By Sally Paxton and Gary Forster | Oct 16, 2024 | Blog

Ahead of next week’s World Bank Annual Meetings, Sally Paxton and Gary Forster discuss the critical role of development banks in mobilising private capital to meet global development goals, and why we still don’t understand what is working. They present new recommendations from Publish What You Fund to fill the current knowledge gap by improving the measurement and disclosure of private capital mobilisation, and stress why action is urgently needed.

Why do we need (more) private capital mobilisation?

There is no shortage of crises today, all of which are creating both unprecedented human needs and significant strains on budgets. While donors of all stripes are being asked to substantially increase resources, there is a clear recognition that public money alone will not suffice to meet the scale of financing needed; the private sector must be an active partner.

Meeting these needs is largely what is behind the push for reform of the multilateral banking system. Some changes have been made, but on the calls for greater involvement of the private sector, including private capital mobilisation (PCM), the progress has been underwhelming. The G20 Independent Expert Group recommended that, by 2030, PCM should be increased to US$240 billion annually. A recent MDB joint report noted PCM reached US$71 billion in 2022, following a period of PCM stagnation at under US$64 billion. This is not the pace of progress that is required.

What is preventing the scaling of private capital mobilisation?

Against this backdrop, Publish What You Fund has undertaken an ambitious, 18-month initiative to tackle the two pressing issues that stand in the way of scaling up PCM: improved measurement and disaggregated disclosure. Our work entailed not only extensive research but more importantly, extensive consultations with the private sector, development finance institutions (DFIs), multilateral development banks (MDBs), shareholders and other experts.

What became clear is that scaling of PCM is hampered by (primarily two) different measurement systems that not only increase reporting burdens but also provide contradictory data on the same investments. Incentives were not necessarily aligned to approaches that best mobilise the private sector and the same instruments were not always treated consistently. Finally, the current level of PCM data aggregation hides insights into what works, distorts the data, and makes serious analysis impossible. We cannot ascertain what works and what doesn’t. Given the unprecedented needs, this status quo cannot be tolerated.

How can we improve the measurement and disclosure of private capital mobilisation?

Today we launch our final recommendation on how PCM should be measured and disclosed. This follows from our initial proposal released in April of this year and a subsequent period of public consultation. If implemented, we believe that both our measurement approach and our model for disaggregated disclosure will transform the understanding of how mobilisation works which, in turn, will help us learn, make more informed decisions, and allocate scarce public resources for maximum impact.

As a result of our public comment discussions, we made four changes to our original proposal. With these adjustments, we think there is now a solid consensus on our measurement approach. But measurement is just the first step. Probably more important is achieving the level of disaggregated disclosure that will allow for much greater understanding, decision-making, and ultimately, the scale of PCM that is required.

Measuring PCM is, frankly, complicated. DFIs play a variety of roles in their efforts to mobilise the private sector. This includes instances where DFI’s lead or play an active and direct role in an investment, but also instances where they are withdrawing from investments to allow the private sector to take their place. We’ve tried to reflect this in our proposal by splitting these roles into different baskets, all of which must be calculated and disclosed separately. Our proposal, which builds on existing work from the MDB Task Force on Mobilization and the OECD, also recommends a consistent approach to measuring PCM that aligns with incentives to promote the most effective investments and captures all relevant instruments and practices.

The changes to measurement will likely boost overall PCM figures. But that will only distort the picture if it is not accompanied by disaggregated disclosure. Discussions around disclosure have taken the bulk of our effort. We’ve talked to a range of private investors who are supportive of our proposal, and do not share the concerns of commercial sensitivity that have been made by DFIs. Our report also highlights where detailed investment data already exists on paywalled sites. Yet we are still met by claims – never detailed – that our disclosure proposal would violate commercial confidentiality. We think that is now mainly an excuse for lack of disclosure. We’ve set out a sensible path forward for mobilisation disclosure that’s achievable and in line with market standards. It calls for more detail on investments, including by sector, country, amounts, financial instrument and the type of organisation being mobilised, but it would also allow for more aggregation for certain instruments where there are legitimate sensitivity claims.

Taken together, these improvements in measurement and disclosure would give us the insights we need to target public money where it is most effective and start to reach the scale of private sector investments needed to meet global development needs.

What are the wider implications of better data?

This time last year, at the World Bank Annual Meetings in Marrakech, Ajay Banga took to the stage to share his vision for a more streamlined, more impactful Bank. His remarks included the following quote:

“We are asking a lot of the private sector. We are asking them to operate in places and in situations that their algorithms and expertise may not extend, on roads the DFIs have travelled for years. And if we are asking others to follow – we should be willing to share our map.”

Yet the maps aren’t forthcoming. The current information gap is preventing donors from judging where and how their scarce funds can be most productively deployed, shareholders from performing their oversight function, private investors from being aware of and informed about investment opportunities, and citizens from holding the banks to account.

This lack of data extends to beyond private capital mobilisation, to include climate finance and even risk data from GEMs, the Global Emerging Markets Risk Database. Disclosure of this data through strong leadership and changes to contracting practices that prevent disclosure would allow for the publication of timely, disaggregated, project level detail so it can be used by a range of actors for a range of purposes. Our proposal, launched today, provides the evidence, analysis, and concrete next steps to enable MDBs and DFIs to share their maps. This is an opportunity that shouldn’t be missed.

“What works: How to measure and disclose private capital mobilisation to increase private investment and close the SDG financing gap” will be launched at an event co-hosted with the Center for Global Development in Washington DC (and online) on 23 October, 2pm EST, 7pm BST.

Transforming our understanding of what works to mobilise private investors

by Victoria Dimond, Roland Rajah and Georgia Hammersley

This week World Bank President Ajay Banga is visiting Pacific small states, many of which benefit from the Bank’s concessional lending arm, the International Development Association (IDA). As IDA approaches its next three-year replenishment cycle, IDA21, Banga is seeking a record $28–30 billion from donors to support his headline number of a $100 billion replenishment—a big ask for many major donors facing weak currencies, economic headwinds, and other competing priorities. Still, a well-funded IDA remains crucial for the world’s poorest countries, especially in small states where it accounted for nearly a third of official development assistance (ODA) from 2018–2022, compared to roughly a quarter in non-small states. As our newly published paper argues, beyond strong funding, the Bank should also prioritize policy reforms to maximize IDA’s impact in small states.

Small states have been at the forefront of recent calls to reform the international development finance architecture, largely due to their vulnerability to climate change. Examples include the Bridgetown Initiative led by Barbados and UN Secretary-General Antonio Guterres’ urgent call for swifter climate action at last week’s Pacific Island Forum. Small states have contributed negligible carbon emissions to the global total, yet are at the forefront of experiencing the impacts of climate change, including extreme weather, ocean acidification, and rising sea levels. These impacts threaten livelihoods and economies.

Yet small states are a heterogeneous group of countries, and whether this heterogeneity extends to these countries relative climate vulnerability is a major point of debate. For example, GNIs per capita range in small states from less than $1,600 in Comoros to over $30,000 in the Bahamas. There is no agreed-upon approach to measuring climate vulnerability, and different methodologies produce different outcomes for small states. For example, Figure 1 below highlights that for small states there is no pattern between the UN’s new Multidimensional Vulnerability Index (MVI) and the 2021 World Risk Index. Both these indexes prioritize the vulnerability of small states to some degreerelative to other vulnerability indexes available, yet both indexes still have small states ranging across the available scores, and there no correlation between countries across the two indexes. Both indexes have higher scores implying greater vulnerability.

