international development associationdocuments.worldbank.org/curated/en/383031468336699940/... ·...

International Development AssociationFOR OFFICIAL USE ONLY

IDA/SecM92-238

FROM: Vice President and Secretary June 11, 1992

THE PROGRAM IMPLICATIONS OF THE SIZE OF IDAIO

4 IDA10 Discussion Paper No. 5

The attached discussion paper was distributed to the IDADeputies on June 5, 1992.

Questions on this document may be referred to Ms. Yap(Ext. 80525) or Mr. Katz (Ext. 80534).

Distribution

Executive Directors and AlternatesOffice of the PresidentExecutive Vice Presidents, IFC and MIGAVice Presidents, Bank, IFC and MIGADirectors and Department Heads,

Bank, IFC and MIGA

of their official duties. Its contents may not otherwise be disclosed without Worl'd Bank authorization,

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81415

International Development Association

THE PROGRAM IMPLICATIONS

OF THE SIZE OF IDAl0

IDAIO Discussion Paper No. 5June 1992

Page i

THE PROGRAM IMPLICATIONSOF THE SIZE OF IDA10

CONTENTS

I. INTRODUCTION.1

* H. COUNTRY ALLOCATIONS. 3Low Scenario: SDR13 Billion in Donor Resources. 5High Scenario: SDR16.25 Billion in Donor Funding. 8Regional Implications of the Two Scenarios .................... 9

III. IDA'S PROGRAM OBJECTIVES .............................. 12Implications for Program Priorities Under theHigh and Low Scenarios .............................. 14

IV. CONCLUSIONS .18

TABLES

Table 1: New Demands in IDAIO .................................. 4Table 2: IDAIO Total Commitments:Program Reductions Under the Low Scenario .................... 6Table 3: Blending Implications of the Low Scenario ....................... 7Table 4: Distribution of IDA .....................................

9Table 5: Regional Distribution of IDA ................................ 11

FIGURES

Figure 1: IDA9 Commitments FY1991-FY1993 .......................... 15Figure 2: IDAIO Commitments Under the High Scenario Relative to IDA9 .... ...... 16

BOX

Box 1: The Potential for Better Environmental Management in Large Cities .13

I. INTRODUCTION

1. At their previous meetings the IDA new claimants to be fully funded on the same basisDeputies discussed various issues which relate to as IDA9, the section examines how IDA mightthe size of the tenth replenishment. In Paris in allocate its resources so as to minimize theJanuary some of the new claims on IDA's potential costs to ongoing programs. It indicatesresources were discussed. In Washington in April the reductions that could be made in the programsDeputies talked about the resource implications of of different groups of recipients. In the high case,IDA continuing to play the role in the policy by contrast, the development programs would bedialogue and aid coordination which donors had more adequately funded and substantial effortsassigned to it. At both meetings there was made to make them environmentally sustainable.discussion of IDA's growing participation in The section also spells out the implications inenvironmental issues and how this might relate to terms of regional programs of each of theexpanded efforts by donors to support national scenarios.environmental programs in developing countries.

4. Section 3 discusses the need to give more2. It was clear from these discussions that the attention to environmental objectives under bothsize of the tenth replenishment would determine scenarios, and lays out where more effort ishow well the needs of IDA's borrowers could be needed. While IDA has already made goodmet. Without a substantial real increase in IDA 10, progress in incorporating environmental objectivestraditional claimants cannot be fully protected from into its programs and projects, there is still morecuts in their current allocations, while new to be done before the development strategies ofclaimants and reactivated countries will receive many of its borrowers can be consideredsubstantially less than their "normal" allocation. environmentally sound. The timing for aIn addition, all IDA borrowers will have difficulty strengthened environmental initiative is good.giving environmental objectives the attention they Developing countries are beginning to see thatdeserve, without additional funds to cover the environmental damage can severely constrain theirassociated costs. A real increase of about 25 future development and are more willing to take apercent in the size of the replenishment would help positive environmental stance, if technical andthe IDA countries fund their development financial assistance is made available. Under theprograms at a reasonable level while meeting the low scenario, however, a substantially greaterhigher costs of protecting and improving their emphasis in IDA on environmentally responsibleenvironment. This paper assumes that this development would have to come at the expense ofscenario would represent agreement by donors to other priorities, such as infrastructure provision,provide additional funding as part of the so-called specific poverty targeted activities, and human"Earth Increment". capital development. The high case, in contrast,

would not require these trade-offs.3. Section 2 of the paper examines theimplications of two alternative scenarios for the 5. Section 4 briefly summarizes some of thecountry allocation of IDA resources. The first key points noting in conclusion that IDA needs thescenario of SDR13 billion in donor contributions capacity to respond quickly and flexibly to thewould maintain the real level of IDA9 in IDA10 major development challenges facing its borrowingprices. The second scenario of SDR16.25 billion members. In IDA8 and IDA9 it has provedin donor contributions represents a 25 percent real possible to accommodate the unforeseen demandsincrease over IDA9. Since the lower scenario through a substantial increase in the use of non-would not allow for both existing recipients and donor resources. There is little or no prospect for

comparable increases in IDA10 and even income. A replenishment which keeps the real

maintaining the IDA9 real level of non-donor value of donor contributions unchanged therefore

resources will require a willingness on the part of runs the risk of presenting IDA with difficult and

the IBRD's Executive Directors to recommend costly trade-offs in its allocation of funds between

significant transfers to IDA from IBRD net countries, regions and program priorities.

