We’re making good progress on poverty reduction: W. Bank VP

QUESTION: Can you please give us a brief overview of the IDA midterm review and the performance of the current cycle?

ANSWER: The midterm review is something that we do in the middle of IDA’s three-year cycle. We brief both the donors and the borrower representatives on how IDA20 is doing and if there is anything that we should adjust. We also start talking about the next cycle, which is IDA21. I am very happy to say that IDA20 is doing well. In the first 15 months, IDA has delivered about $40 billion, which is the highest ever at this point in the cycle. I think somewhere between 65 percent and 70 percent of those funds are going to Africa.

We also had the President of the World Bank, Ajay Banga, join us for the first day, which was the first time that a World Bank President joined a midterm review.

Why was Zanzibar chosen as host, and what is the significance of the WB President attending the IDA review for the first time?

Zanzibar and the government of Tanzania generously offered to host, and we accepted that kind offer. Both mainland Tanzania and Zanzibar have realised important development gains over the past several years. With the support of IDA, just during the first half of the IDA20 cycle, for example, 6.6 million people were provided with access to improved sanitation services, and 2.5 million students benefited from improved learning environments. Nearly half of those 2.5 million students are girls. These tremendous achievements make a real difference in people’s lives.

Our President (Ajay Banga) has made it a priority, he says it’s a top priority for him to have a very successful IDA21.

Are you worried that more countries in Africa could join Ghana and Zambia in the default wave due to these polycrises, and which countries are you most worried about?

We do not foresee a risk of contagion at this stage, as both Ghana and Zambia are making substantial progress to return to a debt-sustainable path. IDA considers debt when we allocate resources; we take into account the risk of debt distress for each country.

For those countries where the risk of debt distress is high or those already in debt distress, we only give 100 percent grants, so they don’t have to repay. For those countries that are at low risk of debt distress, we give highly concessional credits, and for those in between, we provide very long-term, very concessional loans with a 50-year maturity.

By considering each country’s risk of debt distress, we address the issue of debt sustainability. We do see these countries in Africa very much in a difficult situation, but there is some promise in what Africa can achieve going forward. You have economies that are robust and growing, with a young population that is willing to drive the economy.

But we do have to be cognizant of the fact that about half of IDA countries, not just in Africa but all IDA countries, are already at high risk of debt distress. So, it is something that we are keeping a close eye on. Some borrower countries complain about red tape in accessing IDA financing.

How are you addressing these concerns?

We take that very seriously. We do feel that the World Bank needs to be more efficient, more impactful, and faster in delivering support. There is a World Bank institution-wide initiative underway right now to address this issue. In IDA, there is an effort to become simpler, better, and faster for the benefit of our clients, which we simply call IDA.

The World Bank provides just about all of its funding through client governments. It supports the client government’s leadership in driving development strategy and taking care of its people. If you look at the trends in the global aid architecture, less and less money is going through client governments.

In fact, according to OECD data, on average, 60 percent of official development assistance (ODA) does not go through client governments. It stays in the donor governments, is used for refugee programmes in donor countries, or goes to NGOs.

Are you offering enough loans to poor countries through IDA?

I can never say that the resources are enough because the needs in IDA countries are huge. Before the Covid-19 crisis, we were making excellent progress on the poverty reduction front.

We were confident that we would achieve many of the Sustainable Development Goals (SDGs) by the target of 2030. All that changed, most IDA countries are now off-track on the SDGs, and they are suffering from these polycrises. So, the needs are enormous.

The current IDA20 cycle includes a total envelope of $93 billion, which is a record high, but even that is not going to be enough. So, we have to be a lot more ambitious when we negotiate IDA21. Of course, this is not just the World Bank; senior leaders around the world, heads of state, and NGOs are all calling for a very ambitious IDA21. For instance, President Macron of France has made that call. There are high expectations that we will achieve the strongest-ever IDA replenishment.

What challenges do you see in raising resources for IDA21, and do you have an estimate of the size of the replenishment needed?

There are going to be hurdles in raising the funds, of course. Many of our donor countries have competing demands for their budget resources, given what’s happening on climate change and the repercussions of the war in Ukraine.

And there are transitions, and elections coming up in some of these donor countries, so it’s a little bit hard to foresee the new government’s stance towards development assistance. These are uncertainties and very significant challenges.

But if you look at the history of IDA, we have always stood up to the challenge, and we have always increased the size of the envelope compared to the previous one. We need to be very ambitious, but I am confident that we will have a successful IDA21.

What are your comments on calls for the World Bank to offer debt-distressed countries debt relief, postponement of loan repayments, or haircuts?

We have a system of allocating concessional resources according to the risk of debt distress, which means that countries at risk of high debt distress only get grants. So in a way, you can say this is exempted debt relief. We are giving money that does not need to be repaid to those countries that are in debt crisis.

I think more and more donors should move to that approach so that we can give more exempted debt relief, but if you look at recent trends, money that is going to countries at high risk of debt distress is getting less and less concessional. There are some systemic reasons for this.

I won’t go into that in detail; it’s very technical, but I think that our approach to give more concessions to countries at high risk of debt distress makes a lot of sense. Several African countries have been investing heavily in infrastructure projects, especially railways, but are struggling to get financing.

Why is the World Bank seemingly not keen to finance railway construction, or would you now consider financing those projects?

If you look at the trends in official development assistance, many donors are moving away from infrastructure. But the World Bank, including IDA, has been quite consistent, even increasing the amount of lending we provide to infrastructure.

I don’t think there is any kind of reluctance or hesitation from the World Bank’s side to finance infrastructure projects. The key question is: does the project make sense? Are there robust environmental and social safeguards in place? When there is a very impactful project that meets these requirements, the World Bank will be very much open to financing them.