This debate on small states’ relative climate vulnerability is increasingly pivotal to these countries’ access to international development finance. The IDA Small States Exemption (SSE) allows countries access to IDA if they have populations under 1.5 million and GNI per capita below the World Bank’s high-income country threshold. The SSE covers nearly a third of countries with IDA access and recognizes that the unique characteristics of small states—including their size, limited economic base, and remoteness—results in these countries having comparable challenges to other IDA-eligible countries with lower per capita incomes. The SSE costs the international community relatively little, with these countries receiving just three percent of IDA’s total envelope. Figure 2 below shows that many higher-income small states are excluded from IDA. Many of these countries are considered vulnerable in the new MVI. Our paper shows that the IDA SSE functions like a climate vulnerability criterion for many lower-income small states that are vulnerable across other climate indexes access to IDA. We also show that using the MVI in place of the SSE could potentially create worse financing outcomes for many of these lower-income countries who are unlikely to be considered vulnerable under the MVI and would therefore possibly lose access to IDA under such a proposal. Going forward, questions remain as to whether the MVI could be incorporated into IDA’s eligibility criteria. Presently, it seems unlikely the global community would support this, as such a change could result in adding new countries to IDA that on average have GNI per capita of nearly fifteen times that of the FY24 IDA cut-off.

A key element of small states’ climate advocacy is to scale up concessional adaptation finance. Our paper highlights that these countries disproportionately use IDA’s concessional funds for adaptation compared to non-small states. Figure 3 below shows that between 2015 and 2022, SSE countries generally had a higher proportion of their IDA commitments tagged as adaptation finance compared to non-SSE countries. Given the scale up in IDA’s financing over this period and that IDA’s financing programs are demand-driven, this finding could potentially indicate that if small states were to receive more concessional finance, they would be more likely to allocate it to adaptation than other countries. We also highlight that small states disproportionately use IDA for place-based investments, while non-small states tend to use IDA to invest more in people-based investments. Our paper argues that going forward, small states may benefit from increasing their investment in human capital and social protection systems as part of their adaptation programming.

Small states need options to better scale up  adaptation finance. Many developing countries advocate for adaptation financing to be provided on grant terms given historic injustices, yet the volume of grant finance needed has not been forthcoming. Given this, our paper makes the case for careful consideration for giving small states the ability to trade off some of their IDA grant allocation for a larger volume of concessional loans in cases where additional financing is needed for macro-critical adaptation investments. Recent analysis by the IMF highlights that in some circumstances, concessional loans for adaptation can enhance debt sustainability by improving the economy’s resilience to future climate-driven shocks. Such an option would need to be made available to small states on a demand-driven basis, while the debt sustainability implications would need to be assessed carefully case-by-case. Additionally, given the relatively good debt management in most small states, we argue that in the future, IDA could consider further hardening its terms for countries with poorer debt management. This would likely free up considerable resources for IDA as a whole and incidentally benefit small states.

Another key concern for small states is disaster financing. Our paper explores the World Bank’s programming in this space to date and the new Comprehensive Toolkit to Support Countries after Natural Disasters. Historically small states have benefited the most from IDA’s disaster products when they provide new funding and when countries can control their access (rather than being dependent on a disaster meeting a predefined trigger). IDA’s disaster tools have typically been small relative to the scale of the disaster and the funding needed to respond. New tools designed to scale up financing in disasters mostly provide flexibility for using existing funding, rather than new resources. These tools range in the size of their response and the degree of control countries have in using them. Ideally, these new tools will provide countries with greater flexibility for using their World Bank funds and could be deployed together for a greater impact. As these tools are new, their usefulness is untested.

Lastly, we argue the Bank should focus on key administrative reforms, including improving data quality in small states, to improve effectiveness. Given their limited institutional capacities, small states could gain from reform efforts within the IDA21 policy package, including the SimplifIDA initiative aimed at reducing the complexity of IDA’s policy framework, and the new World Bank Scorecard, which narrows the focus to 22 performance indicators, down from 150. However, concerns remain about the Scorecard’s focus on absolute figures, which may disadvantage countries with smaller populations, alongside perennial data quality issues that hinder coverage in these states. For instance, the World Bank’s Country Opinion Survey Program has only reached 56 percent of IDA small states, largely due to poor coverage in Pacific Island microstates. Streamlining efforts and resolving data challenges will be crucial for greater impact.

A successful IDA21 replenishment is needed to sustain essential development and climate support in small states, but key policy reforms would also improve the World Bank’s effectiveness in these countries. Over the last decade, IDA has grown to become a vital source of support for highly climate-vulnerable small states. But with financial pressures on IDA, strong donor support is required for this to continue. As December’s replenishment deadline nears, President Banga’s visit to Pacific small states also offers a prime opportunity for donors and small state recipients themselves to push for reforms that will maximize IDA’s impact.

CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.

The World Bank’s IDA Is a Vital Lifeline for Pacific Islands and Other Small States

As the World Bank assesses its progress after one-year of its claim to be Paris-aligned, it is an opportune time to reflect on how the process can be strengthened to be more aligned with the goals of the Paris Agreement. The Bank has produced instrument and sector notes detailing how it will operationalize Paris alignment in lending instruments and in each sector. BIC has reviewed a number of sector notes (our recommendations can be found here). 

While reviewing the Transport Sector Note, we were concerned that the Note does not prohibit financing of internal combustion engine (ICE) vehicles despite the need to reduce emissions by 80 to 97 percent in the next 26 years to limit warming. In addition, we found little to no recognition of how the vulnerability of transport systems to climate change will disproportionately affect marginalized groups, including persons with disabilities, who are most exposed to the negative consequences of climate change. The Note does not recognize different transport needs and how they can either support transport decarbonization efforts or lead to an increase in transport emissions. For instance, persons with disabilities may be more reliant on low-occupancy vehicles to meet their transport needs, leading to more vehicles on the road and higher greenhouse gas emissions. As the Bank designs and implements new transport operations that are Paris-aligned, these systems should be accessible to all. In this brief, we provide recommendations for the Bank to adopt a disability-inclusive approach to climate action in the transport sector. 

How Can the World Bank Integrate Climate Action and Disability Inclusion in Transport?

During 1-22 July 1944 over 700 representatives from 44 countries met in Bretton Woods, New Hampshire for the United Nations Monetary and Financial Conference. 

This conference (also known as the Bretton Woods Conference) set up international monetary and financial architecture post-World War II, by launching the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD). 

The President of the conference was Henry Morgenthau, US Secretary of Treasury. The US was the organizing country and the largest economy in the world, contributing around 35% to the global GDP in 1944.  

The debates were organized in three Commissions, following talks between the representatives of the US and UK in Atlantic City in June 1944: 

Commission I of the Fund, with Harry White (chief international economist of the US Treasury) as President; 

Commission II of the Bank, having as President the famous British economist J.M. Keynes; 

Commission III on Other Means of International Financial Cooperation, headed by Eduardo Suarez from Mexico. 

