IDA, the World Bank’s concessional fund, was set up 1960 to provide affordable finance to countries with the smallest economies, lowest per capita incomes and lowest creditworthiness. The goal was to help those countries to grow faster and more equally and thereby sustainably to reduce poverty. IDA can fairly claim to have made a significant contribution to global poverty reduction over recent decades. But it is now underperforming in the countries with the biggest challenges. If it wants to retain its preferred status as a beneficiary of donor resources in the future, it needs a better offer to the neediest countries.
An increasing share of official development assistance is being used for climate-related activities. This trend is continuing despite the lack of comprehensive cost-effectiveness evidence to guide spending decisions and continuing concerns that few applications are effective or efficient mechanisms for either climate or development outcomes. This paper proposes that a well-designed pull financing mechanism, which identifies specific problems for which it will pay a pre-specified price for solutions that can scale up, has the potential to navigate these problems.
After more than a year of grappling with the economic effects of the COVID-19 pandemic, many middle-income countries (MICs) will continue to experience health and economic dislocation for some time to come. While much of the global financial community’s attention has focused on supporting low-income countries (LICs), about 75 percent of the world’s poor are in MICs, and economic recovery in these countries will be critical to an equitable and sustainable global future.
Finance institutions take money from foreign aid budgets to invest in private enterprises. How much should they be given? We can make some progress on that question by looking at the return on investment in the form of higher real incomes for workers and customers, and comparing that to a cash transfer benchmark.
Accounting Anomalies and Arbitrary Targets are Conspiring to Hurt the Poor: SDRs, the UK Aid Ceiling, and Fiscal Trickery
The phrase “giving with one hand while taking with the other” has rarely been more appropriate than in examining the UK’s recent approach to the aid budget. Under current plans, by increasing its contributions to the IMF’s concessional lending pot, the UK will actually reduce the amount of aid available to developing countries and receive credit for doing so. The result is that every £1 billion that the UK lends to the Poverty Reduction and Growth Trust Fund (PRGT)—the IMF’s concessional lending facility—would lead to a net loss for developing countries of up to £310 million.
In this note we consider the technical challenges of channeling SDRs to institutions other than the IMF that have already been approved as ‘prescribed holders’ of SDRs. This innovation, operating in addition to the options described above, would have the potential to significantly increase the volume of SDRs channeled to support low- and middle-income countries. A further strong rationale would be to allow multilateral development banks to establish lending windows that could operate alongside the proposed Global Resilience Trust as part of a concerted multilateral effort.
The IMF should set up a Global Resilience Trust (GRT) without delay, allowing at least $50 billion from the recent special drawing rights (SDR) allocation to be channeled to low- and middle-income countries. In an earlier note, we explained the elements needed for the GRT to meet these various constraints. The present note considers in detail the elements of a GRT that the IMF staff will have to consider in its design.
The August 23 allocation of SDRs has given low- and middle-income countries (LMICs) breathing space on their balance sheets to confront the monetary and fiscal challenges of the economic crisis induced by the COVID-19 pandemic. In the next few weeks, at the UN General Assembly meetings and the annual meetings of the IMF and World Bank, the international community will discuss the possibility of reallocating (or recycling or channeling) developed countries´ SDR allocation, largely unneeded by them, to LMICs.
Productivity differentials have been documented as the main determinant of the variation of income per capita across countries.
The approval of a new allocation of Special Drawing Rights (SDRs) by the International Monetary Fund (IMF) is the first effort to deal with the financial impact of the COVID-19 crisis on a global level. The purpose of this note is to reframe the concept of SDRs and then to outline in broad the types of proposals that have been mooted as a basis for more detailed work over the coming months.
Searching for the Binding Constraint to Digital Financial Inclusion in Pakistan: A Decision Tree Approach
Over the last decade, Pakistan has seen improvements in the coverage of its networks of bank branches, ATMs, and mobile money agents. However, the country is lagging behind comparator countries when it comes to the financial inclusion of its population; according to the latest estimates, barely 20 percent are currently included. By using the Claessens and Rojas-Suarez (2020) decision tree methodology, this paper assesses the potential demandand supply-side constraints limiting the usage of digital payment services to identify which constraints are binding
Binding Constraints on Digital Financial Inclusion in Indonesia: An Analysis Using the Decision Tree Approach
Despite the concerted efforts of the Indonesian government to increase financial inclusion and the e-commerce–led growth of digital payment services, a large proportion of the country’s population remains financially excluded. Much of the growth and innovation has mainly benefited those already financially included. To understand this outcome, we use the decision tree approach developed by Claessens and Rojas-Suárez (2020), focusing on one of the products with the largest potential to increase financial inclusion in the country: e-money.
This paper explores the reasons why digital payment services in Mexico are used to a much lower extent than would be expected considering the country’s level of development and the authorities’ efforts to expand these types of services during the past two decades.
Identifying Binding Constraints on Digital Payment Services in Ethiopia: An Application of a Decision Tree Framework
While several comparable countries in sub-Saharan Africa have seen a significant increase in financial inclusion, mainly driven by digital financial services, Ethiopia still performs poorly. Even digital payment and transfer services, which lower-income and less literate segments of the population could benefit from, are rarely used.
A Decision Tree for Digital Financial Inclusion Policymaking is a comprehensive analytical framework to diagnose the factors significantly impeding improvements in digital financial inclusion in specific country settings. The methodology has been published as a CGD working paper and applied to five case studies: Ethiopia, India, Indonesia, Mexico and Pakistan.
Using microsimulations, we assess whether budget neutral universal income floors are fiscally viable in twelve SSA countries. We consider three universal basic income (UBI) scenarios of decreasing levels of generosity: poverty line, average poverty gap, and current spending on transfers and subsidies per person (spending neutral).
IFC’s board and leadership understand that meeting these goals requires a change in the way that the corporation operates, and a number of recent reforms will help it to deliver. But while these reforms are a welcome start, the IFC will have to change further if it is to meet its targets and reach its development potential. This paper discusses the rationale and elements of that change agenda, focused on ensuring the IFC best serves its ultimate clients.
This note presents estimates of Finance for International Development (FID) in 2018. FID is a grant equivalent measure of cross-border, concessional finance publicly provided for development. We introduced FID last year to better compare development finance provided by both DAC (OECD Development Assistance Committee) and non-DAC countries, the latter having gained importance as development actors in recent decades. We produced estimates of FID for 40 of the world’s major economies, which accounted for around 90 percent of global GDP in 2018.