Where can the US Congress get the most bang for its development buck?
Bretton Woods Committee | Mon, Jun 3, 2024
by Emily Slater
While most of the public discussion around the recent supplemental funding bill out of Congress focused on support for Ukraine and Israel, there was a little-noticed provision with outsized impact which deserves more attention: $250 million for the World Bank Group’s International Development Association (IDA), one of the more mercifully acronym-ed agencies in Washington.
So, what is the purpose of this $250 million? These resources are earmarked for IDA’s Crisis Response Window. They will help the world’s 75 poorest countries tackle fundamental challenges like clean water and sanitation, food insecurity, natural disaster recovery, and improving governance and infrastructure as they continue to transition out of Covid-era assistance in a higher interest rate environment.
IDA assistance is critical to mitigating poverty in the most challenging parts of the world, where increased development needs and a debt crunch intersect.
Unlike bilateral development assistance, where $1 appropriated by Congress yields $1 or less in development aid, IDA is unique in its multiplier effect. For every $1 that the US contributes to IDA, $4 in funding support is leveraged through IDA’s financing model. These resources include contributions from other donors, but also internally generated resources, such as interest earned from loans made to wealthier, middle-income countries, and from market financing. This is why IDA is so unique - this type of leverage is simply not possible through bilateral aid agencies.
IDA’s impact is important given the significant fiscal constraints facing the world’s wealthiest countries -- IDA’s major donors. As obligations grow across the budget, discretionary funding (including development assistance), can often end up finding itself behind in appropriations bills. The U.S. is not alone in facing significant fiscal constraints. Official development assistance (ODA) from European Union countries fell by 8% in 2023, with France significantly curtailing its international development budget. The UK started shrinking its ODA budget in 2020.
This global belt-tightening represents a significant challenge: development assistance is constrained while global needs are on the rise. With low-income countries increasingly facing debt distress, food and water insecurity, conflict and violence, and global crises, IDA stands out as the most cost-effective development assistance available to help countries stabilize their economies and energize their private sector growth.
Importantly, IDA is a reliable option for low-income countries because it provides a critical source of concessional funding, on clear terms. This contrasts with more opaque sources of financing which often come with harsher and questionable terms, sometimes hidden from the public. Debt distress is a growing problem for low-income countries especially as debt servicing costs are rising in a higher interest rate environment. Debt distress results in inhibited private investment, increased pressures on social and infrastructure spending, and limited ability to access market financing. Concessional loans, and especially grants, offered through IDA, enable low-income countries to borrow on favorable and clear terms so they can make critical infrastructure and development investments.
IDA’s results impact more than just borrower countries, as helping poor countries build resilient systems promotes global stability and peace. 36 countries have graduated from eligibility for IDA support, and many now are donors themselves. South Korea typifies how IDA support helps lead to successful development. Using early grants to catalyze a rapid transformation into prosperity, South Korea graduated from IDA support in 1973, and contributed $51 million to IDA20.
As Congress deliberates over next year’s international assistance levels, tough choices over prioritization will have to be made. I encourage Members of Congress to consider IDA as one of the most cost-effective ways the US can continue to provide global leadership in economic development. A strong US commitment to IDA is not just an investment in global economic stability, but an affirmation of America's leadership in shaping a more prosperous world.
Emily Slater is the Executive Director of the Bretton Woods Committee.
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