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Tackling debt, transforming economies – why is the IDA replenishment so urgent?

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Global public debt is at unprecedented levels. The UN has reported that nearly half of the world’s population lives in countries that spend more paying off debts to other countries than they spend on healthcare for their own people.

While needs soar as countries try to address the impact of the poly-crisis and invest significantly to transform their economies and societies, economic growth is in sharp retreat in many nations in the Global South.

The World Bank is calling for donor governments to step up. They have put ‘IDA replenishment’ top of the agenda at this month’s Spring Meetings in Washington, D.C.

But why is the World Bank calling for this record replenishment? Join us as we explore the case for the IDA to become more effective and efficient at a time of soaring needs.

Guests

  • Sara Pantuliano (host), Chief Executive, ODI
  • Annalisa Prizzon, Principal Research Fellow, ODI
  • Seynabou Sakho, Director of Strategy and Operations for the World Bank Office of the Managing Director of Operations
  • Gregory Chen, MD of Ultra-Poor Graduation Initiative, BRAC International

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0:00:10 - Sara Pantuliano 

Welcome to Think Change. I'm Sara Pantuliano. Global public debt is at unprecedented levels. The UN has reported that nearly half of the world's population lives in countries that spend more paying off debts to other countries than they spend on health care for their own people. And while needs soar as countries try to address the impact of the poly-crisis and invest significantly to transform their economies and societies, actually, economic growth is in sharp retreat in many nations of the so-called Global South.  

The World Bank is calling for donor governments to step up. They've put IDA replenishment, and we'll discuss and explain what IDA is, top of the agenda at this month's spring meetings that are taking place in Washington DC just in a couple of weeks. Why is the World Bank calling for this record replenishment and how can IDA become more effective and efficient at a time of soaring needs? Well, I have with me my colleague, Annalisa Prizzon. Annalisa is a Principal Research Fellow at ODI and very much a leading voice on issues related to development, finance and particularly, I would say, the IDA replenishment, who can help shed more light on these questions. Annalisa, can you explain to our listeners what the International Development Association, or IDA, is, what role it plays in supporting the world's poorest nations and why securing its financial stability is so critical? 

0:01:45 - Annalisa Prizzon 

Thank you very much, Sara. So let me start by saying that IDA is by far the largest source of concessional finance that lower income countries can access and benefit from. It focuses not just on one sector, but it's across sectors and it's country-owned, it's demanded by country and it's also patient capital. I mean, I don't think there are any other financing sources that can have a maturity to up to 40 years. And what you were mentioning earlier on, I mean I'm stating the obvious. I mean we're still in the midst of the poly-crisis, needs are going up, but we are in a situation where many countries are actually facing that crisis, so countries might not have access to affordable finance. I mean, if they have access to international capital markets or domestic capital markets, it's becoming more and more expensive. So, we really need to step up the concession of finance to enable countries to invest not only in the basic needs right now, but also to step up and increase significantly their investment for transformative change. That's the reason we need concession of finance now more than ever.  

0:03:00 - Sara Pantuliano 

Well, let me bring in some other guests who have a lot of experience on this as well. I'm joined by Seynabou Sakho. Seynabou is the Director of Strategy and Operations for the World Bank Office of the Managing Director of Operations, and Gregory Chen is the Managing Director of the Ultra Poor Graduation Initiative of BRAC International. Welcome to you both. Seynabou, how has IDA historically contributed to poverty reduction and economic growth in low-income countries? Can you share some real stories, some real cases?  

