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With the Millennium Development Goals deadline only five years away, the international donor community faces significant challenges due to the global economic crisis, record government deficits, and simultaneousfunding requests from nearly every multilateral development institution. This paper proposes a new World Bank financing model for creditworthy emerging economies, such as India and Vietnam, which currently receive billions of dollars in IDA assistance. In contrast to the current IDA-centric financing model, the IBRD would provide the same loan volumes to qualifying emerging economies while IDA would provide grant subsidies to buy down the concessionality level of these IBRD loans. As such, these countries would be held harmless both in terms of aid volumes and lending terms.
Policy memo from Ben Leo to the IDA deputies about creating a IDA Blended Financing Facility
By better leveraging the IBRD’s balance sheet for loan capital, IDA then could re-allocate what it otherwise would have provided to emerging economies. For the current IDA-15 replenishment period, this would mean up to $7.5 billion in additional assistance for the world’s poorest, most vulnerable countries. In relative terms, this would entail a 30 percent increase over existing levels. Of this, African countries would have received an additional $5.5 billion in IDA assistance. If donor governments find a way to scrape together increased contributions to IDA, then the allocation pie would grow by an even larger margin. The Inter-American Development Bank already successfully utilizes a similar approach for its lower middle-income and low-income country clients. It is time for World Bank shareholders to seriously consider the same resource-maximizing model. With the IDA-16 replenishment and IBRD general capital increase negotiations currently underway, they have an excellent window of opportunity to implement this win-win-win approach.