World Bank's fund for poorest countries seeks emergency funding to 'avoid a cliff'

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World Bank Group headquarters during its 2019 annual meetings in Washington. Photo by: World Bank / Nicholas Karlin / CC BY-NC-ND

BURLINGTON, Vt. — World Bank President David Malpass announced Wednesday that he plans to ask the institution’s shareholders to contribute $25 billion to the bank’s fund for poorest countries, the International Development Association.

The proposal comes as IDA has front-loaded its funding commitments this year in response to the COVID-19 pandemic, and Malpass told reporters the purpose of the new funding request is to “avoid a cliff” that could appear if the fund burns through its resources early and has to cut back in subsequent years.

While IDA operates on a three-year replenishment cycle — with the last funding round concluded in 2019 — the fund will have committed more than a third of its resources this year in response to the COVID-19 pandemic. Malpass said that leaves the World Bank’s shareholders with two choices: contribute more resources or “recognize that the amounts available in the second and third year of IDA will be diminished.”

The second option could have grave consequences in the face of projections that the economic fallout from COVID-19, particularly in lower-income countries, will be both devastating and long-lasting. The World Bank estimates more than 100 million people will be forced into extreme poverty, and its recent analyses conclude that hard-hit countries will be dealing with these impacts until at least 2030, jeopardizing global poverty eradication goals.

Is World Bank fast-track COVID-19 funding reaching the most vulnerable?

The World Bank has committed to mobilizing $160 billion over 15 months to help countries respond to COVID-19. Some civil society groups are warning the institution is prioritizing speed over ensuring assistance reaches those most vulnerable to the pandemic.

In his remarks at the meeting of Group of 20 finance ministers and central bank governors Wednesday, Malpass described the scale of the challenge facing lower-income countries as “staggering.” He requested the G-20 and central bank representatives’ support for a new $25 billion supplemental COVID-19 emergency financing package for IDA that he plans to discuss with shareholders during the World Bank annual meetings this week.

The new facility would include $10 billion in grants from IDA’s shareholders, Malpass later told reporters, describing it as “a way to smooth the IDA commitment capabilities over the next three years.”

IDA’s last replenishment round, concluded in December 2019, secured a record $82 billion for the fund. The U.K., Japan, and the U.S. are IDA’s largest contributors, though the U.S. government’s pledge fell nearly 9% in the last replenishment. Since 2016, IDA has also raised money by leveraging those paid-in contributions and repayments on global capital markets, which has allowed the fund to achieve record-breaking replenishments in its last two cycles.

A recent report by the Center for Global Development found that IDA commitments have jumped 200% so far in 2020, compared with the same period in 2019. Actual funding disbursements have lagged, increasing only 46% from the previous year.

Overall, the Washington-based think tank found that the World Bank is far off track its stated goal of mobilizing $160 billion over 15 months, through June 2021. According to the analysis, the current trajectory indicates that commitments are expected to reach $129 billion over that 15-month period, while expected disbursements appear on course to reach only $79 billion.

“Any discussion on new IDA contributions must also include solutions for the Bank to provide debt relief of its own.”

— Nadia Daar, head of Washington office, Oxfam

The CGD report did find that IDA’s year-on-year increase in response to COVID-19 has significantly outpaced that of the International Bank for Reconstruction and Development, the bank’s lending arm for middle-income countries.

“IDA donors should absolutely step up. The excessive timidness we observe in our analysis is due at least in part to some concern that the donors won’t be there to shore up the bank’s efforts. The donors should put those doubts to rest,” Scott Morris, a senior fellow at CGD, wrote to Devex by email.

Civil society groups have repeatedly pressed for the World Bank to free up public resources by forgiving the debt held by countries that have borrowed money from the institution. The bank has been outspoken about the need for other creditors to suspend or forgive debt payments due to the economic crisis brought on by COVID-19, but Malpass has been reluctant to do the same with the bank’s own existing loans.

Critics charge that while grant assistance is badly needed, the bank is undercutting its support by requiring countries to continue paying back loans at a time when their budgets are overstretched.

“The World Bank is giving with one hand while taking back $3.77 billion this year with the other,” wrote Nadia Daar, head of Oxfam’s Washington office, referring to the amount owed to the bank this year by the world’s 73 poorest countries.

“Any discussion on new IDA contributions must also include solutions for the Bank to provide debt relief of its own,” she added.

The proposal for emergency contributions to IDA also comes on the heels of a letter from two U.S. Democratic lawmakers, requesting a review of the fund’s “financial viability” by the country’s Government Accountability Office.

Rep. Maxine Waters, chairwoman of the House Financial Services Committee, and Sen. Patrick Leahy, vice chairman of the Senate Appropriations Committee, expressed concern that with the economic impact of COVID-19, countries might struggle to repay their obligations to IDA at a time when donor contributions could stagnate or decline.

Malpass said he plans to propose the emergency facility at the meeting of IDA deputies later this month, though it will likely be a key discussion point during the meeting of the bank’s Development Committee on Friday.

About the author

  • Michael Igoe

    Michael Igoe is a Senior Reporter with Devex, based in Washington, D.C. He covers U.S. foreign aid, global health, climate change, and development finance. Prior to joining Devex, Michael researched water management and climate change adaptation in post-Soviet Central Asia, where he also wrote for EurasiaNet. Michael earned his bachelor's degree from Bowdoin College, where he majored in Russian, and his master’s degree from the University of Montana, where he studied international conservation and development.