In his latest article, Martin Wolf argues that the next replenishment of the International Development Association (IDA) must be substantial in order to aid in the elimination of extreme poverty and promote social and economic development. While concessional finance is essential to this process, there are certain aspects of Wolf’s analysis that require further examination.
One issue that should be considered is the assumption that IDA countries lack domestic capital pools. However, countries such as Nigeria and several east African nations possess significant domestic pension assets totaling billions of dollars. These capital pools are growing rapidly but there is a need for scalable solutions to direct them towards productive investments. The World Bank Group, as development finance institutions, should prioritize supporting private-sector-led investment solutions rather than solely focusing on foreign capital inflows.
Another challenge is currency risk associated with IDA funding. Although 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 make it difficult for countries to service their debts over time. It is crucial for the upcoming IDA replenishment to address this mismatch in order to ensure that countries receiving funding are not burdened by unaffordable debt servicing in local currency terms.
In summary, it is imperative for the World Bank to take a leadership role in promoting domestic investment solutions and addressing currency risk in IDA funding. By doing so, the next replenishment round will better support developing countries in their efforts towards sustainable development and poverty reduction.