- International Development Association – IDA
- Background: Adressing financial needs of developing countries
- IDA’s aims: The five special themes of the IDA18 replenishment
- Measuring results
- Switzerland’s commitment
- International Development Association (IDA)
- IDA and its History:
- Mission Statement:
- How IDA Resources are allocated:
- 2.Allocation Criteria:
- 3.Allocation Process:
- IDA Replenishments:
- Debt sustainability and grants:
- IDA — International Development Association (IDA) — World Bank Group. UPSC Notes
- International Development Association (IDA)
- International Development Association – Donor Countries
- International Development Association – Resource Allocation
- International Development Association – Financial Instruments
- International Development Association and India
International Development Association – IDA
Since 1960, IDA has transformed societies and lifted millions poverty. © Simone D.
McCourtie / World Bank
The International Development Association (IDA) is the part of the World Bank Group (WBG) that helps the world's 75 poorest countries end extreme poverty and build shared prosperity in a sustainable manner.
It aims to reduce poverty by providing financial resources that boost economic growth, strengthen governance, reduce inequalities, and improve people’s living conditions. As a donor and through an active participation, Switzerland plays an important role in shaping the IDA’s priorities.
IDA is one of the largest sources of assistance for the world’s poorest countries. It provides support for health and education, infrastructure and agriculture, and economic and institutional development.
It advises governments on programmes to achieve these goals. To finance such programmes, it issues loans and grants and provides considerable debt relief.
IDA’s operational work is complemented by analytical studies that support the design of policies to reduce poverty.
Donor countries including Switzerland replenish the resources of the IDA every three years. These replenishment negotiations are an opportunity to discuss the strategic and operational orientation of the fund. The negotiations for the 19th replenishment of the IDA are underway in 2019.
Background: Adressing financial needs of developing countries
IDA addresses challenges such as building resilience to climate change, working in fragile and conflict-affected countries, improving gender equality and helping countries prepare for and respond to future crises. It lends money on concessional terms, meaning its loans have a zero or very low interest charge and repayments are stretched over 30 or more years, including a 5 to 10-year grace period.
With regard to development finance, the WBG, and IDA in particular, is the most influential multilateral organization. It has the largest potential to address the need for financial resources demanded by the 2030 Agenda for Sustainable Development.
IDA’s aims: The five special themes of the IDA18 replenishment
The replenishment negotiations for the current funding cycle 2017-2020, known as IDA18, assembled a record USD 75 billion financing package. This was possible due to an adjustment of the IDA’s financing model.
During IDA18, the development bank was allowed for the first time to leverage its balance sheet on the international capital markets.
This new business model answers the call of the Addis Ababa Action Agenda for multilateral development banks to maximize their resources and find innovative ways to finance the 2030 Agenda for Sustainable Development.
IDA18 places a special emphasis on five thematic areas: climate; jobs and economic transformation; fragility, conflict & violence; governance and institutions; and gender.
The IDA18 financing package includes:
- Doubling of core resources to fragile countries (USD 14 billion), including for the first time support to countries at-risk of fragility
- Increased financing for regional programs to expand regional integration and infrastructure (USD 5 billion);
- A new sub-window for refugees and their IDA host governments (USD 2 billion)
- Increased financing for crisis response (USD 3 billion)
- A new Private Sector Window to mobilize private investment in IDA countries (USD 2.5 billion)
- Increased non-concessional financing for lower risk IDA countries and IDA18 graduates (USD 9 billion)
The five special themes of IDA18 correspond closely to Switzerland’s development priorities defined in the Swiss Dispatch on International Cooperation 2017-2020.
The IDA’s results: Reducing Fragility, Conflict and Violence
Around half the world’s poor live in fragile or conflict-affected countries. The IDA has provided funds to rebuild states recovering from conflict; make states resilient to threats including conflict, disease and humanitarian emergencies; and develop infrastructure to enable people to resume peaceful and constructive lives.
One example is the Central African Republic`s Emergency Public Services Response Project. After the civil war, this project has supported the government of the Central African Republic in re-establishing an operational government payroll and related financial management systems after the civil war.
This allowed the government to function again and to provide its citizens with much needed basic public services after the war-torn period.
Switzerland has been a driving force in encouraging the IDA to mainstream fragility and conflict-sensitive programing. For that matter, it has advocated for close partnership between the development bank and other development actors, in particular the UN organisations.