The White Plan was focused on the creation of the IMF, an institution to play the role of a central bank. It would control capital flows and use the US dollar as the reference currency of the international system. 

The Keynes Plan mentioned the creation of a new international currency (BANCOR) to support foreign exchange transactions within the IMF. In a system characterized by the creation of the International Clearing Union (ICU), the quota of the participating countries was dependent on their weight in international trade. According to this plan, the countries confronting imbalances in terms of balance of payments were debited/credited in order to avoid competitive depreciations. 

The spirit of the Bretton Woods Conference in 1944 consisted of promoting economic cooperation as a fundamental principle for peace and prosperity. 

The representatives to the Bretton Woods Conference supported the creation of the international financial institutions, with the IMF playing the central of promoting economic growth through trade and financial stability, in line with the White Plan. 

The quotas of the participating countries were established based on the formula of the United States (belonging to Professor Raymond Mikesell, from the Treasury), taking into account several macroeconomic variables, including national income, international reserves, and dynamics of the international trade flows (exports, and imports). 

The first five countries (USA, UK, USSR, China, and France) had a cumulative weight of over 70% in the initial structure of quotas.

Initially the currencies of the participating countries were convertible to US dollars (at a fixed parity), while the US dollar was the only one convertible to gold for foreign governments and central banks (at the price of USD 35/ounce). 

The Bretton Woods model was sustainable during the first decades following WW II, as emphasized by Professor Eichengreen, given the control of international capital flows, the high degree of financial regulation, and the dominant position of US economy and US dollar. 

However, the Bretton Woods System as launched in 1944 turned unsustainable in the 1960s, due to the challenges the US economy was confronted with: focus on domestic full employment and the persistence of a balance of payments deficit. 

In fact, the challenges the system was confronted with in the 1960s contributed to the development of international literature on optimum currency areas, starting with the seminal paper of the Nobel Prize Economist R. Mundell.  

In this context, at the IMF Annual Meetings in 1967 (Rio de Janeiro) there was an agreement on Special Drawing Rights (SDR) (paper-gold), while in August 1971 US President Nixon suspended the convertibility of the US dollar to gold. 

Furthermore, in December 1971 the Smithsonian Agreement marked the end of the international monetary system of Bretton Woods, with free-floating exchange rates regime in function from the Spring of 1973. 

80 years since the Bretton Woods Conference the world economy is confronted with unprecedented challenges for the period following World War II, among which I mention: 

economic confrontation between US and China (the largest economies of the world, contributing more than 40% to global GDP); 

the arms race – world military spending per capita hit record levels in 2023; 

the race of subsidies and trade barriers among the largest economies of the world; 

the decline of the weight of the European economies in global GDP; 

the significant increase of the weight of the Global South countries in the world economy; 

the intensification of international cooperation among emerging and developing economies; 

Furthermore, there is an accumulation of signals and upside risks for the outbreak of a new global economic crisis, given the challenges of public finance (including the alarming increase of the public debt in US, where the snowball effect is imminent), persisting geo-political tensions, overvaluation of stock markets, and cyber risks. 

In fact, the strong upward trend of the price of gold in recent months (close to the record level of USD 2500/ounce) confirms the increasing probability of the outbreak of a new global economic crisis. 

Therefore, nowadays the need for a new Bretton Woods is higher than ever. 

As it stands, Bretton Woods Institutions are very prepared to counter the current challenges the world economy is confronting, including the multiple crises, as reflected by the report of the Bretton Woods Committee in April 2024.

All views expressed by members are their own and not reflective of the views of the Bretton Woods Committee.

80 Years Since the Bretton Woods Conference

Jubilee USA partnered with Friedrich-Ebert-Stiftung New York to publish a series that gathered practitioners to write on the theme "Debt Sustainability Assessments and their Role in the Global Financial Architecture." The papers will be chapters in a report to appear later in the summer. 

Debt Sustainability Assessments and their Role in the Global Financial Architecture

July 2024 marks the 80th anniversary of the Bretton Woods Agreement that established the post-World War II multilateral economic order, including the International Monetary Fund (IMF), the precursor to the World Bank, and early global trade governance systems that provided the structure and form of the World Trade Organization (WTO), established in 1995.

A new flagship report by William N. Kring, Rishikesh Ram Bhandary, Rachel Thrasher, Marina Zucker-Marques and Tim Hirschel-Burns synthesizes the work of the Boston University Global Development Policy Center (GDP Center) on global economic governance focused on the Bretton Woods institutions across three key pillars of financial stability, development finance and trade.

While the Bretton Woods institutions have established a rules-based, multilateral system of global economic governance, the GDP Center’s policy-oriented research finds that this system is in urgent need of fundamental reform. This report recognizes both the benefits and contributions of the multilateral institutions established at Bretton Woods, while identifying areas where reform is required. While these institutions have expanded the range of options available for countries, they are indicative of a long gridlocked system that has not transformed itself to accommodate existing economic realities.

Building on GDP Center research, this report outlines key global economic governance reform proposals to ensure a bigger, better and more inclusive Bretton Woods System in the coming decades. The authors identify pathways to improving global economic governance architecture and ensuring that there are sufficient resources to foster financial stability and development; improving the functioning of the global economic governance system; and increasing voice and representation for emerging market and developing economies (EMDEs) within these institutions.

Scale up resources for financial stability and development finance.The IMF and the World Bank need to be equipped with resources that are commensurate with the needs and priorities of EMDEs. The World Bank and other development finance institutions need to play a key role in supporting the ‘big push’ of investments needed to achieve development and climate goals. Likewise, a well-resourced IMF is needed for an effective Global Financial Safety Net.The multilateral trading system should facilitate the scaling up of development, climate resilience and mitigation by increasing trade with developing countries in climate-friendly technology and products. An effective response to the climate crisis requires participation by all countries. If the Global South is left behind, without access to key technology to make the energy transition, or stuck once more with the short straw of supplying primary commodities for the new renewable energy supply chains, those countries will be hindered from taking climate action, and will face additional political obstacles to participating in the global project.

Overhaul lending practices and priorities at the Bretton Woods institutions.The World Bank needs to shift its lending towards supporting structural transformations in EMDEs. This structural shift needs to be supported by appropriately calibrated instruments. The social and environmental risks of a big push need to be minimized and the World Bank operating model needs to better recognize the financial risks faced by members.The IMF needs to improve its lending practices and tools. The IMF and World Bank should improve their Debt Sustainability Analysis framework to account for the necessary development and climate investments and shocks. Moreover, the IMF should eliminate surcharges on borrowing members to avoid further buildup of debt vulnerabilities. Finally, lending conditions and restructuring packages should be connected to growth enhancing plans, rather than austerity packages.WTO members need to proactively transform the multilateral trading system so that it facilitates increased innovation, production and trade in essential climate-related products and discourages continued reliance on fossil fuels.

Enhance voice and representation across all pillars of the Bretton Woods institutions.For the IMF and the World Bank, a significant rebalancing of voting power must be complemented by fundamental governance reforms to ensure more voice and representation for EMDEs.For the WTO, this means maintaining a commitment to multilateral decision-making, recognizing the economic and social impacts of Global North policymaking on the Global South, and allowing special and differential treatment for those countries that need more flexibility during the energy and economic transition.

