IDA braced for real terms funding freeze

The volume of support given by rich countries to the World Bank to help the world’s poorest countries is facing the threat of a real terms freeze when the funding package is agreed at the end of this year.

The International Development Association, the arm of the Bank that works with poverty-stricken and fragile states, is likely to receive a package of between $47 billion and $52 billion for 2014-17. This compares with the previous “replenishment” of $49 billion for three years to 2013.

Joachim von Amsberg, the Bank’s Vice President in charge of the IDA negotiations, said traditional donor countries going through austerity programmes were under pressure to reduce their commitments.

But he insisted that it would not suffer a decline in the quality of its work in poor countries and would hit the goal of maximizing development impacts set by Bank President Jim Yong Kim.

“There are many fiscal challenges in countries simultaneously and in this difficult environment we are aiming to protect the investment for the poorest and to work with investor countries to make sure they have a good case why those investments should be protected,” he told Emerging Markets.

“This would be the wrong time to scale back. It’s either a time to scale up or maintain investments in IDA and that argument has a lot of traction and it resonates as success in many countries has become conceivable and possible.”

Ministers of donor countries are debating three financial packages having eliminated the worst – a savage cut of 9.6% in nominal terms – and the most generous – a 10.2% increase. The remaining options range between a 4.7% cut and a 6.1% increase, which would be a real terms freeze after taking inflation in account.

“We hope [ministers] will go for the middle or top scenario which will mean holding IDA flat in real terms,” von Amsberg said. “We think that is possible but by no means assured yet.”

Trevor Manuel, minister in the South African presidency for the National Planning Commission and former chairman of the Development Committee, told Emerging Markets it was a tough environment for IDA: “When you want to replenish IDA you have to knock on the door of donor countries and in the US that means knocking on Congress, not the White House.

“One question when dealing with donor countries will be how jaded donors are, how much austerity they may need to squeeze out of their own countries,” he said.

Von Amsberg said he was seeking to build a coalition where all the partners in IDA “stretch” to make a strong IDA possible. This includes greater funding from emerging economies in the ASEAN region and the Gulf, stricter repayment terms for borrowers and, for the first time, loans from donor countries.

He said that while “the money matters”, the Bank was focused on delivering results using the IDA resources. He said IDA would leverage financial input from the private and public sectors as well as the knowledge held by emerging economies that have emerged from IDA.

“We want to have more impact that simply filling a gap and want to maximize impact with a flat or only modestly rising resource envelope,” he said, adding that all investments would have to meet Kim’s new goals of eradicating poverty and boosting shared prosperity.