World Bank Now Relying On Capital Markets, Focuses On Fragile Countries

After the announcement in December of a record US$75 billion commitment to its International Development Association (IDA), the World Bank Group said today that this commitment was both historic in terms of value, and also a sign of a paradigm change, including the raising of funds from capital markets.

Axel van Trotsenburg, vice-president of the World Bank Group explained today during a press briefing in Geneva that the IDA is a special fund providing financing for the poorest countries. The fund is replenished every three year, he said, and the December replenishment is known as “IDA18.”

In IDA18 there were major changes in the development finance area, he said. Mainly relying on donors contributions in the past, the World Bank for the 18^th replenishment also decided to go into international capital markets, according to van Trotsenburg.

This move into capital markets required IDA to get a credit rating, for which IDA got a AAA rating from Moody’s and Standard & Poor’s, he said. That will allow IDA to go into international capital markets and issue bonds. That is a major change, he said, and was made possible largely because of the strong equity position of IDA. This change will provide for new ways of financing the United Nations Sustainable Development Goals (SDGs), he said.

Focus on Fragile Countries

Following 2015 key decisions taken by the World Bank including on the SDGs and the 21th Conference of the Parties of the UN Framework Convention on Climate Change, and the challenge faced by every individual multilateral institution to translate policy commitments into concrete actions, IDA18 is a very ambitious platform for action in particular for the poorest countries, said van Trotsenburg.

“A major area where we will double our efforts is fragile countries,” he said. Efforts to support fragile countries have been scaled up in “a determined fashion” over the years, he explained, and this time “we will double the resources to about US$14 billion.”

The 2017 list of fragile countries, the bulk of which are African countries is here [pdf].

Additionally, IDA will become an investor in the private sector via its World Bank affiliated institutions: the International Finance Corporation (IFC) and the Multilateral Investment Guaranty Agency (MIGA), said van Trotsenburg. These two institutions are part of the World Bank Group and deal with the private sector, he added.

“The idea is how do you help private sector investment in fragile countries,” he said, adding that this is one of the most challenging areas, as private investment is not taking place because the risks are considered to be too high.

Through a window of US$2.5 billion, the World Bank would like to “de-risk private sector investment, and through this create jobs and new opportunities.”

Africa Main Beneficiary of Replenishment

The replenishment could mean that the Africa region could receive up to US$45 billion out of the US$75 billion of the replenishment, for development purposes, he said.

The IDA18 financing package could result in helping or delivering essential health and nutrition services for up to 400 million people, training 10 million teachers to benefit over 300 million children, immunising between 130 and 180 million children, providing services which could help safe childbirth to 11 million women, he detailed.

Answering a question on immunisation, van Trotsenburg said IDA18 will provide funds for governments to help strengthen their health system, which is the main focus of the World Bank, and this includes immunisation campaigns.

The IDA package will be implemented starting on 1 July, until 30 June 2020.

According to a World Bank spokesperson, van Trotsenburg is visiting Geneva to take part in a dialogue series on financing for sustainable development that is bringing together senior World Bank representatives and UN member states, agencies, funds and programs, to discuss various issues related to mobilization and delivery of development financing.

Van Trotsenburg is also reaching out to UN ambassadors and private sector to the new IDA Private Sector Window that’s being developed, the spokesperson said.

 

Image Credits: Catherine Saez