Low-Income Countries

The poverty reduction strategy (PRS) approach is key to the Bank’s support for low-income countries. PRSs are country-authored, results-oriented, comprehensive road maps that articulate a country’s development priorities and then specify the steps necessary to address them. The PRS approach redefined aid by empowering governments to set their own priorities (and holding them accountable for the results) and encouraging donors to provide predictable, harmonized assistance aligned with those priorities. Currently 50 countries, of which half are in Africa, have prepared a Poverty Reduction Strategy Paper.

The 2005 PRS review examined implementation experience over the past five years. While experiences have been varied, the need to implement challenging development agendas in environments with little capacity and weak institutions is common. In many countries, the PRS approach has increased the focus on setting clear goals that are linked to public actions, improving budget and monitoring systems, opening space for discussion of national priorities and policies that will lead to poverty reduction and growth, filling country-specific analytic gaps, and aligning and harmonizing donor assistance with national priorities. (See www.worldbank.org/prspreview.)

The Role of IDA

IDA is the largest source of concessional financial assistance for the world’s poorest countries. In fiscal 2006, countries with annual per capita income of up to $965 were eligible for IDA assistance. IDA also supports some countries, including several small island economies, that are above the income cutoff but lack sufficient creditworthiness to borrow from IBRD. The amount of IDA resources a country receives depends largely on performance factors such as the quality of governance and of policies to promote growth and reduce poverty, which are assessed annually.

IDA recipient countries face complex challenges in meeting the MDGs. Policy priorities include promoting growth and reducing poverty; enhancing public sector governance and transparency; helping countries recover from conflicts; developing infrastructure; improving the quality of basic education and poor people’s access to it; strengthening the fight against HIV/AIDS, avian flu, and other communicable diseases; building a healthy investment climate as a prerequisite for private sector investment; and increasing access to financing.

Traditionally, IDA provided assistance in the form of highly concessional credits. Since fiscal 2003, it has expanded the use of grants, and with the 14th Replenishment of IDA (IDA14), it began to use them to finance projects in the most debt-vulnerable IDA countries. (See IDA Resources and www.worldbank.org/ida.)

IDA Commitments

Fiscal 2006 marked the first year of IDA14 and the highest volume of IDA commitments in history. Commitments reached $9.5 billion for 167 operations, consisting of $7.6 billion in credits, $1.8 billion in grants, and $60 million in guarantees. The largest share went to Africa, with $4.7 billion, constituting 50 percent of total IDA commitments. South Asia and East Asia and Pacific followed with $2.6 billion and $1.1 billion, respectively. Among countries, Pakistan represents the largest single recipient. In fiscal 2006, about 19 percent of total IDA financing was provided in the form of grants.

Public administration, including law and justice, was the leading sector receiving IDA support, with $2.8 billion, or 28 percent of the total. The transportation and health and social services sectors received significant support: $1.1 billion and $1 billion, respectively. The two most prominent themes were public sector governance and financial and private sector development, accounting for 19 percent of IDA commitments each. Human development (15 percent), rural development (14 percent), and social protection and risk management (9 percent) also attracted major attention. See Share of Total IDA Commitments by Region, Theme, and Sector and IDA’s Stepped-Up Efforts in the Social Sectors.

SHARE OF TOTAL IDA COMMITMENTS BY REGION, THEME, AND SECTOR

IDA'S STEPPED-UP EFFORTS IN THE SOCIAL SECTORS

IDA Resources

IDA is financed by its own resources and by donor governments (see Sources of IDA Funding). Every three years, IDA donor governments and representatives of borrower countries meet to discuss IDA’s policies and priorities and to agree on the amount of new resources required to fund IDA’s lending program for the following three years. Historically, the major industrial nations have been the largest contributors to IDA. Donor nations also include developing and transition countries—some of them current IBRD borrowers and former IDA borrowers.

Fiscal 2006 was the first year of IDA14, which will fund commitments for fiscal years 2006 through 2008. During this three-year period, concessional financing commitments of special drawing rights (SDR) 21.9 billion (about $32 billion) will be made to IDA-eligible countries. This amount includes SDR 12.1 billion (about $17.7 billion) in new donor contributions; SDR 8.7 billion (about $12.7 billion) in internal resources, including repayments of principal from past credits and investment income; and SDR 1.1 billion (about $1.5 billion) in IBRD net income transfers, subject to annual approval by IBRD’s Board of Governors. Under the Multilateral Debt Relief Initiative (MDRI), donors have committed to providing additional resources in the amount of SDR 24.8 billion (about $37 billion) over 40 years. (See Multilateral Debt Relief Initiative) The debt relief initiative went into effect on July 1, 2006. For fiscal 2006, debt relief programs were ongoing from past years through the Heavily Indebted Poor Countries (HIPC) Initiative (see Heavily Indebted Poor Countries Debt Relief and Trends in Poverty-Reducing Expenditures Before and After Assistance Under the HIPC Initiative).

SOURCES OF IDA FUNDING

HEAVILY INDEBTED POOR COUNTRIES DEBT RELIEF

TRENDS IN POVERTY-REDUCING EXPENDITURES BEFORE AND AFTER ASSISTANCE UNDER THE HIPC INITIATIVE

Fragile States

Analytic work suggests that there is a need to increase fragile states’ capacity and accountability; to forge peace, security, and development links; to harmonize donor assistance; and to develop strong and flexible institutional responses.

In fiscal 2006, the Bank collaborated with United Nations system partners to better coordinate postconflict recovery processes and to integrate the political, security, economic, and social aspects of reconstruction. As cochair of the Development Assistance Committee Fragile States Group, the Bank continued to build policy consensus on state building as the central objective, integrated approaches for effective donor programs, fast and flexible responses, and long-term engagement through nine country pilots of the Principles for Good International Engagement in Fragile States. These points were incorporated into a new fragile states strategy that was approved by the Board along with a $25 million replenishment of the LICUS Trust Fund, which supports reform and transition efforts. (See www.worldbank.org/licus.)

Small States

Since 2000, when the Development Committee discussed the small states agenda set out in a joint World Bank–Commonwealth task force report, the Bank has been engaged in a new partnership with the world’s 45 smallest developing countries (most with populations of less than 1.5 million) and the international community to respond to the development needs of small states. In this partnership, the Bank committed to hosting a Small States Forum each year during the World Bank–International Monetary Fund Annual Meetings in order to give small states an opportunity to exchange information and set priorities for future work. The forum complements the substantial lending and advisory assistance provided to small states as part of the Bank’s regular country programs. In 2005, the forum reviewed the small states agenda and discussed the Bank’s proposal for an innovative mechanism to provide catastrophe insurance, which would help vulnerable small states—especially those in the Caribbean, Indian Ocean, and Pacific regions—better cope with mobilizing adequate and timely financing following natural disasters such as hurricanes and earthquakes. (See www.worldbank.org/smallstates.)

 

 

© 2006 The International Bank for Reconstruction and Development/The World Bank