Mounting global challenges and intersecting crises require an ambitious multilateral response. The 80th anniversary of the Bretton Woods Agreement presents a key opportunity to transform these institutions to meet the needs and aspirations of people around the world.

The Bretton Woods Institutions at 80: Towards A Bigger, Better and More Inclusive Global Economic Governance Architecture

Join us for the launch of the 2024 Aid Transparency Index with @BrookingsGlobal on July 16th.


Time and Date: 9:30 AM - 11:00 AM EDT, Tuesday, July 16, 2024 

Location: The Brookings Institution Falk Auditorium, 1775 Massachusetts Ave NW, Washington, DC, 20036

Transparency of data and other information on development and humanitarian assistance helps stakeholders understand where aid is provided, for what purpose, how it is delivered, and what results it achieves. Transparency also promotes collaboration among aid donors and implementers and ensures accountability to citizens of both donor and partner countries.

With the deadline for the Sustainable Development Goals (SDGs) just six years away, many assessments show these global goals off track. Improved transparency in aid and development data has led to tools that assess progress, identify gaps, and highlight where more effort is needed. How can aid and development data meet information needs for assessing and directing SDG efforts? Specifically, how can this data inform decisions about SDG 2 and emergency food needs? How do donor agencies use aid and development data to understand their own and others’ programs, including results and evaluations? What information do countries need for SDGs, what do they currently use, and what is still required?

On Tuesday, July 16, the Center for Sustainable Development at Brookings will host the release of the 2024 Aid Transparency Index in partnership with Publish What You Fund (PWYF). This event will examine the International Aid Transparency Initiative (IATI), United Nations Development Programme’s (UNDP’S) SDG dashboard, and country statistical data as three essential tools that, when combined, can help countries, donors, and citizens better focus their efforts. The event will begin with an introduction by George Ingram, senior fellow at the Global Economy and Development program. It will be followed by presentations  by PWYF Chief Executive Officer Gary Forster, and by UNDP’s Director of SDG Integration, Laurel Patterson. George Ingram will moderate a panel with representatives from the development community to discuss the Index findings.

Viewers can submit questions via events@brookings.edu or by using the hashtag #2024Index on X (formerly known as Twitter).

 Launch of the 2024 Aid Transparency Index - Aid data, impact, and the Sustainable Development Goals

In March, the Biden Administration released its budget request for Fiscal Year 2025 (FY25), and on June 12th, the House Appropriations Committee approved its FY25 State, Foreign Operations, and Related Programs (SFOPs) bill. While the Biden Administration's budget request meets existing commitments to the MDBs, the House bill fails to meet many MDB commitments and includes harmful climate provisions that would weaken the U.S.’s ability to push for better environmental impacts at the MDBs. Though the upcoming election means that appropriations negotiations may be even more difficult than last year’s contentious process, Congress should meet the existing commitments to the MDBs and exclude provisions that would lead the U.S. to renege on its climate commitments. Furthermore, Congress must push for stronger social, environmental, and accountability policies as conditions for potential Congressional support of general capital increases (GCIs) at the Inter-American Investment Corporation (IDB-Invest) and the European Bank for Reconstruction and Development (EBRD). 

MDB commitments in the FY25 President’s Budget Request (PBR)

The FY25 PBR for the Treasury Department includes $1.93 billion for existing commitments to the World Bank and the regional multilateral development banks (MDBs). We call on Congress to appropriate the funding needed to meet U.S. commitments to the MDBs, including: 

$1.43 billion for the final contribution to the 20th replenishment of the International Development Association (IDA20). 

$54.6 million for the fifth of eight installments for the 7th capital increase at the African Development Bank (AfDB).

$206.5 million for the last of six installments for a capital increase at the World Bank’s International Bank for Reconstruction and Development (IBRD). 

$43.6 million for the 12th replenishment of the Asian Development Fund (ADF). 

$197 million for the second of three installments for the 16th replenishment of the African Development Fund (AfDF). 

BIC encourages Capitol Hill to meet these existing commitments to preserve the US’s leadership role and ability to improve these institutions’ policies and practices.

GCI Authorization Requests in the FY25 PBR

The FY25 PBR also includes requests for authorization and contributions for two GCIs. GCIs inject new shareholder capital into the MDBs so the institutions can increase the volume of their lending. The request calls for a $75 million contribution and authorization of a $3.5 billion GCI for IDB-Invest, the private sector lending arm of the Inter-American Development Bank (IDB). The GCI, approved by shareholders in March 2024, comes as the IDB implements its New Institutional Strategy, a series of reforms intended to increase the IDB’s overall impact. The request also calls for a $50 million contribution and authorization of a €4 billion GCI for the EBRD. This GCI, approved by shareholders in December 2023, comes as the EBRD revises its Environmental and Social Policy and Access to Information Policy. As these institutions engage in reforms and policy reviews, we call for Congress to push for stronger accountability and transparency standards if they authorize these capital increases. 

MDB provisions in the House FY25 SFOPs bill

In June, the House Appropriations Committee approved its SFOPs appropriations bill, which contains $1.55 billion for existing commitments to the World Bank and the regional MDBs. The bill includes climate provisions that would weaken the U.S.’s ability to meet its climate commitments and excludes MDB oversight provisions that inform how the Treasury must engage with the MDBs. Below are some of the key provisions and gaps within the House’s FY25 SFOPs bill: 

The House bill appropriates $1.1 billion for the last installment of the U.S. pledge to IDA20, over $300 million lower than needed to meet this year’s obligation. Reneging on the pledge will decrease the ability of the U.S. to push for stronger environmental, social, and accountability policies during the ongoing negotiations for the IDA21 replenishment package.

The House bill also appropriates over $20 million less than what is needed to meet this year’s obligations for both the AfDF and the AfDB. Failing to meet these commitments will hinder the U.S.’s ability to improve these institutions’ policies and practices.

The House version does not authorize the GCIs at IDB Invest and the EBRD. Should Congress decide to include these authorizations in the final package, Congressional support should be conditioned on requiring both banks to improve their social, environmental, and accountability policies. 

The House bill includes provisions that prohibit contributions to certain international environmental funds such as the Green Climate Fund and the Clean Technology Fund, blocks the use of funds for implementation of the Paris Agreement and loss and damage attributed to climate change, and prevents the application of Treasury’s Fossil Fuel Guidance for MDBs. BIC calls on Congress to remove these provisions to support the United States’ climate commitments. 

The House SFOPs bill fails to include oversight provisions that inform how the Treasury must engage with MDBs. The enacted FY24 SFOPs bill includes provisions that require the Treasury to push for additional oversight and analysis of large dam projects, withhold support for projects that would damage intact tropical forests, and only support projects that implement the best practices regarding environmental conservation, cultural protection, and empowerment of local populations. However, these provisions are absent in the FY25 House bill, and BIC calls for their inclusion in the final bill.

How does the FY25 House SFOPs bill and the FY25 President’s Budget Request meet U.S. commitments to the MDBs? 

by Erin Collinson, Clemence Landers, Justin Hurley and Grace Miner

The International Development Association (IDA)—the World Bank’s arm that works in low- and lower-middle-income countries—is one of the largest sources of development assistance for the world’s poorest countries. It is also a crucial tool for resource-constrained governments to borrow on affordable terms compared to other creditors, including Chinese entities.