II. COUNTRY ALLOCATIONS_p>:.: .........................

.. *.. P

6. In the January meeting, Deputies additional costs of redressing environmentalconsidered the paper on the country allocation of degradation and putting development programs onIDA resources. That paper identified additional a more environmentally responsible footing.demands on IDA10 resources, above IDA9, ofapproximately SDR2 billion in IDAIO prices. A 8. The scenarios are discussed in terms ofnumber of options were considered at that time for their impact on the various groups of IDAaccommodating these new claims within the recipient countries. Traditional IDA-onlycurrent resource envelope, including lowering the countries that received support at the outset ofoperational cutoff of per capita income for IDA9 are the core of IDA's clientele as they areeligibility, but all of these options entailed economically the most fragile of the recipients.* . significant costs in terms of IDA's ability to carry Many of these countries are undertaking difficultout its mandate, and none was found to be programs of adjustment, and in most casesattractive. In the April meeting, further options sustained gains in income will require long-term* . for stretching IDA's resources through a investments to raise their development potential.modification of terms were discussed, but insofar IDA funding needs to provide a stable and assuredas they would require some additional donor base for the efforts these countries are making.resources, consideration was deferred until a IDA's role in providing funding and policy adviceclearer picture emerged of what could be is largest in these countries, and, accordingly,accomplished through the basic funding of IDA. allocations to them are relatively favored under

both scenarios. At the same time, the bulk of the7. This section considers the implications for world's poor live in the four traditional blendcountry allocations of two illustrative scenarios for countries (China, India, Nigeria, Pakistan).IDA 10: While their relative economic strength, comparedwith the IDA-only countries, allows their external* SDR13 billion of donor resources, which financing to be obtained at less than fullywould maintain these resources at their IDA9 concessional terms, a significant concessionallevel in real terms. Assuming that non-donor element is required to support a meaningful effortresources could also be maintained in real to address their problems of poverty andterms, this would correspond to total IDA10 sustainable development.

commitments of SDR16.1 billion. Under thisscenario, programs of existing recipients would 9. The new claimants on IDA, which wereneed to be reduced, as the new demands on discussed in the "Allocations" paper,'/ have beenIDA would have to be accommodated without regrouped into three categories as follows (see alsoadditional resources. Table 1):

* SDR16.25 billion of donor resources, * IDA-only New Claimants. These are fivecorresponding to total commitments of SDR19.3 countries (Albania, Angola, Honduras,billion. This 25 percent increase in donor Mongolia, and Nicaragua) that have becomefunding (20 percent increase in commitments) IDA-only recipients since the beginning ofwould accommodate the new claims and IDA9. As IDA support to them has alreadyincrease the allocations to IDA-only countries in become established, they are treated on a fullyreal terms. This would permit an expansion of integrated basis with other IDA-only recipientsprograms in all IDA countries to help meet the in the options for IDA10.

1/ "IDA Allocations Revisited," IDA/SecM92-2, dated January 7, 1992.

* New Blends. These are four countries (Cote greater in some of these countries (e.g.,

d'Ivoire, Egypt, the Philippines and Zimbabwe) Vietnam, Cambodia, Ethiopia) and less in

that have become IDA-eligible during IDA9 and others (e.g., Myanmar, Liberia), and overall

are treated here as a group. While they have there is considerable uncertainty about eventual

received the bulk of their Bank Group support funding needs in this group. Consequently,

in the form of IBRD loans, they all have using a conservative approach, the base

weaknesses in their balance of payments and estimate of likely demand has discounted by 30

debt positions that argue strongly for softening percent the needs of reactivated recipients and

the terms of their assistance. Moreover, their by 50 percent the claims of current poor

weak creditworthiness along with IBRD performers from the levels that would be

exposure guidelines, limit the possibilities for needed if all of these countries become active

Bank lending. Consequently, the total volume recipients with reasonable performance. In

of Bank Group assistance to these countries will addition, an allowance of SDR200 million has

be greatly affected by the availability of IDA been included in both scenarios for countries in

resources to them. the Commonwealth of Independent States (CIS).

* Potential Reactivated/New Recipients. These 10. The issues raised by the need to

are countries that currently receive no IDA accommodate new claimants are, of course, not

funds or, because of poor performance, receive new. At the time that IDA9 was being

funding at only a "core" level. The likelihood considered, potential new claims of about SDR2

of a significant IDA program emerging appears billion were identified. Although there was no

.... .. . ~~ ~. .... . .. .... .. ... .................... .. .... ... .. .. ... . .... ... ...... ...... .. .......Table 1: NEW DEMANDS IN [DAIO

