World Bank calls IDA pledges a win. Critics aren’t so sure

While South Koreans protested their president’s stunning imposition of martial law on Tuesday night in front of the country’s National Assembly building, top development finance officials were checking into their hotels just across Seoul’s central Han River. On Wednesday, under intense pressure, South Korean President Yoon Suk Yeol lifted the martial law declaration. On Thursday, negotiations began on the 21st replenishment of the World Bank’s concessional fund for the world’s lowest-income countries, a decision made every three years. And on Friday, officials announced $23.7 billion in contributions to the International Development Association, which provides grants and low-interest loans to 78 low-income countries. This is a 0.8% increase from the last replenishment in 2022 of $23.5 billion but falls short of the $27 billion that some advocates had hoped for. Still, the record-breaking sum fulfilled World Bank President Ajay Banga’s call that IDA21 be the largest replenishment ever. However, while the bank is striking a celebratory tone, some experts see the final figure as a letdown. “I’m sad,” said Clemence Landers, senior policy fellow at the Center for Global Development. “The donors are not coming in at the level that was expected or hoped for.” Kate Donald, head of the Washington, D.C., office at Oxfam International, had a similar take. “We think it's very disappointing,” she said. “It's well below what many countries including IDA recipients had been calling for.” The bank said this contribution will result in $100 billion using IDA’s “unique leveraging capacity.” The previous total was $93 billion. The bank uses the base funding to raise additional finance by issuing bonds on international capital markets. This borrowing strategy allows IDA to turn $1 into almost $4, according to the bank. “IDA will be complemented with additional resources from our private sector arms, the International Finance Corporation, and [the Multilateral Investment Guarantee Agency] to further turbo-charge private sector development with the ultimate goal of creating jobs,” said Axel van Trotsenburg, the World Bank's senior managing director, during closing remarks on Friday. What we’ve learned so far The bank is still in the process of releasing details on which countries donated what and the role of the private sector. What we do know is that this year’s IDA replenishment saw 17 donors increase their pledges by more than 25% in national currencies, while 10 donors increased their pledges by 40% or more. Denmark and the United Kingdom increased their contribution by 40% and Croatia increased it by 115%. Japan boosted its contribution by 13%, but due to the yen’s weakness against the dollar, it resulted in a cut in the dollar amount. Overall, 59 countries made financial commitments to IDA21. Some experts were expecting China, which was the sixth-largest donor in the previous IDA round, to leapfrog others and come out as a leading donor. However, Kerezhi Sebany, associate director of development finance and multilateral institutions at the ONE Campaign, said she has heard that China pledged $1.5 billion, which is likely to keep it in sixth place. The rest of the pledges have not been officially published, but Sebany gathered some insights through her sources at the ONE Campaign. She said that France has pledged but, due to its current political crisis, has not disclosed how much. Germany gave the same amount as last time in euros, but the figure comes out to less in dollars — $1.75 billion. India also pledged, and Brazil, which hasn’t donated since IDA16, returned to the scene, according to Sebany. Sixteen countries also joined the donor base this year, including Mongolia, Qatar, and Kazakhstan, Sebany said. Their donations are not going to “change the balance,” she said, but the World Bank made an effort to include more countries because it “shows that solidarity and multilateralism are still alive.” Experts don’t expect huge changes in IDA’s structure and methodology, but rather a consolidation of what already works. “There's an overall sense that there's no massive new changes to this IDA framework,” Landers said. “But I think the IDA policy framework is actually something that's working pretty well.” IDA allows for the rapid disbursement of funds for crises in least-developed countries and can provide more tailored support to countries dealing with conflict or fragility. Landers said that the fact that countries have the freedom to choose how they use their funding is one of IDA’s best qualities. “I think that's just very sound development policy to have the country in the driver's seat.” ‘Swimming against the current’ Even though some countries increased their pledges, the strength of the U.S. dollar means that the actual amount comes out lower. Experts say the struggle to drum up higher numbers is part of a larger trend. In fact, donor contributions to IDA have gone down in real terms by 20% over the last decade due to shifting global politics, budgetary constraints in donor countries, and the emergence of other funds that are competing for limited resources, as well as the fact that IDA has needed to increase its grant-giving due to rising debt distress among many lower-income countries. Many global development advocates see the IDA pledge as the second disappointment in recent weeks, following the $300 billion pledge in climate finance in November at the 29th U.N. Climate Change Conference, or COP29, in Baku, Azerbaijan. “It’s sort of a sign of the times,” Landers said. “A lot of the governments that are big donors are in major political crises right now and a big part of these are budget related. I think this was a replenishment where you were really swimming against the current.” With interest rates rising and the debt crisis worsening, lower-income countries, especially in sub-Saharan Africa, are struggling to get funding through the usual channels. “There’s been a pullback,” Landers said. “If you look at the financing numbers from China, they are just a lot less impressive than they were pre-2009.” Private sector financing and bond markets have also become more expensive, issuing bonds with a 9% or 10% interest rate. Landers said that the fact that these other funding routes have dried up should put more pressure on IDA, which can issue 40-year loans with a 1% interest rate, to fill the gap. “There's no other game in town that does what IDA does,” Landers said. But Donald said this could be a bad omen for the future of IDA. “There is already some talk about a fiscal crisis or fiscal cliff for IDA coming up in the next decade without a far more generous donor contribution,” she said. “I think probably this disappointing replenishment makes that fear more alive.” What’s next More information will be released about the contributions and policy configurations over the next month. But these negotiations in Seoul were just the start. The $23.7 billion is only pledged — the total is not finalized. Money will start moving in July 2025, with each country's contribution depending on their national budget schedules. Experts are particularly concerned about how U.S. President Joe Biden’s $4 billion pledge could change upon the inauguration of President-elect Donald Trump. During his previous administration, Trump cut an IDA pledge made by the Obama administration, though it still ultimately agreed to contribute $3 billion. Banga acknowledged the tough road ahead. “Even as we celebrate these accomplishments and today’s achievements, the challenges ahead will demand even more of our attention,” he wrote in an open letter. “In many of the countries IDA serves, governments are constrained by rising debt and limited fiscal space. For these nations, IDA’s concessional financing is often the only viable source of investment in job-creating sectors. “The World Bank Group recognizes this challenge and is prepared to meet it head-on, which is why we are working to ensure job creation is not a byproduct of our projects but an explicit aim of them,” he wrote. “In this context, IDA is not just a financial instrument; it is a catalyst for job creation. It provides countries with the resources to build infrastructure, improve education and health systems, and foster private sector growth—all of which are critical for creating jobs and economic opportunities.”