Such partnerships allow to elaborate joint regional, country and sector analyses to facilitate joint programming.
Switzerland has been an inaugural donor to targeted initiatives such as the UN-World Bank Fragility and Conflict Partnership Trust Fund and the Global Program on Forced Displacement, both of which have been credited with strengthening the Bank’s development response to crises, promoting dialogue, and generating evidence-based knowledge.
Results of IDA’s activities
IDA has been a leader in holding itself accountable for the aid effectiveness of its operations, placing in the highest category in the Aid Transparency Index for the first time in 2014.
The IDA Results Measurement System is a robust accountability and management framework that has contributed significantly to results monitoring and learning at all levels.
For IDA18, policy measures and performance targets to support IDA countries have been revised to more closely align with the Sustainable Development Goals. IDA is also committed to strengthening data collection and statistical capacity at the country level in the years ahead.
Switzerland has been a member of IDA since 1992. Thanks to IDA’s financial strength and expertise in addressing poverty and other global issues, the Swiss contribution to IDA is an important complement of Swiss bilateral aid.
As a donor and through an active participation, Switzerland has pushed successfully for IDA to make a focused contribution toward the implementation and results monitoring of the 2030 Agenda, improve conditions for the private sector, and cooperate more closely with other development actors, such as the UN, especially in fragile contexts.
Switzerland is an active member in all the governing bodies of the World Bank Group and carries out development projects together with the Bank.
More information about Switzerland’s engagement with the World Bank Group
International Development Association (IDA)
International Development Association (IDA)!
The International Development Association (IDA) is the part of the World Bank that helps the world’s poorest countries. Established in 1960, IDA aims to reduce poverty by providing interest-free credits and grants for programs that boost economic growth, reduce inequalities and improve people’s living conditions.
IDA complements the World Bank’s other lending arm, the International Bank for Reconstruction and Development (IBRD) which serves middle-income countries with capital investment and advisory services. IBRD and IDA share the same staff and headquarters and evaluate projects with the same rigorous standards.
IDA is one of the largest sources of assistance for the world’s 78 poorest countries, 39 of which are in Africa. It is the single largest source of donor funds for basic social services in the poorest countries.
IDA lends money (known as credits) on concessional terms. This means that IDA credits have no interest charge and repayments are stretched over 35 to 40 years, including a 10 year grace period.
IDA loans address primary education, basic health services, clean water supply and sanitation, environmental safeguards, business-climate improvements, infrastructure and institutional reforms. These projects are intended to pave the way toward economic growth, job creation, higher incomes and better living conditions. IDA also provides grants to countries at risk of debt distress.
Since its inception, IDA credits and grants have totaled US$193 billion, averaging US$10 billion a year in recent years and directing the largest share, about 50 percent, to Africa.
IDA and its History:
The International Bank for Reconstruction and Development (IBRD), better known as the World Bank, was established in 1944 to help Europe recover from the devastation of World War II. The success of that enterprise led the Bank, within a few years, to turn its attention to developing countries.
By the 1950s, it became clear that the poorest developing countries needed softer terms than those that could be offered by the Bank, so they could afford to borrow the capital they needed to grow.
With the United States taking the initiative, a group of the Bank’s-member countries decided to set up an agency that could lend to the poorest countries on the most favorable terms possible.
They called the agency the “International Development Association.” Its founders saw IDA as a way for the “haves” of the world to help the “have-nots.” But they also wanted IDA to be run with the discipline of a bank.
For this reason, US President Dwight D. Eisenhower proposed and other countries agreed that IDA should be part of the World Bank. IDA’S Articles of Agreement became effective in 1960. The first IDA loans, known as credits, were approved in 1961 to Chile, India and Sudan.
IDA currently has 168 member countries.
Members subscribe to IDA’s initial subscriptions and subsequent replenishments by submitting the necessary documentation and making the required payments under the replenishment arrangements.
Thirty-five countries have graduated from IDA throughout its history, ceasing to borrow from the Association. Some of these countries have since “reverse graduated,” or re-entered IDA.
The International Development Association (IDA) is the part of the World Bank that helps the earth’s poorest countries reduce poverty by providing no-interest loans and grants for programs aimed at boosting economic growth and improving living conditions IDA funds help these countries deal with the complex challenges they face in striving to meet the Millennium Development Goals.
They must, for example, respond to the competitive pressures as well as the opportunities of globalization; arrest the spread of HIV/AIDS; and prevent conflict or deal with its aftermath.
