The International Development Association (IDA) plays a vital role in supporting the progress towards eliminating extreme poverty and promoting social and economic development. Martin Wolf argues that the next replenishment for the IDA must be significant in order to achieve these goals. However, there are certain aspects of Wolf’s assessment that require further scrutiny.
One such aspect is the assumption that IDA countries lack domestic capital pools. In reality, many countries, including Nigeria and several east African nations, have significant domestic pension assets totaling billions of dollars. These capital pools are growing rapidly but need scalable solutions to be channeled into productive investments. Development finance institutions, particularly the World Bank Group, should take a lead in supporting private-sector-led investment solutions rather than solely focusing on foreign capital flows.
Another issue is the currency risk associated with IDA funding. While the terms may be concessional in terms of pricing and loan tenure, the currency risk of the loan component still falls on the recipient country. This can create difficulties in servicing debts over the long term. The upcoming IDA replenishment must address this mismatch to ensure that countries receiving funding are not burdened by unaffordable debt servicing in local currency terms.
In conclusion, it is crucial for the World Bank to take a leadership role in promoting domestic investment solutions and addressing currency risk in IDA funding. By focusing on these issues, the next replenishment round can better support the world’s poorest countries in their efforts to achieve sustainable development and poverty reduction.
