The Role of IDA IDA is the largest source of concessional financial assistance for the world’s poorest countries. In fiscal 2007, countries with annual per capita income of up to $1,025 were eligible for IDA assistance. IDA also supports some countries, including several small island economies, that are above the income cutoff but lack the creditworthiness needed to borrow from IBRD. Since its inception, IDA has provided assistance in the form of highly concessional credits. Since fiscal 2003, it has expanded its use of grants, which are used to finance projects in the countries that are most vulnerable to debt. IDA assistance helps recipient countries address complex challenges. Priorities include promoting growth and reducing poverty; enhancing public sector governance and transparency; helping countries recover from conflict; developing infrastructure; improving the quality of basic education and poor people’s access to it; strengthening the fight against HIV/AIDS, avian influenza, and other communicable diseases; and building a healthy investment climate as a prerequisite for private sector investment. IDA financing is not earmarked to specific sectors or themes: it responds to the priorities and needs as identified by recipient countries themselves. The amount of IDA resources a country receives depends largely on various performance factors, which are assessed annually. 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 empowers governments to set their own priorities (and to be accountable for the results) and it encourages donors to provide predictable, harmonized assistance aligned with those priorities. Fifty-four countries have prepared national PRSs, and 41 of them have also produced at least one annual progress report. Twelve countries (Burkina Faso, Ghana, the Kyrgyz Republic, Madagascar, Malawi, Mauritania, Mozambique, Nicaragua, Senegal, Tanzania, Uganda, and Vietnam) prepared their second full national PRSs; many others are in the process of doing so. IDA Commitments IDA commitments in fiscal 2007 reached $11.9 billion. This funding, including $9.6 billion in credits, $2.2 billion in grants, and $0.1 billion in guarantees, supported 189 operations. The volume of IDA commitments was 25 percent higher than in fiscal 2006 and the highest in IDA’s history. The largest share of IDA resources was committed to Africa, which received a record $5.8 billion, or 49 percent of total IDA commitments. South Asia ($4 billion) and East Asia and Pacific ($1.2 billion) also received large shares of total funding. India ($2.3 billion), Pakistan ($0.9 billion), and Nigeria ($0.8 billion) were the largest single recipients of funding. Among sectors, the largest share of commitments went to Law and Justice and Public Administration, which received $2.7 billion in funding (23.3 percent of the total). IDA has become a major source of financing for infrastructure, a sector whose share in total official development assistance flows has declined in recent years despite enormous need. Significant support was also provided to the Health and Other Social Services ($1.9 billion) and Education ($1.6 billion) sectors. The themes receiving the most funding were Human Development ($2.6 billion) and Public Sector Governance ($1.8 billion). Major attention was also paid to Rural Development ($1.7 billion); Financial and Private Sector Development ($1.7 billion); Urban Development ($980 million); Social Development, Gender, and Inclusion ($919 million); and Social Protection and Risk Management ($896 million). Share of Total IDA Commitments by Region, Theme, and Sector IDA Commitments to Africa
IDA’s Consistent Commitment to Infrastructure IDA Resources IDA is financed by its own resources and by donor governments. It also receives annual transfers from IBRD net income and, for the first time in fiscal 2007, it received a grant from IFC to support private sector development in IDA countries. Every three years, 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 its lending program over the following three years. Historically, the major industrial nations have been the largest contributors to IDA, but donor nations also include developing countries and transition economies—some of them current IBRD borrowers and former IDA borrowers. The 14th replenishment of IDA (IDA14) will fund commitments for fiscal years 2006–08. During this period, IDA expects to provide concessional financing commitments of 22.2 billion special drawing rights (SDRs) to eligible countries (the equivalent of about $32.5 billion). During fiscal 2007, this amount increased from the original IDA14 framework of SDR 21.9 billion (about $32.1 billion) as the result of an additional transfer to IDA of SDR 0.2 billion (about $0.3 billion) from the IBRD surplus and the designation for grants of SDR 0.1 billion (about $0.15 billion) from IFC’s retained earnings. Total IDA14 resources for financing commitments consist of SDR 12.1 billion (about $17.7 billion) in new donor contributions (excluding the structural financing gap); SDR 8.7 billion (about $12.7 billion) in internal resources, consisting primarily of repayments of