0:03:34 - Seynabou Sakho 

So there's so many ways that IDA has been contributing to really inclusive growth in IDA countries and we're talking about 75 countries, but I'll focus on three. The first one is by really lifting people out of poverty. Just to give you an example, from 2015 to now, IDA has lifted more than 1.2 billion people by providing health service to them, and we know that during this period we had COVID. It's through access to social safety net. We're talking about 170 million people who had access to safety net, or things like access to water and energy, which are so critical for digitalisation. And we know that the mission of the bank is to eradicate poverty. But recently, with the new president, Ajay Banga, we've added a critical part, which is on a “livable” planet, and IDA has focused a lot on really helping country address the challenges related to climate change. But, beyond that, strengthening resilience, and that goes into, for instance, access to water and sanitation service, access to things like sustainable food system, which these days have become even more critical. We see this link between poverty reduction and climate change, because we know that, as of now, we have about 700 million people who are living in extreme poverty. Another 130 will be pushed into poverty from now to 2030. So how do we make sure that those people are really working in an environment where we can build more resilient systems?  

The last part is related to what Annalisa was saying, which is about really contributing to public finance and helping countries at a time where you have half of low-income countries that are either in debt distress or at high risk of debt distress. So, bringing the part of concessional resources with grant elements that are really important, but also longer tenure is critical. It's critical so that debt service doesn't displace basic service need, but it's also critical to support reform that will ensure that this continues in the medium term. But I think that when we talk about that, we focus a lot onto lending. A great part of IDA is about knowledge. It's about knowledge so that countries build their country system, and they do their own development so that even after the project is finished, you leave development behind. And doing that with a focus on youth, doing that with a focus on women, is really critical. So those are just some aspects out of many, but I think they really speak to what IDA is.  

0:06:21 - Sara Pantuliano 

That's a really good point, and I want to come back to that because we've actually been talking to a lot of countries that receive IDA resources about why they value it so much. But first I want to hear, also from Greg, where you think IDA has really contributed. What are the cases that, for you, make this instrument so critical?  

0:06:41 - Gregory Chen 

Yeah, so I'll speak from the perspective of BRAC, and you know we're today in about 15 countries around the world, most of them IDA eligible. But let me speak to our origins in Bangladesh, which is, you know, Bangladesh became independent in 1972. Poverty rates were above- three quarters of the population was in deep, deep poverty.  

The World Bank was very early on a partner and today Bangladesh, 52 years on, is nearing middle-income status and the World Bank has been, and IDA has been, a vital partner throughout that process.  

You know what has it done? 

You know, when Bangladesh began, the tax base was extremely small, so in terms of its own public finances didn't have much, and so, having a long term, reliable partner who would be there even as governments were changing and the democratic process was playing out over, over many years, the World Bank was a constant partner and IDA was a constant and reliable source of the ability to plan and do real development work.  

Let me speak to one very specific example. The World Bank and IDA, in the late 1980s, set up a wholesale debt facility that BRAC and many other private organisations accessed. At a period where we were really growing our financial services for poor people across Bangladesh. That really accelerated our ability to go to scale and today we sustainably service 11 million different people in our microfinance programme. By the way, that fund that the World Bank set up, PKSF, is still there providing funding. It's not something that disappeared and was gone one day. We actually use some of the financing to build sustainable services for people across Bangladesh that continue to serve people even today, despite the investment being made many decades ago.  

0:08:42 - Sara Pantuliano 

Thanks. Annalisa,  I want to go back to what Seynabou was saying about the importance of knowledge, of the technical expertise. It's not just about the financing. You run this survey with 500 senior officials from different ministries of finance, the client countries of the bank, who have all shared their views and their opinions on IDA particularly, and how valuable the instrument is. Can you say a bit more why it stands out so much for them, why it's so important for them?  

0:09:15 - Annalisa Prizzon 

In the client survey we ran it a couple of years ago, actually IDA was considered as the most effective MDB across institutions because of its ability to kind of mobilise affordable finance at scale, because of the technical assistance, policy advice, the research, so it was kind of standing out in terms of the kind of support.  

