ida part one & two

Role of

International Development Association

(IDA)

Role of

International Development Association

(IDA)

Department of CommerceGroup: Finance Special

UNIVERSITY OF NORTH BENGAL2014

Prof. Ajit Kumar Ray

The International Development Association, IDA, is the World Bank’s fund for the poorest countries.

One of the world’s largest sources of aid

IDA provides support for o healtho educationo infrastructure o agricultureo economic and institutional development to the 82

countries—40 of them in Africa.

Role and Functions of IDARole and Functions of IDA


IDA is critical to making progress toward the 2015 Millennium Development Goals and the post-2015 agenda.

In 2013, IDA commitments totaled $16.3 billion

About one-fifth of IDA funding is provided as grants; the rest is in the form of interest-free, long-term credits.

IDA is replenished every three years by both developed and developing country donors. Two other World Bank agencies— the IBRD and IFC—make contributions to IDA.

52 countries contributed to the last IDA replenishment of $49.3 billion for the period running from July 1, 2011-June 30, 2014. Former IDA recipients like China, Egypt, Korea and Turkey are now IDA donors.

IDA is an effective way to leverage additional resources from donors, recipient governments, the private sector, and the World Bank Group, helping to scale up results and impact, as well as reducing aid fragmentation.



The world’s poorest countries face enormous demands for development finance that simply cannot be met through public resources. They need urgent solutions that maximize the impact of private investment, driving powerful results in job creation, infrastructure, health, education, and other key areas.

The world’s poorest countries face enormous demands for development finance that simply cannot be met through public resources. They need urgent solutions that maximize the impact of private investment, driving powerful results in job creation, infrastructure, health, education, and other key areas.

How IFC works with IDAHow IFC works with IDA


This is one of IFC’s most critical roles within the World Bank Group. They leverage private investment to support the work of the International Development Association (IDA), whose concessional loans and grants in turn complement the institution’s original lending arm IBRD

Since 2005, IFC investment in IDA countries has grown six fold, reaching nearly $6 billion in fiscal year 2012. IDA countries now account for nearly half of IFC’s investment projects and 65 percent of advisory program expenditures. IFC considers its record in these countries as impressive: for every $1 in equity that IFC invested, they received a return of $1.25. They further consider that this financial performance has allowed them to contribute a significant sum to IDA replenishments—$2.2 billion so far.

This is one of IFC’s most critical roles within the World Bank Group. They leverage private investment to support the work of the International Development Association (IDA), whose concessional loans and grants in turn complement the institution’s original lending arm IBRD

Since 2005, IFC investment in IDA countries has grown six fold, reaching nearly $6 billion in fiscal year 2012. IDA countries now account for nearly half of IFC’s investment projects and 65 percent of advisory program expenditures. IFC considers its record in these countries as impressive: for every $1 in equity that IFC invested, they received a return of $1.25. They further consider that this financial performance has allowed them to contribute a significant sum to IDA replenishments—$2.2 billion so far.


It depends first and foremost on1. A country’s relative poverty,

defined as GNI per capita below an established threshold updated annually in fiscal year 2014 it is fixed at $1,205

Eligibility for IDA supportEligibility for IDA support

3. Policy performanceThe final criterion for IDA eligibility is a record of “good policy performance,” defined by the Bank as “the implementation of economic and social policies that promote growth and poverty reduction”

2. Non-access to private capital markets. The second requirement for IDA eligibility is a lack of creditworthiness to borrow on market terms, both from the IBRD and from private creditors. In general, IDA defines creditworthiness as “the ability to service new external debt at market interest rates over the long term”


There are some exceptions:

IDA also supports some countries, including several small island economies, that are above the operational cutoff but lack the creditworthiness needed to borrow from the International Bank for Reconstruction and Development (IBRD).

Some countries are IDA-eligible based on per capita income levels and are also creditworthy for some IBRD borrowing. They are referred to as “blend” countries.

Altogether 82 IDA-eligible countries, 64 IDA-only countries and 18 Blend countries are getting assistance at present.

Total population of these countries is 2.8 billion (280 crores) half of the total population of the developing world. An estimated 1.8 billion (180 crores) people of these countries survive on incomes of $2 or less a day.



