With its global footprint and convening power, IDA provides a lifeline for the 1.3 billion people living in the world’s poorest countries.
Today the International Development Association (IDA) launched a report “Financing the Future: IDA’s Role in the Evolving Global Aid Architecture.” The report describes the increasingly complex relationship between donors and recipient countries and lays out a strong rationale for investing in IDA’s next funding round for better financial and development outcomes.
In the context of interlocking crises and growing demand for development finance, the global aid architecture faces significant challenges. Official financial flows to developing countries have increased over the past two decades, reaching $1 trillion in 2021. Yet they fall well short of the escalating need for financing to address climate change, conflict, and pandemics, estimated at $2.4 trillion per year between 2023 and 2030.
Broad development aid trends complicate this challenge. Over the last 20 years, there has been significant circumvention of recipient government budgets, with only 40 percent of official financial flows being channeled through recipient governments. By contrast, the vast majority of IDA funding goes through recipients’ national budgets, building capacity in the process. There has also been an expansion of earmarked aid unsupported by financial leverage and a multiplication of donor channels, contributing to further fragmentation of aid transactions—countries like Ethiopia, Mozambique, and Nepal deal with more than 170 donor agencies, each with its own rules and requirements. In combination, these trends have resulted in a large increase in transaction costs to recipient countries and raise concerns about how to collectively achieve better development outcomes with existing resources.
In this changing landscape, IDA stands out among multilateral development banks in addressing these challenges due to its unique value proposition.
First, IDA’s role as a catalyst allows it to address recipient country priorities, build country governments’ capacity and help them deal with proliferation and fragmentation. Drawing on its presence on the ground, ability to source knowledge globally IDA tailors interventions to address specific regional and global priorities.
Second, IDA serves as a global forum for governments, civil society organizations, and development agencies to coordinate and align their efforts, helping to reduce fragmentation in the global aid architecture.
Third, IDA’s unique hybrid financial model, which combines partner contributions with capital market borrowing at low interest rates, allows it to leverage additional resources for the poorest countries. This model has significantly expanded IDA’s financial capacity, enabling it to mobilize about $3.50 in IDA commitments for every dollar of partner contributions.
To respond to the needs of the present and future, IDA needs to expand its financial firepower. With its global footprint and convening power, ability to generate knowledge, policy access, and financial leverage, IDA provides a lifeline for the 1.3 billion people living in the world’s poorest countries. The forthcoming IDA21 replenishment needs to match global ambitions with the necessary commitment to end poverty on a livable planet.