IDA supports eligible countries whose annual per capita incomes fall below an established line (currently $1,315 in FY2024). Because IDA provides grants and highly subsidized loans to its client countries, its funds need to be replenished by donors every three years. Replenishments are year-long negotiations where the World Bank’s shareholding countries, of which the US is the largest, negotiate a policy and financing package for the next three-year cycle. This year, 2024, is an IDA replenishment year for the institution’s twenty-first round of funding (“IDA21”), culminating with a pledging session in December to finalize IDA21’s financing envelope.

IDA gets its funding through a range of sources, including direct contributions from World Bank donor countries, borrowing on international capital markets, repayments from past IDA loans that are recycled to support future lending, resources carried forward from previous IDA replenishments, and profit transfers from the World Bank’s non-concessional lending arm, the International Bank for Reconstruction and Development.[1] In 2018, IDA first introduced the hybrid financing model. By borrowing from international capital markets, the institution can generate larger replenishments while relying less on donor contributions.

The most recent IDA replenishment (IDA20), which occurred in 2021,[2] was the institution’s largest replenishment ever, with $23.5 billion in contributions from donor countries supporting a total replenishment of $93 billion to cover the three years from mid-2022 to mid-2025.

IDA’s resources are delivered through a combination of grants, which do not need to be repaid, and highly concessional loans with interest rates well below market value and generous grace and repayment periods. IDA allocates funding to countries using a performance-based allocation system (“PBA”) based on the country’s population, GNI per capita, and a quantified assessment of the quality of a country’s economic management policies and the strength of its institutions. IDA also adjusts the ratio of loans versus grants based on a country’s debt distress levels: Countries at low levels of debt distress get concessional loans at 38-year maturities; countries at moderate levels receive concessional loans with 50-year maturities; and countries at high levels of debt distress receive grants.

That meant that as debt dynamics worsened during the pandemic, IDA increased the share of finance provided as grants. In IDA20, donors modified the grant framework to primarily target countries at high risk of debt distress and small island states. Still, if debt distress levels continue to deteriorate, IDA’s share of grant funding could go up.

In addition to the PBA system, countries may receive additional financing through a variety of other mechanisms: the Fragility, Conflict and Violence envelope, and through lending windows for other priorities, including the Regional Window, the Window for Host Communities and Refugees, the Crisis Response Window, the Scale-up Window, and the Private Sector Window. Roughly a third of IDA20’s resources are set to be delivered through one of these five windows.[3]

There are currently 75 countries eligible for IDA financing. While IDA-borrowing countries can be found in nearly all regions, the largest share of IDA-eligible countries are in sub-Saharan Africa. In fiscal year 2023, nearly 75 percent of IDA’s financing went to countries in sub-Saharan Africa.

Graduation from IDA occurs when a country’s per capita income rises above the operational cut-off, and it is creditworthy enough to receive non-concessional financing from the IBRD. Within the past decade, ten countries have graduated from IDA, including fast-growing economies in Asia like India and Vietnam. Only one recent IDA graduate is in sub-Saharan Africa.[4]

Twenty-one of the 75 IDA-eligible countries borrow on “blend” terms—while still generous, these are the least concessional terms IDA offers. This typically occurs either because a country is above the IDA GNI/capita threshold but lacks the creditworthiness to borrow from IBRD (a “gap” country) or because the country is IDA-eligible due to low GNI/capita levels but sufficiently creditworthy for IBRD borrowing (a “blend” country). Exceptions are made for a number of small economies, consisting mainly of small island states, which fall into one of these categories but retain access to more favorable lending terms.[5]

IDA’s country-led model means that recipient countries determine how IDA financing can support their own priorities. Overall, IDA lending is generally used for activities supporting economic growth.

In World Bank FY2023, infrastructure was the leading sector for IDA lending, followed closely by lending for social services, which covers investments in health and education systems, and then public administration, which funds projects to improve government capacity.

In December 2023, IDA launched its 21st replenishment negotiation. World Bank President Ajay Banga declared his ambition to make this replenishment the largest of all time, eventually unveiling a target figure of $100 billion. Meeting that target would require an estimated $28–30 billion in donor contributions over the three-year cycle, with the rest coming from borrowing, loan repayments, and other sources (as described above).

To hit the mark, donor countries from across the globe will need to step up their contributions by as much as 15 to 30 percent. Leading donors will be critical in spearheading any effort to increase IDA’s resources. IDA benefits from the support of over 50 donors but its top 15 donors account for around 90 percent of its total contributions. Notably, the G7 countries provide just over 60 percent of total contributions.

What role does the United States play in supporting IDA?

The United States plays a significant role in shaping the policy agenda for IDA and has helped ensure IDA is well-resourced. The US made the largest pledge to IDA’s most recent past replenishment, reclaiming the mantle of top IDA donor for the first time since the IDA16 cycle (2011-2014).[6] While the United States is IDA’s single largest historical donor, US pledges to IDA have decreased since their peak over a decade ago. In contrast, donors outside of the G7 have scaled up their contributions, most notably China, South Korea, and Saudi Arabia.

The US Congress holds a pivotal responsibility in directing US engagement with IDA. While US pledges to IDA are coordinated by the Treasury Department, any contribution requires congressional appropriations and participation in new replenishments requires authorization. Typically US pledges are paid in equal installments over three years. Due to the early IDA20 replenishment during the COVID-19 pandemic, the administration decided to backload payments toward the US IDA20 pledge in FY24 and FY25.[7] In FY24, Congress appropriated $1.38 billion for the second US contribution to IDA20—$50 million short of the amount requested to keep the US on track to fulfill its pledge.

The Biden administration is expected to make a three-year financial pledge to IDA21 in December, regardless of the outcome of the US presidential election in November. Still, should the election results yield a presidential transition, it would be left to the incoming administration to deliver. This is not without precedent: In December 2016, the Obama administration made a $3.87 billion pledge to IDA18. When President Trump took office in January 2017, his administration revised the pledge down to $3.3 billion.

What are the IDA-21 priorities and agenda?

During each replenishment process, IDA collaborates with shareholders and civil society to develop a set of policy priorities attached to its financing package. Historically, the US has played a major role in shaping the agenda.

While negotiations will continue through much of 2024, there are early indications of how IDA21’s final priorities are likely to shape up. Areas of emphasis may include the following:

Infrastructure. Infrastructure makes up the greatest percentage of any sector of IDA lending. IDA is well-positioned to help low-income countries invest in infrastructure projects that align with their broader development agendas. IDA also provides funding through its Regional Window, which was scaled up in IDA20, for investments in cross-border regional infrastructure and economic integration.

Debt. IDA works alongside borrower countries to analyze and manage country debt burdens. By adjusting the ratio of loans vs. grants based on a country’s debt levels, IDA ensures that it does not contribute to worsening debt risks by overburdening its borrowers. IDA also plays a convening role in enhancing coordination between creditors and borrowers to strengthen debt transparency and fiscal sustainability.

Human capital. With setbacks to progress on human capital due to the COVID-19 pandemic, IDA has placed a renewed focus on restoring gains in health, education, and social protection. IDA’s most recent replenishment introduced human capital as a special theme and committed to expanding access to early childhood services in countries with the lowest scores on the Human Capital Index.