Small island economies have been granted exceptions in maintaining their eligibility on the following basis:

o small islands with less than 1.5 million people,

o significant vulnerability due to size and geography, and

o very limited credit-worthiness and financing options

Small island economies have been granted exceptions in maintaining their eligibility on the following basis:

o small islands with less than 1.5 million people,

o significant vulnerability due to size and geography, and

o very limited credit-worthiness and financing options



Africa 1 Angola 11 Congo 24 Malawi 36 Sudan

2 Benin 12 Cote d'Ivoire 25 Mali 37 Tanzania

3 Burkina Faso 13 Eritrea 26 Mauritania 38 Togo

4 Burundi 14 Ethiopia 27 Mozambique 39 Uganda

5 Cameroon 15 Gambia, The 28 Niger 40 Zambia

6 Cape Verde 16 Ghana 29 Nigeria 41 Zimbabwe

7 C.A.R. 17 Guinea 30 Rwanda

8 Chad 18 Guinea-Bissau 31 Sao Tome

9 Comoros 19 Kenya 32 Senegal

10 Congo(formerly Zaire)

20 Lesotho 33 Sierra Leone

21 Liberia 34 Somalia

22 Madagascar 35 South Sudan

List of Eligible Countries for IDA Assistance?List of Eligible Countries for IDA Assistance?


East Asia 1 Cambodia 5 Micronesia 9 Samoa 13Tuvalu2 Kiribati 6 Mongolia 10 Solomon 14Vanuatu3 Laos, PDR 7 Myanmar 11 Timor 15Vietnam 4 Marshall Islands 8 Papua New

Guinea12 Tonga

Europe and Central Asia 16 Armenia 18 Georgia 20 Kyrgyz Rep 22Tajikistan17 Bosnia-

Herzegovina 19 Kosovo 21 Moldova 23Uzbekistan

Latin America and Caribbean 24 Bolivia 27 Grenada 29 Haiti 31Nicaragua25 Dominica 28 Guyana 30 Honduras 32St Lucia 26 St Vincent Middle East and North Africa

33 Djibouti 34 Yemen



South Asia 1 Afghanistan 3 Bhutan 4 Maldives 7 Pakistan2 Bangladesh 4 India 6 Nepal 8 Sri Lanka



Sl. No. Countries1 Mongolia 8 Georgia 2 Papua New Guinea 9 Uzbekistan 3 Timor-Leste 10 India 4 Vietnam 11 Pakistan 5 Armenia 12 Sri Lanka 6 Bolivia 13 Zimbabwe7 Bosnia-Herzegovina Small Islands

14 Dominica 15 St Vincent 16 Grenada 17 Cape Verde 18 St Lucia

Blend countries: IDA-eligible but also creditworthy for some IBRD borrowing


Lending Rates


IDA-16 will end on 30th June, 2014 and IDA-17 will run from July 1, 2014 to June 30, 2017.IDA-16 will end on 30th June, 2014 and IDA-17 will run from July 1, 2014 to June 30, 2017.

$52 Billion for World Bank’s fund for the poorest (IDA fund) is declared for IDA-17


IDA’s Performance-Based Allocation System:

IDA’s Performance-Based Allocation System:


According to the policy declaration of World Bank, IDA resources are allocated to countries through a formula that considers country performance and characteristics, such as population size and Bank classification.

According to the policy declaration of World Bank, IDA resources are allocated to countries through a formula that considers country performance and characteristics, such as population size and Bank classification.

IDA’s Performance-Based Allocation System:IDA’s Performance-Based Allocation System:


The performance of IDA countries is assessed annually using (a)the CPIA (Country Policy and Institutional Assessment) (b)the ARPP (Annual Review of Portfolio Performance)(c)The Governance factor.

Overview of IDA’s Performance-Based

Allocation System


(a)The CPIA assesses each IDA country’s

present policy and institutional framework for

fostering poverty reduction, sustainable growth and ability to effectively use of

development assistance.

