Next week’s meeting between the World Bank and donors of its International Development Association (IDA) may not have the same fanfare as the G7 summit not long past, but the outcome will be significant in shaping support for the world’s poorest children for years to come. IDA is the largest provider of aid to sub-Saharan Africa in areas critical for children such as education, water and sanitation, and social protection, as well as leading donor for health.
IDA’s model uses a mix of donor money and commercial lending to provide aid, providing around $3 in aid for every $1 of donor funding. Every three years it asks donors to top up (replenish) their support, with this meeting focusing on the financing framework and policy package of IDA’s 20th replenishment (running from July 2022 to June 2025). This comes after agreement was reached in April for it to start a year early to (hopefully) enable it to continue scaling up support to 74 eligible countries, as it has during the COVID pandemic to date.
Discussions on the financing framework will be key, given the ambitious strategic direction proposed previously. If the World Bank fails to match those ambitions with a financing ask to deliver it, or donors are unwilling to support the proposals, then IDA20 will face major hurdles delivering on its plans before it has even begun.
With a meeting of such critical importance, it warrants taking a closer look at challenges and risks associated with IDA20’s broad areas of focus, and analyse what might be the minimum required to deliver on it.
An ambitious and broad IDA20 focus is needed, but there are risks
The World Bank’s proposed IDA20 focus areas have drawn widespread approval, from governments to non-governmental organisations. At its heart IDA20 hasn’t changed substantially from IDA19, with two main differences. Firstly, special themes retained from IDA19 have been strengthened. A good example of this is climate, where there is a substantial shift in focus towards the critically underfunded area of adaptation, something the G7 has also promised to prioritise. The World Bank has also created a new special theme on human capital, recognising the significant negative impact COVID has had on education, health, and nutrition, particularly for children. There is also a continued focus on gender equality, where the world still has a very long way to go, not to mention other types of inequality and inclusion. The focus at the start of IDA20 will continue to be on crisis response efforts given the prolonged pandemic, before transitioning to medium term recovery. This again is positive, but it will be essential to have a continued focus on crisis preparedness and response, particularly with the threat of looming famines across many countries.
So far so good then, but ambition must be tempered with reality. The pandemic has increased the financing needs to meet the sustainable development goals (SDGs), whilst reducing key resources needed to meet the needs, such as government revenue, which is not expected to substantially change within IDA20. Therefore, the demand for IDA resources will undoubtably continue to be high up to 2025. In addition, the World Bank under IDA19 has looked to play an increasing role in vaccine financing, and despite initial challenges it is looking to overcome them and continue within IDA20.
With a minimum estimated $50 billion of funding needed to support vaccinating the world into 2022, IDA has clear potential to play a leading role. However, with uncertainly around funding required and the level of contributions from elsewhere, significant resources could be channelled towards this and the short-term pandemic response, leaving other crucial elements of IDA20 underfunded. Therefore, in areas such as vaccines, where there is a level of uncertainty about resource requirements under IDA, there is a case for separating out funding and donor contributions for this as an additional top-up to IDA20, to negate against the risk of other areas being crowded out.
An ambitious plan needs an ambitious financing framework
It is likely that the World Bank will propose around $93 billion as the minimum level of resourcing needed for IDA20. This is because the Bank wants to maintain scaled up funding in the first year of IDA20 as in IDA19 (US$36 billion/year) and at a minimum, leaving US$27 billion each for the final two years, which was the funding level envisaged pre-pandemic under IDA19. They can achieve the scaled-up support in the first year using the US$11 billion set to be unspent in IDA19, meaning new resources requirements would be around $82 billion, with one third needing to come from donor contributions.
Setting the bar at $93 billion would be attractive, as the ask to donors would be to more or less maintain their funding levels from IDA19. This at least politically would strike a balance between resource needs and engaging donors, particularly as G7 leaders worryingly signalled their intention to reduce funding by asking the World Bank to “optimise its balance sheet”. Whilst this needs to be looked at, the statement came across as code for “find money down the back of the sofa and not from us”. However, given the increased emphasis on IDA supporting vaccine supply, $93 billion is clearly going to be short of what is needed to preserve funding for critical social protection, education and other needs. This amount therefore needs to be treated as the minimum replenishment for non-vaccine specific areas, with vaccines additional to this. Our estimates based on the following recommendations are that $109 billion should be the minimum resource requirement:
The World Bank should use the $11 billion of left-over IDA19 resources now for vaccines and request additional donor contributions to replace it in IDA20 – There is an urgent need to scale up vaccine financing within the IDA19 timeframe to June 2022. Therefore, the intended US$11 billion to be carried over into IDA20 should be channelled to complement the US$6 billion already allocated for vaccines. Donors would then need to commit to topping up IDA20 by an additional $3.6 billion to meet the shortfall.
IDA20 non-vaccine related activities should be the same as total IDA19 resources – at a minimum IDA needs to have the same resources ($82 billion) in IDA20 as IDA19 for non-vaccine related activities. IDA19 was conceived pre-covid, so anything less under IDA20 would be a step back, especially given the increased financing needs and demand for IDA funding.
Donors should supplement IDA20’s vaccine deployment support, depending on the agreed role of IDA – Although IDA could play a critical role in vaccine deployment in the world’s poorest countries, there needs to be a clear global strategy developed to define this role. However, Figure 1 suggests at minimum IDA20 should fund vaccines to the same extent we have suggested under IDA19 ($17 billion).
Under this scenario donor contributions would have to rise from $23.5 billion under IDA19 to $36bn. This is the combined result of funding more vaccines in IDA19 and 20, and also that more of IDA’s support to countries will have to be in the form of grants instead of loans because more of its clients have reached the point where their debts are unsustainable. The World Bank should prioritise resources where they’re most needed – between countries and also within countries. It should indeed make sure it is using whatever flexibility it has to help fill the financing gap – it’s a bank after all, with complex financial engineering at its heart and a skilled Treasury team. So should shareholders, who can choose to treat IDA investments creatively on their own balance sheets. That said, some of the current ideas being pitched around SDRs stretch creativity to its limits. What is clear is that IDA won’t be able to play the role it should in helping countries still in the midst of this pandemic, never mind the recovery, unless its shareholders give it the financial firepower it needs.
Be bold, be brave and be realistic
Throughout the pandemic the World Bank has shown leadership in scaling up IDA support to the world’s poorest countries at a time of their greatest need. Although some commentators have questioned if they could have done more, the fact remains billions of dollars of IDA resources were frontloaded into the COVID response, at a time when others were cutting aid. This was a risk, as it would have led to a cliff edge drop in resources available, unless donors agreed to step in and support an early IDA20 replenishment.
The World Bank now needs to be bold and brave in pitching a financing requirement to donors that isn’t based on the perceived willingness of them to contribute but grounded in the reality of what is needed to deliver on IDA20’s ambitious agenda.
Likewise, donors need to be realistic about the depth and urgency of the crisis the world’s poorest are facing, and the opportunity IDA20 has to support them, particularly as other resources are constrained. A capital investment in IDA at this time makes sense, turning every $1 of their money into $3 in aid towards priority areas they have helped shape. Therefore, as they head into next week’s IDA meeting, donors must take be bold and ambitious, ensuring IDA is funded to the level that is critically needed – a vital step for ending the crisis and for moving together to build back better.
Related links
What We Do: Vaccines and Immunisation
Coronavirus: Information, Advice & Activities