Digitalization. Under President Banga, the World Bank has embraced a greater emphasis on the role of digital technologies to advance poverty reduction. IDA21 is likely to focus on accelerating digitalization for government services, like identification systems and payment platforms, as well as working to close the gender digital divide.

ABCs of the IFIs: Understanding the World Bank’s IDA21 Replenishment

by Nancy Lee, Karen Mathiasen and Samuel Matthews

No decision by aid donors this year is more important than how much they pledge to the IDA replenishment negotiations. IDA, the World Bank’s lending window for the poorest countries, is the single largest multilateral source of grants and concessional finance to poor countries for both development and climate-related investments. It is chiefly funded by a combination of donor grants—which must be replenished every three years—reflows from earlier loans, and market borrowing.

This replenishment, IDA21, comes at a critical juncture: many IDA borrowers are mired in high-debt, low-growth traps and buffeted by external shocks—climate change, sharp increases in borrowing costs, food price inflation, and other supply disruptions related to Russia’s invasion of Ukraine. IDA has excelled among multilateral development bank (MDB) funders for its rapid and robust response to these shocks. But to meet urgent and looming needs, this IDA replenishment has to be the largest ever, reaching at least $100 billion in finance capacity over three years, which requires at least $30 billion coming from donors.

Decisions about how the money will be spent are as important as pledges. And one critical choice donors must make is how much is allocated to funding governments vs. the private sector.

The IDA Private Sector Window (PSW) was launched in 2018 to address a basic challenge: poor countries cannot grow and reduce poverty without private investment. But the World Bank’s private sector arms—IFC and MIGA—have struggled to manage the risks of financing the private sector in poor and fragile countries. The objective of the PSW was to use IDA subsidies to help IFC and MIGA manage those risks, thereby increasing the volume and share of their finance in those countries and accelerating private sector development.

The PSW was an experiment, but enough time has passed to form judgments about its performance, effectiveness, and scalability. Such judgments cannot be avoided. Tradeoffs in this replenishment are as difficult as they have ever been. Donors must set a high performance and evidence bar for allocating their scarce donor funding between governments and the private sector.

Our paper and this blog aim to help donors and other stakeholders assess evidence, set the right performance bar, and make judgments. We conclude that after three PSW replenishments, with a cumulative allocation to the PSW of $5.5 billion, the evidence on PSW performance is mixed, and the market-building impact of the model is still unclear. This judgment is partly based on the evidence we have and partly based on gaps in evidence. Therefore we recommend significant reforms—operational and policy changes—as conditions for any further funding of the PSW.

The PSW got off to a slow start and struggled to deploy its subsidy allocation, but the pace of PSW commitment has picked up. All of the $5.5 billion allocated to the PSW to date is expected to be committed by the end of the IDA20 cycle in June 2025, although disbursement rates are much lower at $1.8 billion. So attention must now turn to the scale, efficiency, and effectiveness of IFC and MIGA commitments supported by the PSW.

To judge performance, we, like others (here and here), asked the following questions and summarize answers below:

Has the volume and share of IFC and MIGA commitments in PSW-eligible countries increased, especially for long-term finance (LTF)?

For IFC, the answer is not much. The evidence shows a small (6 percent) increase in average annual PSW-supported LTF commitments for IFC compared to the three years prior to PSW launch, but no upward trend in the share of PSW-eligible countries in total IFC LTF commitments (8 percent in 2023). For MIGA, the average annual increase and share (26 percent in 2023) are larger.

Moreover, IFC has used a large portion of PSW funds to subsidize short-term finance (STF): trade credits and working capital. Nearly half of PSW-supported IFC commitments in 2023 were STF. It is difficult to make the case that deploying scarce IDA resources for trade credit subsidies—well after the pandemic—constitutes an optimal use. This seems especially clear because IFC commitments of trade finance to PSW-eligible countries were already a significant share of their overall STF commitments before the advent of the PSW, suggesting that subsidies were not needed.

Are PSW subsidies deployed in transactions with higher development impact and are those transactions demonstrably additional?

Limited data on impact scores suggest yes. Ex ante impact scores for PSW-supported transactions are higher for both IFC and MIGA than for their portfolios as a whole. For IFC they are also higher when the investment has been executed—i.e., all funds have been disbursed. But more disaggregated data from Anticipated Impact Measurement and Monitoring (AIMM) scores, an impact assessment tool developed by the IFC, is needed to help us assess the broader market-building impact of the subsidies, beyond the transaction-specific benefits.

Non-PSW supported IFC commitments are falling in eligible countries, suggesting that we are not seeing broader positive market spillovers from PSW-supported transactions. These data raise questions about the additionality of PSW-supported projects and whether they have diverted staff effort from non-PSW supported projects in eligible countries.

As our colleague Charles Kenny argues, we do not see evidence to support the assertion that the underlying trend in private finance to IDA countries from development finance institutions was downward, and the PSW therefore was necessary to prevent IFC/MIGA commitments from an even larger decline.

Do PSW-supported projects mobilize more private finance per dollar of IFC and MIGA commitments?

For IFC, the answer is no. Sixty cents of private finance was mobilized per dollar of IFC own-account finance in PSW-supported transactions, less than half that for non-PSW-supported IFC commitments in the same countries. This finding is in some ways not surprising given that PSW subsidies are mostly used to take risk off IFC’s balance sheet, not to share risk with the private sector. It is possible that this policy works to incentivize IFC to take larger transaction shares. IFC argues rather that lower private sector participation stems from generally higher risks in PCW-supported projects. If so, it suggests that more private finance might be mobilized—with associated market-building gains—if risk-mitigating subsidies were shared between the IFC and the private sector. In any case, more disaggregated mobilization data would allow identification of the kinds of PSW subsidies that tend to mobilize more private finance. For MIGA, we lack data to judge.

Are PSW subsidies deployed effectively as part of a whole-of-bank approach to developing the private sector and building markets?

No. The World Bank’s Independent Evaluation Group concludes that IFC country strategies and diagnostics do not refer to the PSW as a tool to enable investments or to address constraints to investments. (MIGA does not use county strategies.) IFC is, however, making progress in substantially ramping up in-country staff based in PSW-eligible countries to address the limited investment pipeline problem.

Do PSW subsidies adhere to the principle of minimum concessionality?

Yes as far as we know. Average subsidy levels are low (6.7 percent of the transaction value), though details of the methodology are not known so independent verification is not possible.

Has the availability of PSW subsidies changed IFC and MIGA risk tolerance?

The evidence is mixed. Data on the risk ratings of counterparties in PSW-supported transactions do indicate that the PSW is facilitating IFC investments with weaker counterparties than in non-PSW-supported investments. But extremely low realized losses for the PSW, along with revenues that are five times greater than losses, suggest the possibility that IFC may be overestimating risk in these countries and therefore could do more with and without PSW subsidies.

IDA deputies, representatives from the donor countries that govern IDA, have already agreed on one step as a consequence of these data: to reduce the 100 percent provisioning requirement for PSW commitments to 60 percent, which will enable more efficient use of IDA subsidies. Whether this share is efficient enough is not clear at this point, and donors should revisit the issue as projects close and more data become available.