principal from past credits and investment income; SDR 1.3 billion (about $1.9 billion) in IBRD net income transfers, subject to annual approval by IBRD’s Board of Governors; and SDR 0.1 billion (about $0.15 billion) in grants from IFC. With the implementation of the Multilateral Debt Relief Initiative (MDRI), some internal resources are no longer available and will be replaced by donor contributions under the MDRI replenishment. Under the MDRI, donors have committed to providing additional resources of SDR 25 billion (about $37 billion) over 40 years to ensure that IDA’s future financial support for poor countries is not reduced as a result of debt cancellation. Negotiations for the 15th replenishment of IDA (IDA15) were launched in Paris in March 2007. The main issues under discussion included the global aid architecture, IDA’s performance-based allocation system, and IDA’s financial position. Sources of IDA Funding The 15th Replenishment of IDA Debt Relief To date, IDA has provided about $4 billion under the Heavily Indebted Poor Countries (HIPC) Initiative, the process through which heavily indebted poor countries can gain debt relief from their external creditors to bring their debts down to the HIPC threshold levels, and $28 billion in debt forgiveness under the MDRI, which was introduced in 2006 and built on the HIPC Initiative. In aggregate, IDA will provide about $18 billion under HIPC and $36 billion under MDRI. To help countries maintain debt sustainability, IDA has developed a system for allocating grants based on countries’ risk of debt distress. This approach, also adopted by some other multilateral development banks, helps mitigate the risk of debt distress in the future. IDA also works with partners to support countries’ management of their external debts. Fragile States The past three years have seen increasing international interest in strengthening donor engagement in and response to challenges facing fragile states. In 2002, the Bank’s Task Force on Low-Income Countries Under Stress (LICUS), in its final report, recommended the need for stronger political analysis, innovative operational approaches, closer donor partnerships, and a series of institutional reforms to improve the Bank’s responsiveness. Since then, the Bank has made significant advances in deepening its understanding of the particular challenges facing these fragile states and in developing a differentiated approach to strengthen its support and assistance. The Bank has recently adopted a framework for rapid response in crises and emergencies, which is supported by organization and staffing measures designed to ensure greater field presence and to mobilize the most experienced people across the institution to advance the fragile states agenda. In 2006, the Bank provided intensive strategic and operational support to country programs facing crises or new opportunities. The emphasis was on bridging operational gaps in programs in Afghanistan, the Central African Republic, and the Democratic Republic of Congo and on supporting strategy formulation in Liberia, Sudan, and Timor-Leste. The LICUS trust fund, established in March 2004 through a $25 million transfer from IBRD surplus, targets the most marginalized and fragile states in nonaccrual status. The Bank replenished the LICUS trust fund with $25 million in 2006 and with another $30 million in January 2007. The Bank has maintained old and created new relationships, including partnerships with the UN system, the new UN Peace-Building Commission, and the Organisation for Economic Co-operation and Development's Development Assistance Committee (OECD-DAC), to address the need for integrated approaches in fragile and conflict-affected countries. The Bank continues to cochair and actively participate in meetings of the OECD-DAC Fragile States Group. The Bank also continues to invest in increasing the stock of knowledge on fragile states. In 2006, this investment resulted in two reports: Aid that Works: Successful Development in Fragile States, published in December 2006, and The Economic Impact of Peacekeeping, published in March 2006. The Bank’s Independent Evaluation Group (IEG) found that the Bank’s work in fragile states has contributed to improving macroeconomic stability and to delivering significant amounts of physical infrastructure, especially in postconflict environments. Substantial progress has also been made on donor coordination at the international policy level. However, reforms in some fragile states have lacked selectivity and prioritization. While the Bank has made state-building a central focus, it has not adequately demonstrated how past weaknesses will be avoided or how better capacity development and governance outcomes will be ensured, according to the IEG. The Bank has yet to address the allocation of aid for fragile states in a way that reflects its objectives for these countries and ensures that fragile states are not under- or over-aided. FRAGILE STATES FACE THE LARGEST DEFICITS IN MOST MDGs © 2007 The International Bank for Reconstruction and Development/The World Bank |
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