In bid to spur increased pledges from donor governments, IBRD & IFC commit $3.5 billion of their profits to IDA

18 October 2007

Questions remain as to whether the IFC will use its role as a major IDA donor to deflect criticism of its own investments.

World Bank President Robert Zoellick has announced that the World Bank Group has committed $3.5 billion of its profits toward the replenishment of the Bank’s concessional lending window, the International Development Association (IDA). According to the Associated Press, this would represent the Bank Group’s largest ever contribution to IDA, and approximately a 50 percent increase over the previous replenishment round held in 2004.

Zoellick has set out to raise a total of $39 billion from donor governments, which could include China for the first time. The funds will be used to finance the Bank’s operations in low income countries over the next three years. Zoellick has appealed to donors to give generously, and has pledged to direct a large portion of the IDA funds to Africa – hardly surprising, given that by far the greatest concentration of IDA-eligible countries is in the sub-Saharan region.

Half of the $3.5 billion pledged by the World Bank Group will reportedly come from the IBRD, the Bank’s lending window for middle income countries. The other half will come from the International Finance Corporation (IFC), the Bank’s private sector lending arm. The IFC, which saw record profits during the 2007 fiscal year, only contributed to IDA for the first time in 2006. Zoellick told the Associated Press that IFC would now work more closely with IDA to identify and finance more public-private partnerships for infrastructure in Africa. This could suggest a greater emphasis on private sector-led development in future IDA projects.

While some see the IFC’s cross-subsidization of IDA as positive, others are concerned that the IFC may use its role as a major IDA donor to deflect criticism of its own operations. Given increased public scrutiny of IFC’s operations, it may try to justify investments that have questionable development impacts by claiming that the earnings it makes on such projects help finance aid to poor countries. Whether they merit praise or concern, the IFC’s contributions to IDA do not obviate its obligation to ensure that its own investments reduce poverty, and to publicly report on their development impacts. Presently, the IFC does not disclose its impacts on a project-by-project basis, making it difficult for civil society to assess IFC’s fulfillment of its development mandate.

In a very surprising development, the Financial Times reported that the World Bank Group is considering a plan to solicit donations for IDA from private companies. No multilateral development bank has ever accepted donations from private sources; if IDA were to do so, it would raise numerous questions about to whom the institution is accountable.

Meanwhile, the African Development Bank is seeking donor support to replenish its own concessional lending window, the African Development Fund (ADF), to cover loans and grants to eligible impoverished countries between 2008 and 2010. Nearly 40 African countries - the bulk of the AfDB’s members - are eligible only to borrow from the ADF; just 13 are currently eligible to borrow from the AfDB’s market-rate lending facility. The AfDB will meet with donor countries in London in December, and is hoping to mobilize $10 billion for the next ADF period, up from $5.4 billion raised for the previous ADF envelope.

Resources

• World Bank seeks private sector aid for poor countries, Agence France-Presse, October 18, 2007 (Google News website)
• Private Sector to Join World Bank on Aid by Krishna Guha, Financial Times, October 17, 2007 (FT website)
• AfDB appeals for $10b to help poor countries by Joseph Mwamunyange, East African, October 8, 2007 (East African website)
• World Bank to contribute $3.5 billion by Harry Dunphy, Associated Press, September 27, 2007 (The Guardian website)
• Zoellick faces aid shortfall, Bank Information Center, September 24, 2007 (BIC website)
• Africa is Bank’s selling point as it seeks donor dollars for IDA, Bank Information Center, July 6, 2007 (BIC website)