But to a certain extent I do appreciate saying it's not only about finance but it's also about knowledge. But when we kind of heard from the clients again, starting from the point that IDA matters and it's an efficient institution, but there were a number of kind of concerns actually around the long-term impact. This is again, it applied to IDA, it applied to other MDBs, but it was kind of consistent and there was a kind of a desire to a certain extent to have resources that were much more kind of tailored to the needs of each country, to have a kind of a longer term support of building local capacity rather than kind of visits every now and then. So, this is certainly why we want to, kind of, IDA to be bigger. We also want IDA to, kind of, better support their client countries in their- I'm not calling that  capacity building- but to a certain extent to kind of build the knowledge and sustainable kind of development in their own kind of ministries, central and line ministries. 

0:10:38 - Sara Pantuliano 

So we know that IDA is really appreciated by the recipients. That's not always the case in our sort of development world. We see we're hearing more and more pushback from those who are receiving resources, whether it's grants or loans or whatever. But IDA is definitely a popular instrument. We've seen the President of the World Bank, Ajay Banga, calling donor governments to step up and make the next IDA replenishment the largest of all time. But at the same time, a lot of donor countries are in a very fiscally constrained environment and you know these calls don't seem to be going, be heeded, if you want, despite the support from low-income countries, IDA eligible countries. Greg, what are the potential consequences if these contributions that IDA is calling for are not met?  

0:11:36 - Gregory Chen 

Well, I think you know, I take maybe the longer view, which is, you know, why was the World Bank and IDA set up to begin with? This was originally a post-World War II sort of recovery from conflict, sort of set of institutions that were to invest in this, you know, the sort of long-term stability of global development, because the consequences of not doing that are so much greater. Just look at the consequences of the civil strife we have across the world today and the costs that that burdens us all with. So, we take sort of, really a long-term view, which is that unless we're investing in this now, the costs down the road are much more severe and consequential for us all. And let's bear in mind that the Bretton Woods institutions were set up specifically to invest in sort of post-World War II stability and development. And I think that that is even more of an important priority for us, given some of the dangers we face globally today.  

0:12:48 - Sara Pantuliano 

Well, I'm really glad that you are stressing that, because at ODI, we're really pushing to make sure that there is a focus in IDA on fragility, which has become a shorthand for crisis affected countries, conflicts, post-recovery transitions. Seynabou, you talked about the climate element that has been brought on to the traditional mission of the bank, but I heard Ajay very clearly saying after Davos that fragility also needs to be part of the attention and I would say that the IDA instrument is particularly important. Maybe, Annalisa, you've been involved in a lot of these conversations you can reflect on that a bit.  

0:13:29 - Annalisa Prizzon 

There's been a lot of work from the Bank on fragile countries as a key cross-cutting priority for IDA, but I felt the momentum that we had until 2019 hasn't kept up. We also have a number of situations of de facto states that the news are kind of putting that on the radar, unfortunately every single month. So, there's certainly kind of a greater urgency for the World Bank, and particularly IDA, to bring more the fragility agenda on top of its priorities, as it was a kind of a few years ago, and also to kind of work in different environments but also work with a number of institutions, NGOs, the UN. That's already kind of happening, but it's also kind of a variable geometry - might work in one country, might not work in the other. So it also needs a kind of a flexible kind of approach and I very much hope that your shareholders, the shareholders at the World Bank, will be able to support this direction of travel.  

0:14:32 - Sara Pantuliano 

Yeah, we're clearly all trying, you know, to push for a replenishment that is sizable, because you know, as Seynabou said, it's a very efficient instrument, works well, and countries have really made huge strides, huge progress, thanks to other resources. At the same time, though, the whole reform of the MDB's debate is very much focused also on the efficiency of the bank. There is a lot of focus on how we make sure that the bank can deliver better, can deliver faster. You know, Ajay has said a number of times that “development delayed is development denied”, but there is a question as to how we can make sure the money gets to the countries that need it quickly, and so, if we have a bigger IDA replenishment, how can we make sure that that is deployed efficiently? Seynabou, I’ll ask you.   