(SDR billion in IDA 10 prices)

~~~~~~~~~~~~~~~~~~. .. .. ... .. . . ........ ............. .- .... ..............-Estimated Amounts IDA10 Allocaions on Difference

Provided Under LDA9 Same Basis as

Comparable Countriesdl

IDA-only New Claimants a/ 0.6 0.7 0.1

New Blends b/ 0.6 1.0 0.4

Potential Reactivated/New 0.8 2.3 1.5

Recipients cl

Total 2.0 4.0 2.0

a/ Albania, Angola. Honduras, Mongolia, Nicaragua.

b/ CoLe d'lvoire, Egypt, Philippines, Zimbabwe.

c/ clue:-- Poor performers currently with core programs: Ethiopia, Haiti, Myanmar, Somalia, Sudan, Zaire.

-- Potential reactivated recipients: Afghanistan, Cambodia, Liberia, Sierra Leone, Vietnam.

-- An allowance for initial funding of CIS countries in IDAIO.

dl Poor performers at 50 percent of indicative lending; reactivated recipients at 70 percent of indicative

lending.

real increase in donor funding in IDA9, IDA has resources and SDR16.1 billion in totalbeen able to accommodate support to new commitment authority. One approach to theclaimants through an expansion of non-donor program reductions that would be necessary in thefunding by SDR1.3 billion over the SDR1.8 absence of additional funding would be tobillion expected at the time of the IDA9 distribute the cuts proportionately across allnegotiations. The composition of the new claims recipient groups. This approach implicitlyon IDA9, however, has been somewhat different assumes that the proportions resulting from addingthan expected. Angola and Nigeria have required new claims to existing allocations would besubstantial funding, as anticipated, but the funding appropriate at lower funding levels. A secondneeds that were anticipated for Southeast and approach, which is used here, takes into accouiitCentral Asia have not yet materialized. On the judgements that country programs are not equallyother hand, the Gulf crisis, and the falling into susceptible to reduction, and prioritizes theIDA eligibility of Nicaragua, Honduras and the reductions to minimize their impact on IDA'snew blends, were not foreseen. ability to carry out its mandate, on the basis offactors such as the country's per capita income,11. Two factors distinguish the issues of creditworthiness and access to IBRD funding, andaccomrmodating new claimants in IDA10 from the the nature of the programs in place and insituation at the beginning of IDA9. First, the prospect. Although actual country programmingclaims are more firmly established. Nine new would be done on the basis of the establishedcountries have already become eligible, and the criteria in light of the circumstances prevailing, aprospect of funding for Vietnam and Cambodia broad outline of the kinds of reductions--fromappears far more concrete now than three years SDR18.1 billion--that might be expected, is shownago. IDA support for poor performers has been in Table 2.

sharply reduced to "core" levels, but the signs arethat at least one of these countries, Ethiopia, is 13. Current IDA-only Recipients. Theturning the corner. Second, there is now little highest priority would be attached to minimizingroom for accommodating new claims through the reductions for current IDA-only recipients,additional non-donor resources. As discussed in including those that have become eligible duringthe April meeting, maximum use is already being IDA9. However, in view of the size of themade, consistent with IDA's liquidity needs, of adjustment entailed in a zero real increaseadvanced commitments against reflows. If the scenario, it would not be feasible for this group,Bank's financial position permits, the Board of which is expected to absorb 53 percent of totalExecutive Directors of the IBRD may recommend IDA9 funding, to be fully protected. Within thisadditional transfers to IDA out of IBRD net group, allocations would continue to be madeincome. The scenarios below already assume, as according to the existing criteria, which stresswas done in the paper "Supplementing IDA performance. Most of these countries are pursuingResources," that these transfers will be maintained adjustment programs, many in the midst ofin real terms at SDR600 million in IDA10. Thus, political transitions to more participatory forms ofthe choice between the two scenarios depends government. Program reductions in theseentirely on the capacity of donors to fund IDA. countries would hamper IDA's ability to

complement these reforms with other priorityactivities, such as investing in infrastructure toLow Scenario: SDR13 Billion in Donor enable a private sector supply response, andResources providing basic social services for povertyreduction. Moreover, cuts in IDA programs to12. Taken together, the estimated additional these countries are not likely to be made up for bydemands of SDR2 billion faced by IDA in the other funding, and thus these cuts would be a trueIDA10 period are equivalent to 12 percent of the cost faced by the recipient countries. At the samecurrent funding level of SDR13 billion in donor time, IDA funding would be declining not just

Table 2: IDA10 TOTAL COVMUITMENTS

PROGRAM REDUCTIONS UNDER TRE LOW SCENARIO

(SDR biLLion in IDA 10 prices)

Base Alernative Reductions in Low ScenlariIDA9 Plus (SDR13 Billion Donor Contributions) Relative to the Base

[DA9 New Claims

U

Pnvortional Prioritized

Percent R'eductionSDR SDR

IDA-only 9 3 10.9 1w 0 40

Traditional 8.0 8.0 -0.9 -0.4 45

New Claimawnts 0.6 0.7 -0.1 -5

Potential Reactivated/New 0.8 2.i -0.3 -0.6 -' z

Blends 6.8 7.2 -0.8 -1.0 -14

Traditional 6.2 6.2 -0.7 -0.6 -10

New. 0.6 1.0 -0.1 -0.4 -35

Total Commitments 16.1 18.1 -2.0 -2.0 11

absolutely, but most likely even more so in percent for the new recipients) in the unlikely case

relation to other aid flows to these countries, in that all of these countries became active.

contexts, such as the SPA, Bangladesh, and However, in the low scenario (prioritized), only

Central America, where IDA is expected to be in about 40 percent of these potential claims could be

a leadership role in aid. funded on a basis comparable to that of existing