The system now comprises 16 criteria grouped in four equally weighted clusters:

Overview of IDA’s Performance-Based

Allocation System


A. Economic Management1. Macroeconomic Management2. Fiscal Policy3. Debt Policy

B. Structural Policies4. Trade5. Financial Sector6. Business Regulatory Environment

C. Policies for Social Inclusion7. Gender Equality8. Equity of Public Resource Use9. Building Human Resources10. Social Protection and Labor11. Policies and Institutions for Environmental Sustainability

D. Public Sector Management and Institutions12. Property Rights and Rule-based Governance13. Quality of Budgetary and Financial Management14. Efficiency of Revenue Mobilization15. Quality of Public Administration16. Transparency, Accountability, and Corruption in the Public Sector

CPIA Criteria (agreed upon during the IDA14 deliberations) under 4 clusters – A,B,C,D

Overview of IDA’s Performance-Based Allocation

System


(b) Annual Review of Portfolio Performance (ARPP)

The CPIA underpins IDA’s country performance ratings but is not its only determinant. To capture the important dimension of quality of development project and program management, the Bank’s Annual Report on Portfolio Performance (ARPP) is used to determine a rating for each country’s implementation performance. The portfolio ratings are based on the percentage of IDA funded projects in the country that are considered at risk. These percentages are translated into 1-6 scores with the help of a conversion table.


System


To calculate portfolio performance ratings the number of actual and potential projects at risk in Country’s portfolio is taken:

Actual projects at risk are those for which Implementation Progress (IP) is unsatisfactory or Development Objectives (DO) are not likely to be achieved.

Potential problem projects are those that, although rated as satisfactory for both IP and DO, are affected by factors likely to bring about an eventual unsatisfactory outcome. These projects are identified by criteria or “flags”.

This number is then divided by the total number of projects in the portfolio of country to obtain percent of projects at risk.This number is then divided by the total number of projects in the portfolio of country to obtain percent of projects at risk.


System


Percent of Projects at Risk Rating

0% 6.0

1% 5.5

2% 5.0

3-4% 4.5

5-6% 4.0

7-10% 3.5

11-15% 3.0

16-32% 2.5

33-60% 2.0

61-99% 1.5

100% 1

Conversion Table


System


(c) Governance factorThe governance factor is derived from the five criteria in the CPIA’s governance or public sector management and institutions (cluster D),

PLUSthe three-year moving average of portfolio rating from ARPP.

The average score of these six governance criteria is divided by 3.5 and an exponential of 1.5 is applied to this ratio.

Thus Governance Factor = (average governance rating / 3.5)^1.5

The country’s overall rating is then multiplied by this factor, resulting in an increase or decrease of the overall IDA country performance ratings.The country’s overall rating is then multiplied by this factor, resulting in an increase or decrease of the overall IDA country performance ratings.


System


Example

Gov. Criteria Country-1 Country-2a 2 1b 4 2c 6 3d 3 4e 6 2f 6 3

Total 27 15Average 4.5 2.5

Average/3.51.2857142

9 0.71428571

(Average/3.5)^1.5 1.45786297 0.60368161

It is what is known as Governance FactorIt is what is known as Governance Factor


System


Country performance ratings:

FIRST STEP: A weighted average rating is calculated of the CPIA (80 percent) and the portfolio rating ARPP (20 percent).

SECOND STEP: This composite rating is multiplied by the “governance factor” to produce the country’s IDA country performance ratings.

Calculation of the country performance rating

Country performance rating = (0.8*CPIA + 0. 2*Portfolio rating)*(governance factor)

Suppose for a country X, CPIA score=3.42, ARPP score = 3.5 and Governance factor = 2.9. Then Country performance rating = [(0.8*3.42) + (0.2*3.5)]* (2.9 / 3.5)^1.5 = 2.65


System


-2

Weighted Average

Chart 1: IDA Country Performance Rating

Country Policy and Institutional Assessment (CPIA)

80% 20%

Portfolio Performance Rating (from ARPP)

5 governance related indicators from the CPIA

Governance Factor

1 governance related indicator from ARPP

Country Performance Rating

Schematic Representation of IDA Country Performance Rating


System


IDA’s resources are allocated on the basis of the IDA country performance ratings, population, and GNI per capita: IDA Country Allocation = function of ( Country Performance Ratings^ 2.0, Pop^1.0, (GNI/Capita)^.-0.125 )


System


Thanks for patienceThanks for patience


ida part one & two

Education

ida countries

ida donors

ida recipients

ida replenishments

ida funding

ida commitments

development finance

ifc investment