Making the IDA replenishment work for poor communities: a test case for rebooting aid
In early December, donor governments met in Korea to agree the replenishment of the International Development Association (IDA) – the World Bank's fund for 78 low-income countries. Laura Kelly examines the outcomes of the meeting and highlights some steps for making the IDA replenishment process work for the poorest communities.
Cambodian farmers at their first harvest after receiving a social land concession from the government under the associated LASED project (Photo: World Bank Photo Collection, via Flickr, CC BY-NC-ND 2.0)
As the dust settles on the 21st International Development Association (IDA) replenishment, the hard work is really just beginning. As the World Bank’s provider of concessional finance for low-income countries, IDA is funded largely by contributions made by the governments of richer member countries. Earlier this month, partners met in Seoul, South Korea, to replenish IDA funds and review IDA’s policies.
In the wake of the IDA21 meeting, it has become apparent the debate needs to shift from focusing on the quantity of finance to the quality of finance. There is an urgent need to pay attention to how the finance is used, who influences it and how much actually reaches the poorest communities at the frontline of the climate, inequality and nature crises.
This is not to let donors off the hook. While there were some big increases at IDA21 from the likes of Denmark, Spain and new donors such as Brazil, despite the challenging global economic situation, the combined pledge in Seoul was only US$23.7 billion. When compared to the $23.5 billion pledged in 2021, this is effectively an 8% real terms cut.
The combined pledges means the World Bank will be able to leverage around $100 billion over the next three years: short of the $120 billion low-income countries have been calling for to support their development and climate goals.
Combining the IDA outcome with the disappointing $300 billion commitment made under the New Collective Quantified Goal at the COP29 climate summit in Baku, and the failure of the COP16 biodiversity summit in Cali to even agree any financing targets, it’s becoming ever more critical that financial resources are used to meet local priorities and are spent as effectively as possible.
The fragmentation of aid has been growing over the past 20 years since the widespread use of budget support (where donors channelled resources through government systems, with technical assistance supporting government ministries to meet their objectives).
The 2005 Paris Principles for Aid Effectiveness and the subsequent 2011 Busan Principles for Development Cooperation – two pillars of aid effectiveness – were designed to improve donor coordination and better link public and private finance. However, they have rather fallen out of favour with many donor governments and, I would argue, are due a reboot.
Meanwhile, the proliferation of vertical funds for health, education, water and even the advent of ‘climate finance’ has meant that many governments of low-income countries spend an inordinate amount of time dealing with donors or fund managers, rather than focusing on delivery. For instance, at the World Bank/International Monetary Fund Annual Meetings in October, a bank official pointed out that the Ethiopian government is dealing with around 250 separate development projects and programmes. This needs to change.
Financing local priorities
IIED has worked with least developed countries in particular, to show how aid resources can be channelled effectively behind local priorities. The locally led adaptation principles and the LIFE-AR project provide tangible frameworks and guidance on how to use money effectively through local systems and build accountability to local communities.
As yet, these initiatives are only having an impact on a small proportion of aid flows. What’s more, wider action is also needed to link grants and loans more effectively. Where better to start this wider reorientation than with IDA21 implementation?
IDA finance either comes in the form of grants or highly concessional loans with long repayment periods – it is also the world’s largest provider of public adaptation finance. The IDA replenishment plan sets out commitments to align spending with country priorities, through the framework agreements and windows. Indeed, it is important that the priorities of low-income countries are heard and respected.
The current reforms to the international financial architecture are an opportunity to help show the value of locally-led approaches. For example, the World Bank’s new scorecard will track key development and climate outcomes, in effect providing a monitoring framework for IDA.
At the same time, multilateral development banks have made commitments to coordinate better: these commitments could also help expand locally-owned and led approaches across other climate-vulnerable countries, such as the Small Island Developing States.
Realigning development finance with the Paris and Busan principles is not intended to detract from the fact that industrialised countries urgently need to do more to close the gaps on finance for development, climate and nature.
This is something that can be progressed now. IDA21 is an excellent opportunity for donor, multilateral financial institutions and private investors to get going and demonstrate how aid effectiveness 2.0 could truly work in practice.