This mixed and partial evidence after seven years of experience suggests to us that additional IDA allocations to the PSW should not be made unless conditioned on some fundamental operational and policy changes. These changes should be focused on: (1) boosting project pipeline development and more rapid growth in IFC and MIGA own-account LTF commitments in PSW-eligible countries, (2) better targeted, more effective subsidies to achieve more impact, additionality, and mobilization by focusing on building markets, and (3) much improved reporting and transparency.

Whole-of-bank approach. Integrate strategies for using PSW resources into private sector diagnostics and country strategies for PSW-eligible countries to prioritize relevant investment climate reforms, identify capital market gaps, direct subsidies to market-building obstacles, and expand project pipelines (both PSW and non-PSW supported projects).

Long-term finance to build capital markets. Reserve PSW subsidies for long-term finance, except when major crises or significant shocks temporarily disrupt short-term finance channels.

Share private sector risk. Establish the principle that PSW subsidies will be used to share risk with the private sector (rather than IFC/MIGA) when warranted by market-building benefits, including impact, additionality, and private finance mobilization.

Competition for subsidy access. Channel a greater share of subsidies through competitive tenders, where applicable, that reward higher impact and private finance mobilization.

Focus on capital market gaps. Target subsidies to gaps in capital markets, such as early-stage finance for infrastructure and for innovative firms/financial service providers, new equity and debt funds, and currency risk management tools.

Enable a powerful MIGA tool in poor countries. Use PSW resources to support MIGA non-honoring contract insurance for lower-rated counterparties.

Build market ecosystems. Use a portion of PSW funds as grants to build market ecosystems (e.g., finding and training first-time fund managers), reduce first mover costs and risks, and fill market information gaps.

Increase risk tolerance. Incentivize staff to take additional risk when justified by relatively high AIMM scores (especially the market impact dimension of scores) and potential for large private finance mobilization and market building gains.

Better reporting. Report annually at a granular level on: commitments and disbursements, ex ante and ex post impact (including at the market level), private finance mobilization per dollar of commitments, realized losses and revenues, and default and loss recovery rates (which will promote more accurate private investor risk assessments).

The PSW experience so far demonstrates that the mere presence of billions of dollars of subsidies does not guarantee success. Further, significant data gaps impede external efforts to fully assess performance. Rather success requires significant further changes in the way IFC and MIGA operate, in staff incentives, and in the way subsidies are deployed, as well as a significant boost in transparency 

These recommendations substantially raise the bar for PSW performance and will be challenging to execute. World Bank, IFC, and MIGA leadership and senior managers will need to play a more proactive role in driving the requisite whole-of-bank approach. And IDA donors will have to play a more active oversight role, insisting on much better information flows. We would argue that both are justified by the imperative of promoting more impactful use of scarce IDA resources.

Does the IDA Private Sector Window Deserve More Funding? Only with Major Changes

by Karen Mathiasen, Nancy Lee and Samuel Matthews

The World Bank has launched negotiations for the 21st replenishment of the International Development Association (IDA), which provides grants and highly concessional financing to the world’s poorest countries. For this resource mobilization cycle, a key agenda item is the future of the Private Sector Window (PSW) which was created in 2017 to boost private investment in IDA countries. Using resources allocated under the last three IDA replenishments, the PSW partners with the private sector arms of the World Bank—the International Finance Corporation (IFC) and the Multilateral Insurance Guarantee Agency (MIGA)—to share commercial and non-commercial risks, enabling them to finance projects that otherwise would not go forward.

After a slow start, the PSW increased the pace of project approvals and is expected to commit all allocated funds by the end of IDA-20 (June 2025), and IDA Deputies will be asked to provide additional funds in IDA-21. As part of this negotiation, donors will consider how the PSW can be reformed and strengthened. With an infusion of nearly $5.5 billion since 2017, this is a consequential negotiation, especially in the context of sustained, high demand from IDA countries. The debate is also relevant to the broader World Bank reform context, which includes a renewed effort to increase private sector mobilization, where results have fallen far short of ambitions.

This paper reviews PSW performance and, based on our findings, offers recommendations to strengthen performance going forward. Our review is based on key indicators of success, including usage rates (commitments and disbursements), whether PSW investments have helped spur higher levels of IFC and MIGA investments in IDA countries; development impact; increasing risk appetite, private finance mobilization and the use of the PSW in supporting a whole-of-Bank approach.

Our conclusion is that PSW’s record is mixed and the private market-building impact of the model is unclear. We find that the capacity of IFC and MIGA to develop transactions that make use of PSW subsidies is growing over time, as evidenced by high commitment rates during the last two replenishments, with the notable exception of the infrastructure facility. Partial evidence also suggests that PSW projects tend to have higher development impact and permit IFC engagement with riskier counterparties. But limited data make it impossible to determine whether subsidies are focused on broader market development impact or are accurately targeting risks given extremely low realized PSW losses. Falling non-PSW transactions in eligible countries raise questions about the additionality of the PSW. The results on mobilization have been disappointing, with less private finance catalyzed by the PSW, per dollar of IFC’s own-account commitments than in non-PSW supported projects. The focus of the PSW on de-risking IFC and MIGA rather than private investors appears to be reflected in the mobilization data. In addition, while the volume of long-term IFC investments in PSW-eligible countries has increased slightly relative to the pre-PSW period, the share of these investments as a percent of the IFC total has not. Moreover, much of the growth in total finance has been for short-term trade and working capital finance, with limited impact on long-term market development and dubious value for money given the long track record of profitability of trade finance.

The World Bank’s Independent Evaluation Group (IEG) and World Bank management have each put forward reviews of the PSW and offered recommendations for reform.[1] The IEG identified challenges in PSW performance and proposes that the PSW improve its financial reporting and adopt a risk-based approach to provisioning, recommendations that are moving forward. Management is proposing several steps to streamline the PSW selection and approval processes, increase support for capital market development and expand the mandate to include a trade finance component. (See box.)

While these recommendations are a good start, there are several other reforms that we encourage IDA Deputies to consider based on our assessment of the PSW. Based on our findings, we propose three sets of recommendations designed to increase volume, impact, mobilization, efficiency and transparency of operation

The PSW was approved under IDA’s 18th replenishment to enable the IFC and MIGA to scale up private investments in IDA eligible countries with a focus on fragile and conflict states (FCS). The PSW was designed to mitigate risk through credit enhancement or risk-sharing (e.g., a co-investment or first loss layer) for the IFC and MIGA. Key constraints the PSW was created to address include limited long-term finance, the lack of local currency financing and poor business environments. When the COVID pandemic struck, the PSW was also charged with addressing market disruptions (e.g., trade finance) resulting from exogenous shocks.

The PSW received an initial allocation of 1.8 billion SDRs (approximately $2.5 billion), another $1.68 billion for IDA 19 and $2.5 billion for IDA20.[2] Total allocation for the PSW is only $5.5 billion, however, as uncommitted funds during IDA18 were returned to IDA. As of December 31, 2023, $1.8 billion had been disbursed out of a combined total of $4.6 billion committed in IDA18 through IDA20.[3] The PSW is expected to commit the full $5.5 billion before the end of IDA20, and Deputies will be asked to support the PSW with another allocation under IDA21.