0:15:20 - Seynabou Sakho 

No, I feel like over the past few months, a big focus of our work at the bank in the operation complex has been really to work on that aspect of the better bank. It's great to call for a bigger bank, but it's the better bank that will maximize this efficiency that Annalisa mentioned and that Greg mentioned as well. And what we have really tried to push are three dimensions. One is speed, speed to impact, speed to results and speed to outcome for the client. The second one is scale. The third one is impact, and let me talk a little bit about each one of those dimensions. On speed, we have focused really on the first period, which was since the annual meeting to the spring meeting, to cutting preparation time. Cutting preparation time so that, in a sense, we approve those projects much faster, while not compromising the quality or not compromising the excellent work that our colleagues are doing to make sure that both our policies on the environment and social are respected, but also on the fiduciary are respected. The second part, which will start now and that I'm really excited about, speaks to what Annalisa was saying. It's about implementation, and implementation is something that is in the hand of the client and that we can support with the partner. It's how, basically, they procure those projects, how they build them. It speaks to the PIUs who are implementing those projects. It speaks to capacity building. It speaks to the ability to procure goods. It speaks to the ability to make sure that the impact on the environment and on people is well managed. And this is something that we really invested a lot, I mentioned earlier, moving to country system. Part of the approach is to make sure that we are much more agile, that the low risk operation do not require all the processes that you do for very high risk and shift the attention of people so that they can continue to provide even more resources to the client, more face time to the client, more handholding in the high risk and make sure that they achieve their development.  

The second part about the scale is really making sure that when we have projects that are working well in achieving this impact, that we multiply them, that we go deeper, we go farther, and we go in different places. This means the use of the instrument. If you have a project that is working well, put more additional finance on it and it links to the space, because an additional finance takes less time to prepare. It's also make sure that you stay in for much longer. Rather than doing a one-off, you do a repeat, you do it multi-phase, you do it programmatic. It's also about making sure that you build systems, because when you build system the first time, it takes a long time to know can you use this system, what type of things do you need to do to make sure it's strong? But then later you start using it. But actually, it's the government system, it's the country system, so it's development.  

When we talk about impact, at last we are moving from having several results more than 150 results to just focusing on 22 results. And focusing on those results that are aligned also with the SDG is really concentrating the impact of our project to really make a difference where it matters. An example of scale and impact is a recent project that we've taken that's called ‘Ascent’ to our board and that has been approved, which is about to provide, in 25 countries in East and Southern Africa, a hundred million people with access to energy. Again, access to energy will be critical for digital service, which will be critical for public sector and private sector equally, and that, if you take it within the broader scheme of things, it's one-sixth of the overall access to energy gap in Africa. So, you really want to change and move those big numbers that will make a difference for a continent, and a continent that, by 2030, will yield 90% of the labor force growth in the whole world. So, you really want people educated, you want people having access to energy, you want people doing that.  

I just wanted to come a little bit on something that Annalisa has said.  

FCV country, fragile country, violent country, where you have those situations are critical to IDA and we've just discussed with our board, a few months past, the whole aspect of our midterm strategy.  

What's different, what have we learned over the past year and how will it inform the World Bank engagement in those countries? And three things are coming. One is fundamental to stay engaged, because you have to be on the ground to continue to support. The second one is the criticality of prevention, because what we realise is, by the time you talk about prevention, it's too late, so you have to start much earlier on. So right now, the example is we're working a lot on the Gulf of Guinea, countries like Togo, Benin, Cote d'Ivoire, Ghana rather than starting to wait until conflict erupts, and trying to do things and finally help countries when they are in transition. And I think that this process of self-learning and, as Annalisa is saying, looking at evaluation, what is working, what is not working and adapting the way we approach them has been critical to continue to maintain those effectiveness and that efficiency in items.  

0:21:18 - Annalisa Prizzon 

Can I just kind of just making this point. I mean this is very important work in streamlining and increasing the operational efficiency and effectiveness. I mean the client countries in IDA they're very vocal. I mean they strongly value short processing times and again, not to repeat Ajay Banga’s point, but it’s very illustrative of that. But they really felt that the banks didn't deliver. Actually, less than half of the clients actually told us that the MDBs were performing well. So, we’re actually starting the new way of the survey, so we’re going to retest it in the next six months, and we look forward to seeing the changes in direction.  

