May 17, 2012
This is a joint post with Christian Meyer.One of the pressing questions for Jim Kim in the years ahead as the World Bank’s new president is what to do as many countries graduate out of IDA, the bank’s fund for grants and concessional loans to the poorest countries. To generate ideas and possible directions for IDA’s business model, CGD has convened a Future of IDA Working Group. The group’s final report with recommendations is due out in early summer, in time for ample discussion prior to the IDA 16 Mid-Term Review this fall.The upcoming publication of the working group report reminded me of a 2007 essay I wrote with Arvind Subramanian, in which we looked at the declining role of IDA grants and loans compared to other inflows to low-income countries – other inflows including bilateral aid, remittances and private capital.The chart illustrates the situation now (in 2010) and the changes over the last two decades.
Three points follow.First, IDA is small relative to other inflows to the world’s poorest countries. (That doesn’t mean it doesn’t punch above its weight – it scores at or near the top in the latest QuODA assessment).Second, IDA represents a declining share of external resources to IDA-eligible countries, compared both to traditional bilateral and other multilateral development assistance (i.e. excluding aid from emerging donors), and to non-aid flows.Third, real IDA disbursements have not increased much over the last two decades (commitments rose in the last two replenishments, but this increase is not yet reflected in higher disbursements). As more countries graduate from IDA (assuming the current income cutoff), including India, either IDA itself will shrink more, or the remaining recipient countries will receive more IDA per capita (depending also on their population growth of course), or IDA contributors will decide on some other options. For what those options are, and what makes sense for the future direction of IDA and the World Bank in general, watch for the forthcoming report.
Two brief notes about the graph: We use a constant sample of current IDA-eligible and blend borrowing countries, which means that we do not include IDA graduates since 1990 such as China, Indonesia, or the Philippines. For IDA disbursements, we look at drawings by the borrower country on loan commitments, minus actual amounts of principal paid by the borrower, plus net disbursements of IDA grants.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.