IDA’s long-term (stretched over 35 to 40 years), no-interest loans pay for programs that build the policies, institutions, infrastructure and human capital needed for equitable and environmentally sustainable development.
IDA’s goal is to reduce inequalities both across and within countries by allowing more people to participate in the mainstream economy, reducing poverty and promoting more equal access to the opportunities created by economic growth. IDA also provides grants to countries at risk of debt distress.
How IDA Resources are allocated:
IDA’s 78 eligible recipients have very significant needs for concessional funds. But the amount of funds available, which is fixed once contributions are pledged by donor governments, tends to be well below the countries’ needs.
IDA, therefore, must allocate scarce resources among eligible countries. This is done on the basis of recipients’ policy performance and institutional capacity in order to concentrate resources where they are ly to be most helpful in reducing poverty.
Two criteria are used to determine which countries can access IDA resources:
i. Relative poverty defined as Gross National Income (GNI) per capita below an established threshold and updated annually (in fiscal year 2009: $1,095).
ii. Lack of creditworthiness to borrow on market terms and therefore, a need for concessional resources to finance the country’s development program.
2. Allocation Criteria:
i. The main factor that determines the allocation of IDA resources among eligible countries is each country’s performance in implementing policies that promote economic growth and’ poverty reduction. This is assessed by the Country Policy and Institutional Assessment (CPIA), which for the purposes of resource allocation is referred to as the IDA Resource Allocation Index (IRAI).
The IRAI and portfolio performance together constitute the IDA Country Performance Rating (CPR). In addition to the CPR, population and per capita income also determine IDA allocations. Beginning 2005, the numerical IRAI as well as the CPR are disclosed.
3. Allocation Process:
The allocation of IDA’s resources is determined primarily by each recipient’s rating in the annual CPIA.
In addition, the IDA15 Agreement recommends that because the acceleration of economic and social development in Sub-Saharan Africa remains foremost among IDA’s priorities, these countries should receive priority in the allocation process, provided their policy performance warrants it.
In the case of countries that are eligible for both IDA and IBRD funds (“Blend countries”), IDA allocations must also take into account those countries’ creditworthiness for and access to other sources of funds. Individual country performance-based allocations serve as an anchor for the formulation of Country Assistance Strategy (CAS) lending programs.
While the IBRD raises most of its funds on the world’s financial markets, IDA is funded largely by contributions from the governments of its richer member countries. Additional funds come from IBRD’s and International Finance Corporation (IFC) income and from borrowers’ repayments of earlier IDA credits.
Donors meet every three years to replenish IDA funds and review IDA’s policies. The most recent replenishment of IDA’s resources the fifteenth replenishment (IDA15) was finalized in December 2007 and finances projects over the three-year period ending June 30, 2011.
Donor contributions amounted to SDR 16.5 billion (US$ 25.1 billion) in resources to finance projects, a 42% increase (in USD terms) over the previous replenishment.
During the IDA15 replenishment meetings, donors reaffirmed the need to provide additional contributions for the Multilateral Debt Relief Initiative (MDRI) replenishment of Special Drawing Rights (SDR) 4.1 billion (US$ 6.
3 billion), so as to cover IDA’s debt relief costs due to the MDRI during the IDA15 disbursement period is agreed under the MDRI. Donors will meet to review the progress of IDA15 at a Mid-Term Review Meeting to be held in the fall of 2009.
To increase openness and help ensure that IDA’s policies are responsive to country needs and circumstances, representatives of borrower countries from each IDA region have been invited to take part in the replenishment negotiations since IDA13.
A total of nine borrower representatives participated during the IDA15 negotiations. In addition, since IDA13, background policy papers are publicly released, as well as drafts of the replenishment reports prior to their finalization.
Debt sustainability and grants:
The objective of grants in IDA 15 is to help low-income countries to restore or maintain their external debt sustainability. The grant allocation framework first introduced in IDA14 has only one criterion for grant eligibility: countries’ risk of debt distress.
The risk ratings emerge from country- specific forward-looking debt sustainability analyses the joint International Monetary Fund (IMF)-World Bank debt sustainability framework (DSF) for low-income countries.
The IDA grant 11amework then translate these debt distress risk ratings into traffic lights”, which in turn determine the share of IDA grants and highly concessional IDA credits for each country: high risk or in debt distress (“red” light) is associated with 100 percent grants, medium risk (“yellow” light) with 50 percent grants and 50 percent credits, while low risk (“green” light) is associated with 100 percent credits and zero grants.