0:22:09 - Sara Pantuliano 

On that, you were very much part of the team that was tasked by the G20 to basically analyse and imagine this reform of the MDBs.  

You know that produced the report of the Independent Expert Group. The mantra of better, bolder, bigger, you know, came from what you've directly contributed to. How is it going?  

0:22:20 - Annalisa Prizzon 

There's been some kind of movement with new capital increases that were approved. I appreciate that reducing, for example, the average time from concept note to first disbursement that we put in the report is very important. It takes time. So, let's reassess in October the progress that has been done across MDBs. 

0:22:52 - Sara Pantuliano 

Greg, I'd like to hear your assessment of whether the reform is going in the right way, is better really happening? We all want to see bigger, but we're not going to see bigger if we don't do better first.  

0:23:07 - Gregory Chen 

Yeah, I mean, of course. So just to say from our experience, we're you know, we, you know, just a few things about BRAC. We're enough of a believer in the World Bank and IDA that we're actually a very modest funder of the World Bank, one of the World Bank trust funds around extreme poverty, and the reason is that we believe in the aggregation of a lot of the knowledge that the World Bank has and how you then deploy it. And let me go very quickly to on the ground in the 15 countries where BRAC is involved. The World Bank has a vital role in all of those places and in a lot of the programming that we do.  

The World Bank's planning ideas, its best practice and then of course its long-term financing is actually playing a formative role in what those countries' trajectory and choices are. And so, I think we're always in conversation with the World Bank about what their plans are, especially around sort of social protection and jobs, sort of economic development for people at the bottom of the pyramid. In terms of faster, bigger, better. For sure, I mean, I think we would love for all of that to happen. But I think it's important to remember the World Bank has been there for decades and that when you show up in a country, you have highly competent, politically independent technocrats giving, you know, most often fantastic advice and best practice to their government counterparts, along with long-term financing. So, there's no reason we wouldn't want more of that faster.  

0:24:46 - Sara Pantuliano 

Yeah, we've also seen the bank deploy not with the best of their expertise or talent, particularly in countries affected by fragility, conflict and violence. That's what we want to see you know, improve, because we totally recognize the quality of that engagement. 

0:25:04 - Gregory Chen 

I mean, from our perspective, I think the World Bank could listen more to other perspectives, to seek out expertise that the bank itself doesn't have so much of. It doesn't have to invent every solution to every problem. It can go looking outside the bank for some of its ideas. I think the World Bank should do all of that and more of that, and not have to- there is a tendency not invented here, if it's not invented inside the bank, it doesn't exist. So, if we're going to be critical, let's say there are lots of ideas outside the World Bank that I think the World Bank doesn't pay enough attention to, and certainly some of the stuff that we're involved with we'd love to see more attention to.  

0:25:50 - Sara Pantuliano 

That's a really important point. I think the MDBs working as a system with the World Bank really feeling part of a system and behaving as part of a system is really important, as well as the partnership with others that may be met the place in some context. You know, to advise or analyse the issues. These are very much part of the reform agenda that we were talking about. Well, let me ask you one last question. The Spring Meetings are upon us. What should be the most important conversation there,you know, to make progress on the either replenishment, how can we persuade the shareholders that really this is a critical investment to make? Annalisa, do you want to start?  

0:26:32 - Annalisa Prizzon 

Let me start by saying this I mean also, it's important to kind of note that donor contributions to IDA have been relatively stable over the past few replenishments, around 23 billion for three years, and if you're looking at real terms it's actually we're talking about a cut by 25% since 2009. So, the minimum is really to kind of restore, the contributions that we had at that time. I mean, to a certain extent we know that asking shareholders to increase their contributions to IDA is very tough at the moment. I mean many many are trying to balance the books post-COVID.  