IDA-only recipients. Depending on the countries

14. Potential Reactivated/New Recipients. which materialized, the most likely consequence

More severe cuts would be made in the funding would be that initial funding during the IDAIO

envisaged for countries that currently do not period would be restricted. Programs would be

receive IDA or are poor performers. It is, of built up or restarted more gradually, and in most

course, difficult to forecast with any precision the cases would not reach levels comparable to

timing and extent to which these countries will be existing IDA-only recipients.

in a position to absorb effectively substantial IDA

assistance. A reduction in the funding for this 15. Traditional Blend Countries. The

category should essentially be seen as reducing traditional blend countries (China, India, Nigeria,

IDA's response capacity. The SDR2.3 billion in and Pakistan) are all low income and in IDA9 are

resources for this group shown in Table 2 covers expected to absorb 38 percent of total resources.

both poor performers such as Myanmar and Zaire, In view of their very large size (they account for

and potential new recipients such as Cambodia, 73 percent of the total population of IDA

Vietnam and some Central Asian republics of the recipients) and their access to IBRD funding, their

former Soviet Union. This amount would be annual per capita IDA receipts are only a fraction

sufficient to cover about 60 percent of the potential of that for IDA-only countries (less than SDR1 per

claims (50 percent for the poor performers and 70

capita versus an average of SDR5 for IDA-only of the blend to an average of close to 34 percent.countries).

17. Within this group, it should be noted that16. The impact of the 10 percent cut that the blend ratios (IDA share) for China and Indiawould be imposed on the IDA funding for this are expected to average about 38 percent forgroup in the low scenario would be moderated by IDA9, while those for Nigeria and Pakistan aretheir continued access to IBRD. During the IDA9 expected to average 47 percent. These areperiod, IDA is expected to account for an average somewhat softer blends than originally expected,of 40 percent of the Bank/IDA assistance for the reflecting lower Bank lending. If the IDA cuts oftraditional blends. A 10 percent reduction in IDA 10 percent were applied across the board to thesealone, therefore, would reduce the total Bank/IDA countries and IBRD lending were substituted, theselending level by 4 percent and bring the blend ratios would fall to about 34 percent forratio to about 37 percent. IBRD lending is already India/China and to about 42 percent for the othersat the maximum level considered reasonable in in this low scenario. While such hardening of themost of these countries given the problems of blends carries obvious risks, it would beexposure and creditworthiness. If, with sound compatible with a gradual transition to full IBRDeconomic management and good performance, status over successive IDAs, which would becreditworthiness strengthened in these countries possible with sound macroeconomic and debtand additional IBRD lending were able to be management in these countries.substituted for the IDA reductions, the averageblend ratio would come down to 36 percent (see 18. The ability in the near term for theseTable 3). If Bank lending were able to expand by countries to absorb a hardening of blends may notas much as 5 percent per year, continued growth be uniform, however. Consequently,in the total assistance program to these countries creditworthiness considerations as well as currentwould be possible, but at the cost of a hardening IBRD exposure restrictions would play an

- ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ . .:..-.:.-..- .- - .. -.-- -:. : :- : -:-- ... ..: . .---: .......- - .-:----.-:...- .:-..-. :: . ::.... :-... :: .. ...- :: .- ..:..

Table 3: BLENDING IMPLICATIONS OF THE LOW SCENARIO

Traditional Blends a/ New BlendsBlend Ratios (IDA share %)

Current (1DA9) 40.1 16.6IDAIOFull Funding a/ 40.1 24.2Reduced Funding a/ 37.5 17.2(Low Scenario)Reduced Funding wiLh 36.0 15.7IBRD Substitution

Total Program Growth (% p.a.)

Full IDA-Funding _/ 0.0 3.2Reduced IDA Funding ^/ -1.4 0.2

FBRD lending growth assumed to be 0% per annum in real terms.

important role in adjusting the blend ratios and deepen IDA's support for, environmentally

apportioning the 10 percent cuts among these responsible programs in all countries (see

countries. China's creditworthiness indicators Section III).

would appear to put it in a position to absorb a

harder blend than the other countries in this group. 21. The impact at the country level of this 25

A targeting of the blend ratio at 30 percent for percent increase in the replenishment size and 20

China, which was the blend for India during percent increase in total funding will depend on

IDA8, would still permit a total lending program the application of IDA's performance criteria.

for China about 20 percent larger than IDA9 given IDA allocates its funds on the basis of countries'

the potential for substantial growth in IBRD commitment to reduce poverty, achieve economic

lending. stability and growth, and undertake structural

measures. In the high case, consideration might

19. New Blends. The 35 percent reductions be given to providing greater weight to

for the new blends would essentially keep IDA environmental objectives in performance

funding for these countries at the largely token assessments. The rationale for these additional

levels of IDA9. There is little prospect that Bank resources in the context of the Earth Increment is

lending could substitute for IDA cutbacks in these that developing countries should adopt programs

countries as it is their weak creditworthiness and which are environmentally responsible. Donors

need for concessional resources that prompted IDA have recognized the heavy burden these programs

eligibility in the first place. The softening of the impose on the poorest countries. By tackling the

