The World Bank’s Fund for the Poorest Developing Countries is pushing for unprecedented money to confront the growing problems of debt and climate change.
It is imperative that the International Development Association (IDA) obtain its “most substantial replenishment ever” of financial resources, according to Dirk Reinermann, head of resource mobilization at the bank.
According to the Financial Times, this replenishment is essential to enable the delivery of grants and loans to 75 developing nations at reasonable rates.
A wave of sovereign debt crises and costs related to mitigating the effects of climate change will require big increases in development funding, analysts said, at the same time as elections and cuts to aid budgets limit the spending appetites of IDA’s biggest donor nations such as the US and UK.
“Some of its biggest traditional donors have stuff going on that makes it harder for them to cough up larger amounts [for IDA],” said Charles Kenny, a senior fellow at the Center for Global Development think-tank.
IDA, which has $235 billion of total assets, is seen by governments and policy groups as one of the most effective aid providers in the global fight against poverty, both because it can leverage capital markets to triple its annual windfall and give those funds to poor countries at concessional or marginal rates.
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The fund “offers good value for money to donor countries, more than other grant-based facilities”, said Annalisa Prizzon, a principal research fellow at development think-tank ODI.
IDA has to turn to richer countries to raise capital every three years because its assistance generates little financial return.
Many countries that face a debt crisis will have to pay back more to existing lenders and bondholders than they will receive in new loans. China, a major bilateral creditor, has stepped back from lending, reducing another source of funding for IDA recipient countries.
“Because of the macroeconomic environment, more countries are in difficult economic situations, meaning that they get IDA funding at concession [rates], requiring IDA to deploy more strategic capital,” Reinermann said.
According to Reinermann, this increased line of funding is set to cause IDA to reach the leverage ceiling imposed by its triple-A credit rating sooner than expected.
When IDA raised donor money in 2021, “the zero point for being able to fully leverage our capital at triple-A was in 2034,” he said
