In Washington: Alexander Ferguson, (202) 458 4953
on IFC Corrie Shanahan, (202) 294-4697
WASHINGTON, September 27, 2007 – The World Bank Group will seek to contribute a record $3.5 billion from its income to provide grants and credits for the world’s poorest countries through the 15th replenishment of the International Development Association (IDA). This pledge is more than double the $1.5 billion pledged by the World Bank Group to IDA 14 in 2005.
“By boosting its IDA pledge by over 100 percent, the World Bank Group is putting its money where its mouth is,” said Robert B. Zoellick, President of the World Bank Group. “This should help us gain momentum as we urge donor countries to increase their commitment to help the 81 poorest countries, especially in Africa, through an ambitious IDA 15 replenishment. For example, South Africa has already pledged an increase of over 30 percent to support IDA.”
Zoellick went on to thank the Boards of the World Bank Group. “Working together, our 24 executive directors, representing 185 countries, have come together on an important package that would advance the World Bank Group heading into our annual meeting.”
For the first time, the amount pledged to IDA is also being funded substantially from the income of the International Finance Corporation (IFC), a World Bank Group affiliate that promotes private sector development through investment and advisory services. The $3.5 billion is expected to be contributed equally by IFC and the International Bank for Reconstruction and Development (IBRD), another World Bank Group affiliate. The IDA undertaking depends on the annual incomes of IBRD and IFC, as distributed by their respective Boards each year.
The World Bank Group will also deepen the connection between IFC and IDA as part of a larger growth strategy for IFC, to expand private sector investments in developing countries.
“IDA and IFC can co-invest to support public-private partnerships in infrastructure, especially in energy,water, agriculture, transportation and telecommunications,” said Zoellick. “These investments can be especially helpful in encouraging regional integration.”
The World Bank’s Board of Executive Directors also took a second important step today: It approved the biggest simplification and reduction in loan charges in nine years for the 79 creditworthy low-and middle-income countries that are clients and shareholders of IBRD. This returns loan pricings to the levels in effect prior to price increases in 1998.
“The World Bank Group can be a much better partner with our middle-income country clients, and this is one of several steps we intend to take to honor that commitment,” said Zoellick.
The World Bank President added that the loan charge reduction and transfer to IDA reflected the need to leverage the financial strength of the World Bank Group as a whole to overcome poverty and build inclusive and sustainable growth. “We are working hard to make the most effective use possible of the World Bank Group’s strong capital position to address the needs of our partner countries. These decisions reflect both our commitment to IDA, the single largest source of donor funds for many poor countries, and to our middle-income country partners, who have asked us to better serve their needs through IBRD. They also show how we are determined to make IFC grow and to harness its expertise and resources in promoting the private sector even more effectively in IDA-eligible countries.”
The price simplification and reduction fulfills a commitment made in September 2006 at the Annual Meetings of the World Bank and International Monetary Fund in Singapore. In response to requests from borrower countries, the Bank’s management had promised to review IBRD loan pricing. These IBRD loans are extended to countries for projects, including in the social and infrastructure sectors that do not usually attract private sector funding.
It eliminates a previous fee structure that was among the most complicated among multilateral development banks as it included six elements to determine a loan’s cost. This has been replaced by a small front-end fee and a reduced interest rate spread. The price on IBRD’s main variable spread and fixed spread loan products has also been reduced by roughly a one quarter percentage point. The exact level of IBRD pricing is determined by its cost of funding and can therefore vary.
The talks for IDA 15 began in March and are expected to conclude in December. Some 39 of the 81 countries eligible for IDA assistance are located in Africa, and the number of poor in the region has doubled over the past two decades. The IDA replenishment talks are the first since the G8 Summit in Gleneagles in 2005, at which world leaders promised to double the amount of aid to Sub-Saharan Africa between 2004 and 2010 and to cancel the debt of the poorest countries. These pledges follow on from a commitment made at the 2002 Monterrey meeting to provide additional aid to help developing countries meet the Millennium Development Goals by 2015.