The PSW has four facilities: 1) project-based guarantees to crowd in private investment in large infrastructure projects; 2) coverage of MIGA guarantees through first-loss and risk participation; 3) long-term local currency hedging solutions; and 4) blended finance solutions to increase SME finance among other sectors. Specific allocations for each of these four purposes are approved by IDA donors but management has discretion to shift these allocations to reflect demand. For each facility, the PSW is expected to follow a minimum concessionality principle to ensure that no more subsidy is used than required for project viability.

For IDA20, participants agreed[4] to several adjustments:

IFC and MIGA would start disclosing impact and mobilization data for projects benefiting from the PSW.

Up to $100 million of the Blended Finance Facility (BFF) could be used to support Micro-, Small and Medium-sized Enterprise incubators and accelerators.

Using a “fund of funds” approach, the PSW could co-invest with IFC on a 50/50 basis and provide de-risking support to third parties to catalyze investors, make investment funds viable, and ensure adequate return for incubators/early-stage fund managers.

Establishment of a very high-risk tolerance seed capital fund of up to $15 million under which the PSW could invest up to $1 million per investment without the IFC.

The IFC also agreed that it would aim to increase the share of its “own-account” commitments in FCS-IDA17 and LIC-IDA17 countries to 12-17 percent on average during IDA20. In IDA18 and IDA19, IFC own-account commitments to these countries barely exceeded ten percent.

The performance of the PSW has been mixed, varying significantly by activity and measure of success. Below we address key indicators of success, including usage rates (commitments and disbursements), whether PSW investments correlate to increasing IFC and MIGA investments in IDA countries; development impact; increasing risk appetite, private sector mobilization and whether the PSW is supporting a whole of Bank approach.

In September 2019, management offered an initial assessment of the PSW, acknowledging that it had gotten off to a slow start due to the time required to set up the governance framework, steep learning curves for MIGA and IFC teams, and long origination timelines, especially for the risk mitigation facility (RMF) which suffered from high levels of attrition (e.g., project teams opted for different instruments).[5] Under IDA18, which spanned FY18–20, only 55 percent of PSW funds were approved for investment, most in the last quarter of the IDA18 cycle. The pace of approvals picked up considerably in IDA 19 when nearly the entire $1.68 billion was committed. IDA20 (which began in July 2023) has so far committed approximately 70 percent of its $2.5 billion allocation.[6]

By contrast, disbursement figures show a less impressive picture. As of December 31, 2023, $1.8 billion had been utilized out of $4.6 billion committed.[7] A key reason for this is that the PSW commits resources to intermediaries (e.g., lines of credit for SME financing) that may experience variable demand from clients. This point only applies to commitments for IFC projects as approvals for MIGA guarantees would only be disbursed in the case of default.

Usage rates vary significantly by facility. Through March 2024, fifty-five percent of approvals were for the BFF, twenty-seven percent for the LCF, sixteen percent for MIGA through the MGF, and only two percent for the RMF (infrastructure).[8] The BFF has been oversubscribed in each cycle, while only one project has been approved under the RMF.

Also worth highlighting is the heavy use of PSW subsidies in short-term financing, not restricted to periods of crisis, such as during the 2020-2021 pandemic. In FY2023 (July 2022-June 2023), commitments between IFC’s long- and short-term financing were nearly evenly distributed at $1.4 and $1.3 billion respectively.[9] Trade and Supply Chain Finance was the second-largest sector in terms of PSW funds committed.

While there are circumstances when subsidies for short term financing are appropriate (e.g., trade finance Ukraine), their contribution to long-term market development is limited. Reasonable questions can be asked about whether this is the most efficient and impactful use for half of PSW annual subsidy commitments.

Finally, a note on the MIGA facility: Since 2018, the PSW has made $563.1 million in MIGA commitments, all for political risk insurance. The PSW has not supported MIGA’s product to insure against non-payments by sovereigns, sub-sovereigns and state-owned enterprises. These “non-honoring” products constitute nearly half of MIGA’s business, but only in countries that are rated BB- or above. Under current policy, countries rated below BB- are deemed too risky to consider, and only four IDA countries are eligible. This significantly constrains MIGA’s ability to operate in PSW-eligible countries.

Impact on IFC and MIGA Activities in IDA Countries

A foundational rationale for the PSW was that it would boost IFC and MIGA’s own operations in higher risk markets and/or sectors, and IFC in fact agreed that it would aim to increase the share of its “own-account” commitments in IDA countries to 12-17 percent on average during IDA 20. But while average annual IFC long-term finance volumes increased in PSW eligible countries by 6 percent from the pre-PSW period of 2015-2017 to the PSW period of 2018-2023,[10] operations in these countries as a percentage of total commitments have remained flat and below the target. Non-PSW-supported commitments in eligible countries have fallen, raising questions about the additionality of PSW transactions.

MIGA committed to reach 30-33 percent of total volume in IDA and FCS countries by 2023, the best proxy that we have for PSW-eligible countries. According to MIGA’s own reporting, this target was met. MIGA issued an average $1.4 billion per year in PSW-eligible countries between FY18 and FY23, of which nearly $400 million on average was supported by the PSW. For fiscal years FY21-23, MIGA transactions in PSW countries as a percent of total operations were 25, 31 and 32 percent respectively.[11]

According to the IEG, each $1 of PSW funding has mobilized $2.7 dollars in IFC and MIGA resources and $1.5 in private co-financing. The IFC shared that PSW approvals of $4.8 billion through end March 2024 have enabled over $24 billion of additional capital in PSW eligible markets from IFC, MIGA, and other third-party investors. They estimate that approximately half of the $24 billion is from IFC and MIGA investments, a quarter from purely commercial investors, and another quarter from public investors.

In our view, the ratio of the PSW subsidy to the private finance mobilized is not the most useful comparison because it does not reflect the rest of the public resources committed to PSW-supported transactions. Rather it is important to ask whether PSW subsidies enable IFC and MIGA to mobilize as much private finance in PSW-supported projects as in non-supported projects. For the IFC, this is not the case. Mobilization rates for private finance are comparatively low: each $1 of IFC own-account investment in PSW-supported projects mobilized an average of $0.6 private finance, less than half of what IFC mobilized in non-PSW supported projects in the same countries ($1.4 of private finance per dollar of IFC own-account commitment).[12] This result is in some ways not surprising as PSW subsidies generally aim to de-risk IFC exposure rather than private sector exposure. The IFC argues that mobilization is lower for a different reason: PSW supported projects are riskier and therefore less attractive to private investors. This raises the question of whether more private finance could be mobilized, with associated market-building gains, if the benefits of subsidy risk mitigation were shared by the IFC and the private sector.

In IDA20, IFC and MIGA were mandated with reporting mobilization data for PSW-supported projects. Since then, the IFC has only published data for one project with external mobilization, a loan to M-KOPA.[13] More disaggregated mobilization data would allow identification of the kinds of PSW subsidies that tend to mobilize more private finance.

MIGA reported that it mobilized $14.25 in third-party finance for every $1 committed to a MGF-supported project.[14] This is a much higher mobilization rate than that reported by the IFC but not directly comparable because the $14.25 includes non-private third parties like other DFIs. Unfortunately, we are unable to compare this ratio against that for non-PSW-supported projects in the same countries and sectors.

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