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The World Bank's fund for the world's poorest countries is seeking record financing to tackle spiraling debt and climate crises, its top fundraising official said.
Dirk Reinerman, the bank's head of resource mobilization, told the Financial Times that IDA needs the “biggest replenishment ever” of financial resources to provide cheap loans and grants to 75 developing countries.
He did not set a target, but the IDA raised $23.5 billion from donor countries in 2021, its latest round of fundraising. This amount was raised to $93 billion after taking advantage of the capital markets.
Analysts said that a wave of sovereign debt crises and the costs associated with mitigating climate change will require significant increases in development financing, at the same time as elections and cuts in aid budgets limit the spending appetite of the largest IDA donor countries such as France. United States and United Kingdom.
“Some of the largest traditional donors have things that make it difficult for them to give larger amounts [for IDA]said Charles Kenny, a senior fellow at the Center for Global Development Research.
IDA, with total assets of $235 billion, is viewed by governments and policy groups as one of the most effective aid providers in the global fight against poverty, because it can tap capital markets to triple its annual windfall and deliver that money to the poor. . Countries with concessional or marginal interest rates.
The fund “offers good value for money for donor countries, more so than other grant-based facilities,” said Annalisa Brizon, a senior research fellow at the International Development Association (ODI) think tank.
The IDA must turn to richer countries to raise capital every three years because its aid yields only a small financial return.
Many countries facing a debt crisis will have to repay existing lenders and bondholders more than they will receive in new loans. China, a major bilateral creditor, has backed away from lending, reducing another source of financing for IDA beneficiary countries.
“Due to the macroeconomic environment, more countries are in difficult economic situations, which means they are accessing IDA financing on concessional terms.” [rates]“This requires IDA to deploy more strategic capital,” Reinerman said.
According to Reinerman, increasing this financing line would push IDA to reach the leverage cap imposed by its AAA credit rating sooner than expected.
When IDA raised donor money in 2021, “it was ground zero for our ability to fully leverage our capital at the premium level in 2034,” he said. “Because of higher levels of debt distress and debt distress, that point is now in 2030, or four years sooner.”
Officials in some donor governments have called on the World Bank to use more leverage to provide IDA's existing resources, to the point of sacrificing its privileged status. However, the bank was cautious about moves that would lead to a downgrade of its rating.
At the same time, political and economic uncertainty in the four largest donors – the United States, the United Kingdom, Germany and Japan – is creating new challenges. Kenney said it will have to rely on “astonishing increases from traditionally smaller donors, as well as impressive pressure from larger donors” to achieve its goals.
Competition for funding also increases pressure. From the second quarter of 2024 until the end of 2025, eight large development organizations, including the World Health Organization and GAVI, will ask donor governments for an estimated $80 billion, according to CGD.
China, India and South Korea are among former IDA recipients that have become important donors in recent years. Oil-rich Gulf states, such as Saudi Arabia, are also expected to increase their contributions this year. However, analysts warn that these new sources will not be enough to meet the greater demand for grants in the coming years.
The World Bank could increase the amount of funds by reducing the proportional share of grants given to countries at lower risk of default. But this will be unpopular with recipient countries, especially those struggling with the effects of climate change to which IDA seeks to direct support.
Amy Dodd, development economics policy director at the ONE Campaign, said there were other ideas, such as selling hybrid forms of equity to investors, but it was not clear whether tools like subordinated debt would help given their complexity.
“The IDA is a really simple tool,” she added. “Donors give the money, and the IDA takes it and leverages it with its resources and money.” “There is value in simplicity.”
