s financial and operational models. For example, should donors continue to provide the same amount of money despite a drastically smaller pool of recipient countries? Under that scenario (which is the World Bank management’s baseline), countries like Ethiopia or Tanzania would receive billions of dollars every year from IDA. That’s two or three times what they receive now in real terms. Is that really sensible? Or even advisable?
Who knows? Maybe Jeff Sachs’ big push redux theory will have prevailed by then. And, donor governments will have fully overcome any existing budget woes. And, they will have money burning a hole in their pocket. I guess that’s possible, but I have a hard time envisioning that such a fantasy land will materialize.
We suggest that World Bank management and donors should begin exploring updated – or entirely new – business models for IDA. Better to start a gradual transition now, then have an emergency head-to-toe makeover forced on you later. My preferred option is for IDA to declare success and shrink its top-line financing envelope as countries move on to greener pastures over time. That still means that donors must continue to support IDA, but at progressively lower levels over time. Perhaps that kind of tangible progress would get the U.S. Congress to finally fulfill American contribution pledges on a timely basis for IDA’s remaining programs. By the IDA-21 period, donors may even be discussing real prospects for a self-sustaining IDA over ensuing periods.
Alternatively, IDA could complement or replace its existing country-based lending model with a wholly different approach for funding global public goods (GPGs). Many of the great remaining development challenges – technology, agricultural research, and vaccines – are beyond any single country strategy. As a global institution, IDA would focus on global challenges. And, regional institutions – like the African Development Bank – would take the lead on country-specific programs along with regional infrastructure. Seems pretty sensible to me.
Regardless of the ultimate direction taken, IDA can be assured that change is coming. It might not come immediately, but it will come. Instead of resisting the waves of progress, it should bask in their afterglow. But more importantly, it should begin a long-term reinvention strategy now like any other world class organization would.