Memo to Shareholders on IDA 18 Replenishment
April 4, 2016
Every three years the World Bank Group requests a fresh infusion of capital from its shareholders to replenish its International Development Association (IDA) account. IDA is one of the largest providers of assistance for the world’s 77 poorest countries, and through its grants, concessional loans, and debt relief programs provides critical support for a range of development interventions in countries with a per capita gross national income (GNI) below $1,215. The latest round of replenishment (IDA 18) began with meetings in Paris this March and represents a vital moment of reflection and accountability for the World Bank.
Unlike the World Bank’s primary lending arm—the International Bank for Reconstruction and Development (IBRD)—IDA is not self-sustaining and relies on member countries for regular replenishments of its financial resources. These replenishment rounds provide contributing shareholders leverage to push for changes in policy, operating norms, and goals within the World Bank. While the World Bank’s independence is generally seen as a net positive, it is important that shareholders use this opportunity as a moment of accountability to discuss replenishment priorities and review policy.
The World Bank, along with many other established multilateral institutions, is at an inflection point because of external challenges and internal questions around its business model. Today the world faces the largest refugee crisis in history, rapidly expanding food and energy demand, and a global youth bulge that requires education and employment opportunities. How we manage these trends will affect the prosperity of billions of people living in the developing world but will also impact global stability and security.
Moreover, as developing countries grow richer, they will “graduate” from IDA eligibility (i.e., move above the per capita GNI threshold) and move into IBRD eligibility. Since IDA began operations 41 countries have graduated, though 11 of those countries experienced economic regression and regained IDA eligibility. The graduation process should remain flexible and provide support for countries as needed to ensure growth resiliency.
These challenges come at a time when the countries of the Organization for Economic Cooperation and Development (OECD), the World Bank’s traditional donor base, continue to face political and economic challenges. The United States is in arrears to both the World Bank and the United Nations system, diminishing its capability and legitimacy as a leader in the international assistance system. The recent emergence of the Chinese-led Asian Infrastructure Investment Bank (AIIB) threatens the primacy of the World Bank and the Asian Development Bank.
Shareholders should use IDA 18 as an opportunity to push for adaptation at the World Bank in response to these changes. Since the end of World War II, the World Bank and its fellow Bretton Woods institutions have helped support a period of unprecedented economic progress. The United States and other likeminded shareholders should continue to engage in the multilateral system to ensure it remains relevant and effective in the future. To meet the host of emerging global challenges and ensure growth resiliency, stakeholders should review IDA policy around the following topics:
- Private-sector Development, Job Creation, and Gender Economic Empowerment: There is a growing consensus around the importance of mobilizing private-sector capital and capacity to promote development and job creation around the world. Stakeholders should closely consider how IDA works with the World Bank’s private-sector arm, the International Finance Corporation (IFC). Initiatives should increase opportunities for women to participate in entrepreneurism. Investing in women can yield a significant boost in economic growth, otherwise known as “the gender dividend .” When women are made the focus in business decisions, communities will thrive around them.
- Fragile and Conflict-affected States: Development work is always challenging but never more so than in fragile or conflict-affected states with weak capacity and few if any functioning institutions. As humanitarian and development challenges continue to converge, donors must consider policies that move us toward a paradigm of proactive rather than reactive responses.
- Governance and Capacity Building: Helping countries develop their own capacity to provide quality governance and public goods delivery remains a core challenge in development. By strengthening accountability, transparency, and key capacities, including domestic resource mobilization and public financial management, donors can empower countries to take charge of their own development trajectories.
- Climate Resiliency: The international community made a series of commitments at the 2015 Paris Climate Conference—“COP21”—that will require significant financial resources. Meeting these commitments will require cooperative efforts from development stakeholders across a range of sectors. As the intensity and frequency of extreme weather increases, as a result of climate change, the international community must shift focus to preparedness and reducing the impact of natural hazards. Investment in modern technology, like global positioning system (GPS) radio occultation, for meteorological and hydrological agencies can expose errors in climate models, aid food security, water resource planning, and monitoring for climate-related conflict in the developing world. Those regions that are presently data sparse, such as Africa and India, stand to benefit the most.
To meet the replenishment’s financial goals, likely in excess of the $52.1 billion raised during IDA 17, the World Bank will have to call on both traditional and nontraditional donor countries for support. The European Union has historically been the largest IDA donor, but there may be reticence on the part of European governments when it comes to filling this role for IDA 18. The European Union continues to face budgetary pressures from the 2008–2009 global recession, and it will be a challenge to justify allocating scarce budget resources toward IDA replenishment, particularly given that many in the Union feel their past contributions have gone unnoticed and unappreciated.
While emerging donors have made “symbolic” contributions to IDA in the past, it is not clear whether they can be relied on to pick up the slack left by the Americans, Europeans, and other traditional donors. China, in particular, could step in to help meet IDA’s replenishment needs, but it seems unlikely that they would be willing to do so given their focus on the AIIB and other Chinese-led development initiatives. Stakeholders should reiterate the importance of nontraditional donor contributions in future IDA replenishments, but they should not expect China or any other emerging donor to play a significant role this time around.
The United States, for its part, is beholden to a domestic political dynamic that erodes support for multilateral institutions. In the budgeting process there is direct trade-off between bilateral and multilateral development assistance, both of which are drawn from the “150 Account.” The U.S. government tends to prefer bilateral development assistance because it allows for more direct control over resource allocation and development priorities.
The United States should seek clarity and accountability from the multilateral organizations it supports, but maintaining strong global institutions is clearly in the U.S. interest. The United States maintains the capacity to exercise strong leadership within the multilateral system, and it should use this influence to strengthen and modernize the international institutions we support.
Meeting the replenishment goals for IDA 18 will require strong leadership from within the bank and a clear agenda from stakeholders interested in pursuing policy reform. The current leadership’s mandate expires in 2017, and this replenishment round can serve as an interim check in on bank operations and policy. Given the changing global environment, stakeholders must seize this moment of accountability to ensure that the World Bank and IDA remain effective tools in promoting development progress around the world.
Daniel F. Runde is director of the Project on Prosperity and Development and holds the William A. Schreyer Chair in Global Analysis at the Center for Strategic and International Studies (CSIS) in Washington D.C. Charles F. Rice is a research assistant with the CSIS Project on Prosperity and Development.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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