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Replenishing IDA's Coffers: Time to Get Creative

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This afternoon, the World Bank's shareholders will wrap up their latest discussions about replenishing IDA's financial coffers -- which provides cheap loans and grants to the world's poorest countries.  The largest donors seem more or less content with the new package of policy reforms.  They have agreed that IDA should focus even more on evaluating project effectiveness and have greater flexibility in dealing with the most fragile countries.  Nothing particularly earth shattering -- and definitely nothing sexy (even for us propeller heads).  Then again, IDA is already one of the most effective and efficient development institutions worldwide.

The key remaining question is not the what, but how much.  How much will donor governments reach into their shrinking wallets to finance IDA's health, infrastructure, and agriculture projects?  And, how much financial creativity have donors and World Bank management brought to the table?  The answers are mixed.

As donor representatives fly back home to their capitals, most will encounter either highly constrained or skeptical audiences.  We all know the adage -- why are we giving away so much national treasure when there's so much need at home?  The writing is on the wall -- aid budget cuts are coming.  However, some governments are still fighting for significant increases.  For example, the United Kingdom is committing large sterling-denominated increases to the African Development Bank.  Given IDA's much larger size, it's unclear whether the Brits will be able to double down.  But, they're trying.  Even the Obama Administration is working hard to make a serious, respectful financial commitment.  Despite these valiant efforts, IDA likely will be looking at flat donor contributions overall this time around.

Let's be clear, donor governments provided historic contribution increases during the last fundraising rounds in 2005 and 2007.  As a result, the current IDA-15 replenishment period (2009-2011) is more than twice the size of IDA's financial envelope between 2000 and 2002.  Like any good fundraiser, World Bank officials argue that the sky will fall if donors don't cough up yet another historic increase.  As one of my colleagues recently said, aim for the stars and you may just hit the barn.  In reality, flat contributions would still mean over $25 billion for new programs over the next three years.  That's a very large number -- one that I wouldn't scoff at.

If donor governments are trying hard in such trying times, then how is the World Bank doing?  World Bank management actually plans to proceed with a few creative options.  For example, it plans to accelerate how quickly former IDA borrowers (ex -- China) repay their loans.  Quicker repayments mean more cash now rather than later.  This is a good idea -- especially since China provides paltry donor contributions given its economic size and global role.

I also understand that World Bank management is considering my proposal for a Blended Financing Facility.  That's welcome news.  Shifting the source of loan capital from IDA to the IBRD for creditworthy countries like India and Vietnam could free up to $7.5 billion for the world's poorest countries.  Of that, roughly $5.5 billion would go to Sub-Saharan Africa.  If implemented, this would produce a 30 percent increase in IDA's deployable capital for the poorest countries.  If IDA's donors cannot deliver huge increases, then let's deliver them through other means.

IDA donors will re-assemble in December for a final pledging session.  That's when they'll put their numbers on the table.  You better believe that Robert Zoellick will be leading a full court press between now and then.  That's understandable and probably helpful on the margins.  But, it should not distract him from ensuring that World Bank staff are driving forward with more creative (and promising) ways of mobilizing money for the world's poorest countries -- such as pressing ahead with a Blended Financing Facility.