blend ratios to an average of 24 percent (from 17 causes of environmental degradation without delay,

percent in IDA9) that would be achieved and be these countries incur substantial costs in the near

appropriate under full funding would not be term, but often only realize the benefits years in

possible. Some softening of the blend would most the future. Without additional funding these

likely be accomplished through a reduction in countries would face difficult choices between

IBRD lending. With no growth in the IDA pursuing environmentally responsible programs

program, blend softening would imply substantial and other high priority investments.

reductions in the total Bank/IDA country

assistance program. For example, a 17 percent 22. It is reasonable that countries' access to

cut in IBRD lending would also soften the blend to additional resources should be related to their

20 percent in this scenario, but would result in a willingness to undertake programs which reflect

13 percent reduction in the total assistance the purposes for which the increment has been

programs for these countries over three years. In provided. Increasing the weight of environmental

apportioning the reductions in IDA funding (from aspects of sustainable development in performance

the "full funding" level), relative creditworthiness assessments would, for example, involve review

and the differences in access to IBRD resources of:

would be taken into account. The cuts would thus

be likely to fall most heavily on the Philippines, * progress in preparing and implementing

and least on COte d'Ivoire. Environmental Action Plans, including actions

to develop key environmental institutions;

High Scenario: SDR16.25 billion in Donor * implementation of environmental assessments

Funding for sensitive investment projects; and

2n. The additional funds under this high * consistency of the policy framework with

scenario would enable IDA to accommodate the environmental responsibility.

demands from new claimants and reactivatedrecipients on a basis comparable to existing IDA The precise country allocations would therefore

recipients. It would also enlarge the scope of, and depend on the assessment of these factors.

23. As in the low case, a projection of likely for reactivating or poorly performing countries beallocations can be made for illustrative purposes less than anticipated, funds would also becomeon the assumption that average performance levels available to further expand environmentallyfor the identified groups of borrowers continues at sustainable programs in blend countries.the IDA9 level. Table 4 provides an illustrativeset of allocations on this basis. It assumes thatreal program funding to IDA-only countries would Regional Implications of the Two Scenariosexpand by an average of about 3 percent perannum, and the group of potential new claimants 25. In both scenarios the share of IDA-onlyfunded at 70 percent of their likely maximum. countries relative to the blends is projected toThe traditional blends would receive their real increase in IDAIO. Some of the regionalIDA9 allocation and the new blends would receive implications of the two scenarios flow from this.comparable allocations. For illustrative purposes, Table 5 assumes that

within each group identified above, the changes24. The share of the IDA-only countries as a are made on a proportional basis, e.g., within thegroup would rise in the high scenario. traditional blends each country has its IDA9Importantly, the high case would restore IDA's program cut 10 percent in the low case. On thisresponse capacity in the potentially reactivating assumption the share of Sub-Saharan Africa IDAcountries so that full programs could be mounted recipients would fall to just below 45 percent inwithout incurring the costs of waiting until IDA 11. the low case. However, the Sub-Saharan AfricaTo accommodate these countries, there would be blend countries tend to have weakera slight reduction in the share of resources going creditworthiness than other countries in the blendto traditional IDA-only countries, but their amount group and their allocations are likely to be cut toof IDA support would still rise. Should the needs a lesser extent, so that in practice the 45 percent

Table 4: DISTRIBUTION OF IDA(SDR billions)

IDA 10 Scenarios

IDA9 at Q! ghIDA IO Prices Donor SDR 13.0b Donor SDR 16.25b

IDA-only 99 12.2

Traditional 8.0 7.6 8.5New Claimants 0.6 0.6 0.7Potential Reactivated/New 0.7 1.7 3.0

Blends 68 62 7 1

Traditional 6.1 5.5 6.1New 0.6 0.6 1.0

TOTAL 116.1 193

: -::- --- ----- -- -: : -.- : ........................ ... ... :: ::.: -..-. ..: --..:. -.

floor would be maintained in this scenario. reactivating recipients-only about 20 percent of

Another striking feature of the table is the decline which is assumed to be in Africa--though of course

in the India/China share of total IDA which would there is a major uncertainty relating to the regional

fall well below the agreed IDA9 ceiling of 30 distribution of reactivated countries. The decline

percent on these assumptions. in ihe India/China share is accentuated in thisscenario, but for the Asia region as a whole is

26. In the high scenario, although funding for more than offset by increased IDA for other Asian

Sub-Saharan Africa would rise substantially in real countries. Countries outside the two major IDA

terms, a reduction of the share below 45 percent recipient regions would also be substantial

seems likely. The main reason for this would be beneficiaries in this scenario.

the increased funding for the new claimants and

TABLE 5: REGIONAL DISTRIBUTION OF IDA(SDR billions)

IDA 10 Scenarios

Low HighIDA9 at

IDA10 Prices Donor SDR13b Donor SDR16.25b

SDR X SDR % SDR %

Africa 7.5 46.3 7.2 44.5 8.4 43.8IDA-only 6.6 40.8 6.4 39.7 7.5 39.0

Traditional 5.8 36.3 5.6 34.5 6.2 32.1New Claimants 0.2 1.5 0.2 1.5 0.3 1.4Potential Reactivated/New 0.5 3.0 0.6 3.7 1.0 5.4

Blends 0.9 5.5 0.8 4.7 0.9 4.8Traditional Blends 0.6 3.9 0.6 3.6 0.6 3.3New Blends 0.3 1.6 0.2 1.2 0.3 1.5

