Our Take on the IDA 21 Draft Replenishment Document

by Clemence Landers, Nancy Lee, Karen Mathiasen, Charles Kenny, Mary Borrowman and Thomas Ginn

November 20, 2024

ast week, the World Bank released a draft of the IDA21 replenishment report for comment by external stakeholders. Entitled “Ending Poverty on a Livable Planet: Delivering Impact with Urgency and Ambition,” the report includes the proposed policy package, financing terms, and allocations for the next replenishment. Negotiations for the 21st replenishment of the World Bank’s concessional lending arm conclude with a pledging session next month and will take effect in July 2025. The World Bank is aiming for a record $100-billion-plus replenishment.

A key focus of this replenishment is to simplify IDA’s structure by cutting the number of country-level actions by more than half, from 1,011 in IDA20 to under 500 in IDA21, and better aligning IDA results with the World Bank Group corporate scorecard.

Six of CGD's senior researchers dissected the draft report and the most recent iteration of the policy package on the issues we follow most closely, from financing terms and the private sector window to gender equality and refugees. CGD doesn't take institutional positions, and you'll see that while we agree on many things, there are points of disagreement as well. Here are our reactions:

Clemence Landers on financing terms

Earlier this fall, Charles Kenny and I cautioned that achieving a $100-billion-plus IDA should not come on the back of IDA countries, by making loans more expensive. The tradeoff at the heart of IDA’s hybrid financial model is between terms and volumes. Today, amidst deteriorating debt dynamics across many low-income countries, almost a quarter of IDA funding goes out as grants. The grant approach is an integral part of IDA's model and one way that the institution sets an important standard as a responsible lender. But it also has significant downside implications for IDA’s financing outlook, since the institution relies on reflows as its largest single financing source. Last cycle, the IDA Deputies, the officials from shareholding countries responsible for negotiating replenishments, took measures to reduce grant funding for countries at moderate risk of debt distress, which helped temporarily curb the growth in grants. The ongoing challenge is to strike the right balance between keeping IDA’s terms generous and providing countries with the financial volumes that they require.

In IDA21, the Deputies have landed on a fair approach that puts recipient governments in the driver’s seat to decide if they want bigger volumes or cheaper terms. Countries at high risk of debt distress can choose between receiving most of their funding in grants with a 10-percent haircut (e.g., reduction in their allocation envelope) or 60-year zero-interest loans without the volume discount. Similarly, IDA countries at the higher end of the income spectrum (countries in the “blend” and “gap” categories) can choose between borrowing at fixed rates with a 15 percent volume discount or floating rates with their full IDA allocation. If IDA 21 manages to expand its overall envelope by 10-15 percent from $93 to $100-$105, countries opting for cheaper terms would likely not face a reduction in volumes compared to what they were getting in IDA20. Instead, it would serve more as a volume incentive for countries opting for slightly harder terms.

IDA is also attempting to keep pace on the financial innovation side by introducing a donor guarantee platform and hybrid capital. The guarantee option is promising, especially if it can help the institution do more market borrowing at lower funding costs. I’m more skeptical of the relevance of the hybrid capital instrument for IDA, since it’s proven to be an expensive mechanism when what IDA needs is cheaper finance.

Nancy Lee and Karen Mathiasen on the private sector window

In June, we published an evaluation of the private sector window (PSW) which included a number of recommendations to strengthen its impact, and we are pleased that several of them have been incorporated into the draft report.

First, we commend the decision to have the IFC contribute $500 million of its own resources to the PSW. We note that a final figure for IDA’s contribution to the PSW has not been announced. This should depend partly on how much the PSW will be able to leverage under the new provisioning of 60 percent (versus 100). We suggest setting a target for PSW support in this replenishment of around $3 billion under the new provisioning guidelines, which could be achieved through a $500 million contribution from the IFC and an additional contribution from donors of $1.4 billion. But these new donor resources should be conditioned on strong execution of reforms.

Second, we welcome the commitment to adopt a World-Bank-Group-approach to the PSW, including through better diagnostics and efforts to deploy the full suite of World Bank Group instruments. The ability to address policy-based risks and commercial risks should entail the development of more transformational projects, and we look forward to seeing evidence of how this works in practice.