The framework limits the scope of grant eligibility only to IDA-only countries, i.e., excludes IBRD/IDA blend countries or hardened-term countries regardless of their external debt situation, the exclusion derives from the fact that these countries have greater access to capital markets and, as a result, their debt compositions can differ from IDA-only countries.
Therefore, it is inappropriate to apply this framework to blend countries or hardened-term countries, as the framework is designed to address the specific characteristics of low-income countries’ debt profile.
The determination of the terms of IDA’s assistance is done as a second step in the IDA allocation process. The first step is to allocate resources according to IDA’s Performance-Based Allocations (PBA) system, where the volumes of IDA assistance are determined the country’s performance and needs.
IDA — International Development Association (IDA) — World Bank Group. UPSC Notes
The International Development Association (IDA) is a multinational financial institution providing aid to poor countries in the form of loans. This article talks about the IDA and its importance for the IAS Exam.
International organisations and groupings are an important part of the International Relations section of the General Studies paper-2 in the UPSC Syllabus. It is also relevant for the UPSC Economy section of General Studies paper-3. Students preparing for UPSC 2020 and other Government Exams must be aware of the topic.
Aspirants can find structure and other important details of IAS Exam in the linked article.
IDA UPSC Notes:- Download PDF Here
International Development Association (IDA)
The International Development Association (IDA) is a part of the World Bank Group that helps the world’s poorest countries.
- The main objective of the IDA is to provide grants and concessional loans to the world’s poorest countries.
- It lends to developing countries with the lowest Gross National Income (GNI), having troubled creditworthiness, & having very low per capita income.
- The IDA seeks to complement the work done by the International Bank for Reconstruction and Development.
- Collectively IBRD and IDA are known as the World Bank.
Some of the important information regarding IDA are mentioned below.
- IDA was established with the signing of agreements between 15 countries.
- 173 countries are its members.
- Around 52 nations are donor countries.
- IDA lends to 75 countries, which 39 countries are located in Africa.
- IDA replenishes its resources every 3 years.
International Development Association – Donor Countries
Since the funds of the IDA get eroded, they need to be replenished periodically. The replenishment is provided by different countries. Some important statistics regarding the categorization of donor countries of the IDA are given below.
- G-7 countries dominate donor contributions. Their contribution comprises 69% of the total funds donated.
- 26% of the total funds are donated by 11 mid-sized traditional donor countries.
- 5% of the total funds are donated by 34 small-donor nations.
Click on the link to know more about the G-7 Countries.
International Development Association – Resource Allocation
The resource allocation by the International Development Association is done after evaluating various metrics which are given below.
- Only countries meeting the IDA eligibility criteria are allowed to receive funds from it.
- Allocation of funds is done annually through Performance-Based Allocation (PBA) System.
- The performance of a country is measured through Annual Country Policy and Institutional Assessment (CPIA).
- Gross National Income (GNI) per capita.
- The population of the country.
- Terms of IDA assistance are determined by the country’s risk of debt distress.
- Special allocations to post-conflict and re-engaging countries.
International Development Association – Financial Instruments
There are 3 financial instruments under the International Development Association (IDA) which are given below.
- Investment Operations – It is used to finance a wide range of physical and social infrastructure necessary to reduce poverty and create sustainable development.
- Development Policy Operations – This focuses on financial policies and institutional actions that are consistent with the country’s economic policies.
- IDA Guarantees – This comes into picture when the default is caused by the Government failure. Here it mobilizes private sector finance.
International Development Association and India
India is one of the founding members of the International Development Association.
- India got its first investment from IDA for a highway construction project in 1961.
- In the following decade, the IDA accounted for nearly three-fourths of all WB lending to India.
- By 1970, India was the largest recipient of IDA funds, accounting for more than two-fifths of all its lending.
- India is also a donor to the IDA classified as a Part II Donor.
- In 1980, China joined the World Bank which significantly dropped India’s share in IDA.
- China’s claim to limiting the IDA resources also worsened Africa’s economic fortunes.
- Now, India is classified as a Blend Country and is creditworthy for funding from both IBRD and IDA.
- Blend Country or Blend Borrower can be defined as one in the transition from lower-middle-income to middle-income.
Candidates can find the general pattern of the UPSC Exams by visiting the UPSC Syllabus 2020 page.