Asia 7.6 47.4 7.8 48.4 9.3 48.3IDA-only 2.0 12.6 2.6 16.0 3.4 17.8

Traditional 1.8 10.9 1.7 10.4 1.9 9.7New Claimrants 0.1 0.3 0.1 0.3 0.1 0.3Potential Reactivated/New 0.2 1.4 0.9 5.3 1.5 7.8

India/China 4.7 29.4 4.3 26.5 4.7 24.5Blends 0.9 5.39 0.9 5.87 1.2 5.98

Traditional Blends 0.8 4.9 0.7 4.4 0.8 4.1New Blends 0.1 0.5 0.2 1.5 0.4 1.9

Other 1.0 6.3 1.2 7.2 1.5 8.0IDA-only 0.7 4.6 1.0 5.9 1.2 6.3


Blends 0.3 1:7 0.2 1.3 0.3 1.6

Total 16.1 100.0 16.1 100.0 19.3 100.0IDA-only 9.3 58.0 9.9 61.7 12.2 63.1


Blends 6.8 42.0 6.2 38.3 7.1 36.9Traditional Blends 6.1 38.2 5.5 34.4 6.1 31.8New Blends 0.6 3.8 0.6 3.9 1.0 5.0

III. IDA'S PROGRAM OBJECTIVES

27. In recent years, IDA has been integrating awareness about the dimensions of the problem

environmental concerns into broader economic and the need for action. Governments are

policies and operational programs.9' IDA has been beginning to think seriously about the environmentworking with its borrowers to prepare in a strategic fashion, as they prepare EAPs and

Environmental Action Plans (EAPs), to focus national environment reports for UNCED. In

government policy and external assistance on addition, very large cities in IDA countries are

priority areas. Sector studies and policy analyses becoming concerned about the high pollution

have been undertaken to guide borrowers' levels within their city limits. Several have begun

strategies. Policy guidelines have been issued to urban environmental assessments, which will result

help staff deal with environmentally sensitive in an environmental management strategy for each

issues. Project design has also been modified. city and the ecosystems on which it relies.

Environmental assessments must now beprepared by borrowers for projects with potential 30. Therefore, in IDA10, there should be

environmental impacts. In addition, IDA has been greater receptivity on the part of IDA's borrowersfinancing more free-standing environmental to actively orienting their development strategy

projects and has been introducing environmental toward environmentally sustainable programs.components and linkages into its operations in the IDA intends to devote substantial attention and

agricultural, energy, water supply, and urban resources to help governments adopt a more

sectors. strategic approach toward urban and ruraldevelopment than they have to date, and accept as

28. More still needs to be done to ensure that standard practice explicit consideration of the

development programs are environmentally environmental aspects of their development

sustainable. The 1992 World Development Report projects and programs.

lays out recommendations which promote efficientand equitable income growth in environmentally 31. Improving the Urban Environment. In

responsible ways. These consist of amending the the cities of IDA countries, the key environmentaloverall policy framework as well as adopting more problems are water supply and sanitation, solid

targeted environmental policies and regulations. waste disposal, and--particularly in some Asian

The general policy changes include the removal of countries--industrial air and water pollution.

energy and water subsidies and the clarification of Although IDA has long been financing water

property rights. The more narrowly targeted supply, sanitation, waste management and

programs involve improving environmental transportation projects, it has not always treated

information, strengthening government's these systems as part of the overall urban

institutional capacity for environmental environment. In IDAIO, the Association will

management, and drawing local communities into broaden its environmentally-related urban support

the decision-making process. Finally, the WDR to include:recommends that complementary investments bemade as part of a coherent overall strategy. * coordinated investments which treat pollution

abatement as a key priority and explicitly take

29. The timing is ideal for a strengthened into account the linkages between urban water,

environmental initiative. The U.N. Conference on sanitation, and waste disposal systems.Environment and Development has raised

2/ For more details, see "The Environment in IDA's Operations," IDAIO Technical Note No. 4; "Status of Environmental

Action Plans and Assessments," IDA10 Technical Note No. 2; and "IDA's Policies, Operations and Finance in the First

Year of the Ninth Replenishment (FY91)."

* strengthening the ability of municipal agencies nutrients. In densely populated and intensivelyto set and monitor environmental conditions and farmed areas, water supply is becomingstandards and to establish rational pricing inadequate. Waterlogging and salinity, whichpolicies. depress crop yields, are serious problems on

irrigated lands in parts of Asia and in Egypt.* improved transportation planning and

investments, emphasizing low-cost, fuel- 34. Development projects in a given area willefficient mass transit modes over the use of not generate lasting results unless the area's entireprivate cars. farming system is environmentally sustainable.

Water and land use at any point in the system--32. Box 1 illustrates how additional funds from forests surrounding the headwaters of amight be used in improving the urban river, through hillside farms and lowlandenvironment. irrigation, to the discharge of water into rivers or

the sea--have ramifications for the rest of the33. Sustainable Resource Use in the Rural system. Therefore, in IDA 10 the Association willEconomy. The most urgent environmental need help governments address explicitly the interactionin rural areas is to increase agricultural between activities within a watershed or drainageproductivity while preserving the soil, water, and basin. This will mean doing more on theforest resource base. There are clear signs that following:many existing production systems will not besustainable as populations increase. Soils are * preparing long-term regional or national plansbeing eroded and depleted of moisture and for water management for agriculture,