Third, we view the proposal to increase the transparency of the PSW as a significant improvement over current practice, including four new disclosure indicators: IFC/MIGA own account commitments, commercial co-financing, development finance institution co-financing, and an ex-ante narrative on project outcomes. In addition, we would urge that mobilization data include project-level private finance mobilization—with direct and indirect mobilization reported separately—and project-level ex ante and ex post impact scores. This is a much-needed reform because currently the IFC simply reports that the PSW has mobilized $26 billion, without any disaggregation of that figure.

Fourth, we view the commitment to support 20 countries in the development of domestic capital markets as a good complement to PSW resources. To the extent that the PSW is used, the IFC should offer evidence that the subsidies played a demonstrable role.

Finally, we welcome the decision to support “mainly long-term finance investments,” but believe a strict limit on any subsidies for short-term trade finance needs to be established.

Charles Kenny on the private sector window

As Clemence notes, she and I wrote a blog cautioning that a bigger IDA should not come on the back of more expensive loans or less effective windows. It appears both approaches are being used. Capping country grants at $650 million (from $1 billion) is a way to make IDA bigger overall but smaller in the countries that need it most. I’m skeptical that counts as a good thing.

It is good news that the IFC will start supporting subsidies to IFC projects through the PSW rather than relying solely on IDA funding for that cause, but the IFC should play a larger role and IDA a considerably smaller one. In that regard, the lower provisioning ratio is helpful and can be used to further reduce the burden the PSW places on IDA, preferably to below $1 billion. There is no reason to expand the scale of a window that has demonstrated such limited impact to date, or ability to find transformative projects.

The commitment to greater PSW transparency is welcome, but it is notable that information that the IFC committed to its largest shareholder that it would release is not in this disclosure: not least, subsidy costs and name, location by city, and sector for financial intermediary subprojects that are the most environmentally or socially concerning.

Furthermore, the document is silent on principles around the PSW that the IFC committed to: increasing the share of public concessions supported by the PSW that are tendered on a competitive basis, and ensuring that at least 35 percent of IFC IDA-PSW supported projects use competitive or open access approaches. Both reporting and further progress (including targets) should be included.

Again, regarding subsidies, the IFC committed to ensure that any PSW subsidy for projects is less than 10 percent of project costs and seeking IDA Board approval prior to providing any subsidy above that amount. This commitment should be reported on and updated.

Mary Borrowman on gender equality

The draft report claims that this is “the most ambitious IDA cycle to date in advancing gender equality.” Unfortunately, I believe that the criteria for the new gender lens institutional-level policy commitment and the methodology for accountability are insufficient to ensure that IDA21 will actually realize that claim.

Throughout the IDA21 replenishment negotiations, colleagues and I have articulated the uniquely important role that IDA plays in advancing gender equality, based on evidence of impact, and the risks associated with the drastic cutbacks in the number of policy commitments. I think streamlining, institutional alignment, and reducing administrative burdens for IDA recipients are sensible goals, but these need to be weighed against IDA21’s potential for impact in recipient countries. As emphasized in a recent blog post, I see the revised policy package as a further step back in terms of IDA’s impact and value-add in target setting, financing, and accountability for gender equality.

Upon the release of the May 2024 version of the policy package, I supported the gender-based violence (GBV) and childcare gender lens policy commitments but pushed the World Bank to go further with specific recommendations for additional gender lens and cross-cutting policy commitments to not lose ambition and impact compared to IDA20. There was no uptake of these recommendations. Instead, the revised policy package cut the GBV and childcare country-level policy commitments and replaced them with a single institutional-level policy commitment on implementing the gender strategy “in a customized way” in all IDA countries.

While an IDA country-wide institutional commitment is admirable, and clarity on what will be required to consider the gender strategy implemented welcomed, I find the criteria too broad to ensure meaningful impact. From the draft report:

“The Strategy will be considered implemented if the country program includes gender equality outcomes in a new CPF, supports institutional and policy reforms toward gender equality, or finances at least one operation that primarily focuses on gender equality, aims to reach gender equality at scale, or includes a gender transformative intervention.”

