ghosh40_ERIC BARADATAFP via Getty Images_worldbank Eric Baradat/AFP via Getty Images

A Wrong Turn for World Bank Concessional Lending

As long as the World Bank's International Development Association can be an important source of recovery funds for the poorest economies, those resources must be used effectively. This will require closing the IDA's Private Sector Window and instead providing resources directly to governments.

NEW DELHI – The International Development Association is the part of the World Bank that is meant to help the world’s poorest countries. Its explicit mission is “to reduce poverty by providing zero to low-interest loans and grants for programs that boost economic growth, reduce inequalities, and improve people’s living conditions.” The IDA provides around a quarter of its financing in grants, and the rest in concessional loans that can be repaid over 30-40 years, including a grace period of up to ten years.

In the fiscal year ending June 30, 2020, the IDA committed nearly $30.5 billion to low-income countries. Next month, the IDA’s 173 member states will meet to agree on its latest disbursal of funds, estimated at $94 billion for the two-year 2021-23 period. In annual terms, this is not much of an increase, especially given the massive economic devastation that the COVID-19 pandemic has caused in low-income countries.

Developing countries have been ravaged by a combination of the pandemic-driven health crisis, collapsing exports, rising global food prices, domestic economic contraction, falling fiscal revenues, and external debt overhang. The World Bank estimates that 97 million more people – many of them in Africa – will fall into extreme poverty in 2021. This could well be an underestimate, because it does not take into account higher food prices, increasing inequality, and the impact on the poor in South Asia.

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