households, and industry;

Box 1: The Potential for Better Environmental Mianagement in Large Cities

Rapid growth and industrialization bave led to substantial air and water pollution in Asia's largestmetropolitan areas. In order to deal effectively with these environmental problems, a coherent strategycovering policies, institutional strengthening, and public investments is needed. The MetropolitanEnvironmental Improvement Programme (MEIP) was set up by the World Bank and UNDP to help largeAsian cities do just that. It is currently helping Beijing, Bombay, Colombo, Manila, and Jakarta prepare ametropolitan-wide environmental management strategy and sectoral action plans; strengthen the resourcemanagement and pollution control capabilities of their municipal agencies; improve the incentive structure forcurbing industrial pollution; and increase the involvement of their residents in the environmental managementprocess. Additional resources would allow the work to proceed much faster and enable other cities in Asiaand other regions to participate in the program.

This systematic approach will generate a large number of investments which explicitly take intoaccount the multiple sources of pollution and the need for a coordinated clean-up. Joint wastewater treatmentfacilities for industrial estates and multi-industry hazardous waste disposal centers represent cost-effectivemethods of dealing with industrial effluents un large metropolitan centers like Bombay and Colombo. Anotherarea for coordinated action is in the clean-up of rivers and lakes. The restoration of Lhe Beira Lake inColombo, for example, requires cooperative action by several government agencies, including the municipalcouncil and departments of environment, urban development, land reclamation, and housing, together withcottage industries, major botels, religious inslitutions, and cormnunities around the lake.

Pollution abatement also requires action on several fronts. Industrial air pollution control in Manilaand other cities is expected to combine economic penalties with financing and advisory services to industryand with capacity building in the regulatory agencies.

* improving drainage networks and water up-to-date technologies. Among renewable energy

management for irrigated agriculture, sources, solar energy is now becoming

particularly in Egypt, Pakistan, India, and economically viable, especially for rural

China; electrification. Unit costs have dropped 95 percentover the last twenty years and further declines are

* intensifying production on existing cultivated expected. The Global Environment Facility (GEF)

areas, particularly in Africa, to avoid bringing has financed pilot operations which would form

marginal land under cultivation, and restoring the basis for expanded IDA lending in solar

degraded areas through afforestation and technology applications.improved pastures; and

37. Conservation of Natural Ecosystems.

* additional research and dissemination of The GEF is intended to protect ecosystems that are

information on crops and farming techniques of global significance. However, there are many

appropriate to the ecological and social other ecosystems which, while not globally

conditions at different locations throughout the unique, are an important part of a nation's

watershed. In Africa in particular, farming and biological heritage. Such ecosystems--forests,

forestry techniques must be adapted to small grasslands, and wetlands among them--can either

areas. be set aside as reserves or managed sustainably toprovide a livelihood for a limited number of

35. Efforts to curb population pressures, people. Additional financing would speed up the

through improving girls' access to education, process of delineating the relevant areas, enforcing

health, and family planning services, will be protection measures, and providing alternate

undertaken simultaneously. Of these, improving economic opportunities for some of the residents.

girls' access to education is perhaps the most These actions would need to be accompanied by

effective long-term environmental policy. measures to upgrade the institutions responsible

Educated women not only have fewer and healthier for the protected areas and by policies to reduce

children; they also tend to be readier to adopt pressures to encroach on them.

efficient, environmentally sustainable cultivationand cooking practices.

Implications for Program Priorities under36. New Technologies for Energy Efficiency. the High and Low Scenarios

To promote energy efficiency, IDA is already

supporting rational energy pricing and regulations 38. A key priority for IDA10, therefore, is

and efficiency improvements in the supply of continued support for environmentally responsible

energy. There are two areas where investments by development. However, there are substantial

IDA could generate significant benefits: cleaner financial costs to building sustainability into

coal technologies and renewable energy sources. existing development programs. It not only

Several IDA countries, including India and China, involves funding more projects or project

would benefit from adopting proven technologies components with significant environmental

to reduce emissions and improve combustion in benefits, such as pollution abatement, proper waste

outdated coal-fired generating stations, together disposal, better drainage and prevention of soil

with price and institutional reforms. Although erosion. It also means changing the approach to

such investments would reduce pollution and environmental management of many IDA

generate substantial energy savings, the large borrowers. More staff expertise will be needed to

investment costs and competing demand for help governments:external financing have made these countriesreluctant to upgrade. Funding a portion of these * make water, sanitation, and public health

investments with IDA resources would provide an agencies, transport authorities, and energy

incentive for blend countries to explore more suppliers more environmentally conscious;