Notably, the list of what will constitute implementation is strung together with “or” between them, when what is needed to achieve impact must combine these components. Specifically, implementation must go beyond the simple inclusion of gender equality outcomes in a country partnership framework (CPF), and ensure there is concrete support for gender equality reforms through substantive and appropriately resourced operations.

Moreover, what constitutes a “gender transformative” intervention is not defined in the draft report or in the recently released World Bank Group 2024-2030 Gender Strategy Implementation Plan. Absent clarification, this amplifies concerns that the proposed institutional commitment will be hard to assess and measure, and thus less robust than what is achievable through more specific country-level policy commitments. Though areas of focus within IDA21 gender strategy implementation are listed, besides sexual and reproductive health (SRH), there are no country targets.

Country-level targets remain an important aspect of accountability for key gender equality issues in IDA countries, in part because the methodology for measuring impact on gender equality results across sectors is deeply flawed. The report states that the reporting of sex-disaggregated data across the World Bank Group/IDA scorecard indicators is illustrative of “the inclusiveness of IDA’s results across diverse outcome areas, from health to climate resilience.” Unfortunately, they intend to use the proportion of the female population in each country to estimate and report on female beneficiaries when sex-disaggregated project results data are not available. This method relies on the dubious assumption that the project benefits the same percentage of women as their share in the total population. I have already stressed that this approach is neither accurate nor transparent and undermines credibility.

Fortunately, there is still opportunity for important actions to support greater ambition and accountability. These include: strengthen and clarify the criteria for the institutional-level policy commitment; restore country-level action policy commitments on childcare and GBV which exceed targets in IDA20; integrate gender equality and inclusion in the other focus areas and lenses, particularly climate, infrastructure, and prosperity; integrate country targets for fragile and conflict-affected states (FCS) throughout policy commitments; commit to only reporting sex-disaggregated data where it is based on actual project results; and commit to reporting on IDA country-level impact for gender issues publicly, not just to the IDA Deputies, as stated in the report.

Thomas Ginn on the Window for Host Communities and Refugees

In June, Helen Dempster and I published a blog post that outlined concerns about the proposal to merge the Window for Host Communities and Refugees (WHR) with the Regional Window. We see the WHR as one of the most important instruments to fund development interventions in displacement settings and to incentivize necessary policies for refugees like labor market access. In IDA21, the WHR will be a sub-window within the Global and Regional Opportunities Window (GROW). We appreciate that some of our recommendations have been incorporated into the new window, specifically that the financing in the sub-window will remain dedicated to refugee situations, that the levels of financing are at least as large as IDA20, and that half of the WHR financing will be grants.

However, we are disappointed that an explicit commitment on policy change toward refugees has not been included in IDA21. In IDA20, the commitment for at least 60 percent of eligible countries to implement significant policy reforms was integral for aligning WHR priorities with client countries and the rest of the World Bank. However, it is clear from discussions with Bank staff and external stakeholders that these policy discussions—even with IDA20’s explicit commitment—are often low priorities for key World Bank staff and client governments, given the WHR’s relatively small share of funds. Dropping this policy commitment only reinforces this narrative. We believe it is critical that this commitment is strengthened, not removed.

Furthermore, the proposed new window ends the requirement for countries to finance 10 percent of WHR projects with their performance-based allocations (PBA). In previous WHR cycles, this requirement has served as a (minimal) screening mechanism to ensure host governments—who are often opposed to integrating refugees—are invested in the project’s success. Combined with the lack of a policy commitment discussed above, the new sub-window unnecessarily waters down both the self-selection and external accountability that help allocate WHR funds effectively toward countries and projects that are focused on reform and inclusion for refugees. This is counter-productive and should be reconsidered.

Finally, we appreciate the statement that “IDA21 will continue to strengthen partnerships and systematic cooperation” and hope this will be exercised in practice. As our forthcoming paper on the WHR argues, opportunities are often missed because of inadequate attention and lack of coordination with humanitarian and diplomatic partners on key priorities for refugees. We strongly encourage additional staffing and meaningful engagement from relevant country leadership to maximize the potential of WHR funds in IDA21.

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