But again, IDA offers really good value for money. First of all, every dollar that each donor puts into it at the moment can leverage for four dollars. Normally kind of  bilateral programs is $1 in, $1 out, at least in the first round. But also, by pooling resources together, a concessional fund like IDA can reduce fragmentation. And again, this is about creating efficiency. And again, if we're looking at  effectiveness, I mean I mentioned earlier on, IDA is perceived as an effective tool by the client countries. But also looking looking at the way it delivers, it's way more effective than the way bilateral donors operate. That's very clear in international measurement of that.  

So, at the time when we're really trying to kind of find ways to kind of boost concessional finance, as we were talking at the very beginning, IDA really offers good value for money. And then, going back, Sara, to the Independent Expert Group on strengthening MDBs that you mentioned earlier on, it's really about setting IDA onto a path to triple its lending by 2030. And again, this shouldn't be called ambitious. This was very clear in the report. This is actually the minimum to support countries not only in dealing with the kind of most pressing challenges they're facing this year, but also to allow them to invest massively for transformative change to be able to face the challenges that will arrive very soon. So, this is a very much a kind of a way to use the really kind of scarce concessional finance in the most effective way that is possible at the moment.  

0:28:57 - Sara Pantuliano 

Thanks, Annalisa. Greg?  

0:28:59 - Gregory Chen 

There would be a need to invent IDA again if we don't reinvest in it now. And is that the less costly option? I doubt it. I think to the points that others have made here. I think getting ahead and being proactive in addressing the global challenges that we face, IDA’s  a fantastic existing resource to put our might and resources behind, to get back ahead of the problem. Now we've been heading the wrong direction. We had reduced extreme poverty to closer to half a billion people. That number has gone up in the last few years. So, what kind of a world do we want to live in a decade from now? And are we just creating greater costs for ourselves and, frankly, injustice, if we, if we don't put um, uh, the money behind um sort of people and, and countries in the most extreme and most difficult circumstances? So, to me, this is uh, this is uh the best value for money, um, um in the, in the donor community. 

0:30:01 - Sara Pantuliano 

Brilliant, what about of confidence. Seynabou? 

0:30:02 - Seynabou Sakho 

senabu. So I would like to focus on two things. One is really the urgency for action. We live in unprecedented time. A few years back I wouldn't have believed that we would live through two such big wars. We live in times where you have de facto government everywhere and you have conflict mushrooming. And at this moment it's really important not to forget about IDA, because it's an investment not just on the present, but also on the future. As I mentioned, in a few years this is where you will have most of the global workforce and you want them educated, you want them in good health, you want them able to really play a constructive role in society and in the world. And for that, the biggest, the biggest, biggest source of peace is development is investing in those IDA country, in those systems, so that people have prosperity, so that people have options, so that people can really be global citizens and be a global public good rather than a public bad. And you need to act now, not later, because, again, development delayed is really development denied.  

0:31:15 - Sara Pantuliano 

Thank you so much, Seynabou, Greg and Annalisa. Everything you've said today, you’re really wholehearted endorsement of IDA actually really resonates with a discussion we had with world leaders in Davos in January that was focused on IDA and fragility, where we had exactly the same vote of confidence pretty much what you said not just good value for money, but probably the best value for money that we have there with the donor community an efficient institution that has long-term impact, the most effective use of donor money. Better, definitely the bilateral support, because it leverages a lot more and one resource is really valued by recipient countries. We couldn't get better. So, let's really hope that the shareholders will rise to the challenge and use the Spring Meetings to come out with a real commitment, you know, to increase the resources for the next replenishment.  

Thank you very much to all our listeners for joining us for today's episode. If you enjoyed it, please do like subscribe and rate it, and also suggest conversations that you would like us to host on Think Change. It would be really interesting to explore your suggestions. We hope you'll join us again next time. Until then, thank you for listening.  

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