The race to end extreme poverty has faced major setbacks over the last few years. Although COVID-19 no longer plagues our communities as it did in 2020, the pandemic’s cascading effects worsen the livelihoods of the poorest people globally. On top of that, violence and severe weather events fueled by climate change are displacing people from their homes, disrupting food supplies, and further exacerbating poverty. This all means that developmental aid for the world’s poorest is critical. The International Development Association (IDA) is essential to the equation. Part of the World Bank, the IDA gathers funds from donors to help the world’s poorest countries improve living conditions for 1.5 billion people.
However, this poverty-ending resource is in dire need of more contributions right now. World Bank President Group Ajay Banga is calling on IDA donors to raise a record $100 billion this year in replenishment funds to help low-income countries deliver better outcomes for their people.
“We are pushing the limits of this important concessional resource, and no amount of creative financial engineering will compensate for the fact that we just need more funding,” Banga said. “This must drive each of us to make the next replenishment of IDA the largest of all time.”
How Does the IDA Work?
The IDA is the world’s single largest source of concessional financing, which means it provides grants and credits with zero to low interest and a 30- to 40-year repayment period. These friendly borrowing terms make the IDA a lifeline for low-income countries that may be unable to access other financing sources to recover from the impacts of a pandemic, climate change, or war.
The IDA’s funds support various development activities, including those around education, health, agriculture, and climate resilience, aiming to improve people’s livelihoods. One of the most notable examples of the IDA’s impact is its support during India’s Green Revolution in the 1960s. By investing in agriculture-related projects, the IDA played a crucial role in helping India avoid the threat of famine and achieve self-sufficiency in food grains.
The IDA continues to be a vital force in addressing global challenges, particularly combating food and nutrition insecurity. Its efforts are a crucial lifeline for low-income countries, where hunger and malnutrition lead to intergenerational poverty cycles due to their long-term effects on physical and cognitive development that cause impacted educational outcomes and lower paid jobs in adulthood. Poverty and hunger are intensified by a lack of access to essential services like healthcare, education, and social protection, especially in rural and informal urban areas. Social protection received only 2.6% of total Official Development Assistance (ODA) in 2022, which hinders progress across food and nutrition security.
In addition to tackling food insecurity, the IDA has also focused on transformative energy projects. More recently, the IDA has invested heavily in electrifying Eastern and Southern Africa through the Accelerating Sustainable and Clean Energy Access Transformation (ASCENT) program, which is expected to deliver electricity access to at least 100 million people and set up acceleration approaches to expand access to an additional 200 million.
The IDA currently supports 75 countries around the world. Since its founding in 1960, the IDA has provided $533 billion in investments in 115 countries, with Africa being the largest recipient constituency. So far, 36 nations have graduated from the borrowing group, with several returning to the IDA as donors.
What Does Replenishment Mean?
The IDA gets its funds from various sources: donor governments (55 high- and middle-income countries), capital markets, and the World Bank Group. Every three years, the IDA calls on its donors to replenish its funds so that it can continue making an impact.
This year marks the IDA’s 21st replenishment round (IDA21) since 1960. In December, donors will pledge their contributions for the next three years. IDA21 will focus on “Ending Poverty on a Livable Planet: Acting with Urgency and Ambition.”
The most recent replenishment (IDA20) was finalized in December 2021 and resulted in a historic $93 billion financing package, the largest ever mobilized in IDA history. IDA21 is looking to break that record to reach $100 billion, $30 billion of which will need to come from donor countries.
This means that donor countries will need to up their pledges from the previous replenishment round, which may seem ambitious for several reasons. For one, large donors like the US and UK have reduced aid to low-income countries in recent years to increase support for Ukraine and climate mitigation. Secondly, the strong US dollar means that other donor countries will need to contribute more of their domestic currency to keep their standing from the last replenishment round.
Despite these challenges, it’s not only crucial but also smart for donor countries to meet the $30 billion replenishment goal. Contributions to the IDA have an outsized impact because of a multiplier effect, where every $1 billion donated turns into nearly $4 billion in grants and loans to borrowing countries. In other words, contributing to the IDA is one of the most effective ways middle- and high-income countries can help reduce poverty and improve living conditions for the world’s poorest.
How Can I Help?
Reaching the $100 billion IDA replenishment target — $30 billion of which will need to come from donor countries — is necessary if the world wants to progress toward ending extreme poverty.
While we call on every donor country to increase its contribution in December, it’s especially important for IDA’s largest donors to pledge big, as they are the ones with the power to drive growth. The IDA’s top 15 donors make up over 90% of its contributions, while more than half of total contributions come from IDA’s top five donors. If these big players — the US, Japan, the UK, Germany, and France — grow their pledges, the $30 billion target will be much easier to reach.