l ~~~~~~~~~~~~~~~~~~~~~~Page 1S

* obtain the technical expertise to incorporate focus of IDA's country assistance strategies, thereenvironmental costs and benefits into both their would be a loss of momentum in actuallydevelopment strategy and project design and achieving this objective if anti-poverty and humanimplementation; capital lending were cut. Similarly, more

rehabilitation and expansion of infrastructure* collect basic information on air and water systems, rather than less, are needed to support the

pollution levels, soil conditions, and workplace supply response from the private sector. A slighthazards, upon which to base strategy and reduction in adjustment support is likely, however,programs; since a few countries are well enough along in

their reform programs to shift toward sector* strengthen resource management and pollution investment operations. At the same time,control agencies to monitor these environmental structural adjustment remains a high priority forindicators and enforce standards; and most sub-Saharan African countries, as well as forthe reactivated and new CIS countries.

* initiate more consultations with beneficiariesand affected groups. 40. The high scenario, in contrast, would

provide increased resources for environmentally39. To support this large an effort, a change in responsible development without. diminishingrelative priorities would be required under the low IDA's support for poverty reduction, infrastructurescenario. This will not be easy. Figure 1 shows development, or adjustment. Part of the incrementthe primary objectives of IDA9 lending. Although would be used for projects with significantpoverty reduction would continue to be a central environmental benefits--such as pollution

Figure 1: IDA9 COMMITMENTS FY1991-FY1993

Natural Resources Economic Adjustment(9.8%) & Management at

Devlopent4 # % (1.% nrstructurePrivate Sector(4.6%)

a/ Includss structural and sectoral adjustment credits, related investment credits, and technicalassistance for economic management.

abatement and protection of natural ecosystems. environmental soundness of IDA's entire program

IDA would also increase its funding of is likely to increase. Many IDA-funded projects

environmental components in projects and help achieve environmentally sustainable

programs which have primary objectives in other development even without an explicit

areas. Agricultural extension projects with soil environmental component. For example, women's

erosion components or potable water supply education and population programs, while directed

projects with water treatment components are toward poverty alleviation and human resource

examples of such projects. Figure 2 shows how development, are also key long-run instruments for

the additional funding is likely to be distributed. protecting the environment. Together, these two

types of projects have accounted for about 35

41. The full impact, however, is likely to go percent of all IDA9 projects, and are expected to

beyond direct environmental projects or project be even larger under the IDAIO high scenario.3/

components. The high scenario would stimulate The unshaded areas in Figure 2 show how

both borrowers and staff to institutionalize more significant these secondary impacts were in IDA9

quickly their commitment to improving and how important they might be in IDAIO.

environmental quality. Consequently, the

Figure 2: IDA10 COMMITMENTS UNDER THE HIGH SCENARIO

RELATIVE TO IDA91 /

8

0~~~~~~~~~~IA N .......................... .... ................ ....... ...... .... ..........4 3. 1............

. ........- ...........

Adjustment Infrastructure Private Sector

Poverty/HD Narl. Resources

| NON-ENVIRONMENT = ENVIRONMENT 21

1/ IDAl0 prices.

2V Environment lending Includes projects or project components with significant

environmental benefits as well as projects (like women's education and population)

which indirectly help protect the environment.

3/ This estimate refers to all projects which are classified as having the environment or natural resource management as a

secondary objective.

|_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ P ag e 17

42. To reorient more of IDA's lending toward (and IBRD) borrowers currently can tap theenvironmental sustainability, substantial amounts Bank's Project Preparation Facility for advanceof project preparation assistance will be needed. funding which is later incorporated in theCountry capacity to design and prepare new approved credit. In order to encourage IDAprojects is already stretched to the limit--especially borrowers to use this facility, a small amount, upin Africa--and government agencies will need to SDR50 million of the increment, would be setconsiderable technical expertise to deal with the aside to cover the advance if the credit does notenvironmental aspects of their programs. IDA materialize.

IV. CONCLUSIONS

43. The preceding sections demonstrate the Saharan Africa to which most of the new claimants

implications of the two scenarios for IDA recipient belong. In the high case there would also be some

countries, regions and sectoral programs. Funding change in regional shares. Although allocations to

for the high scenario is assumed to be linked to the Sub-Saharan Africa would increase substantially in

provision by donors of additional support for real terms, the increased resources would

sustainable development within the framework of disproportionately benefit borrowers in other

the U.N. Conference on Environment and regions. The net effect on regional allocations is

Development. If donors are able to provide likely to be a modest reduction in the Africa share,

funding through this channel, Bank management possibly bringing it below the floor of 45 percent

would be willing to propose--subject to the Bank's set by donors in IDA9.

financial position--an additional transfer of IBRD

net income to IDA during each year of IDAIO to 46. Although IDA would provide more

supplement these contributions. support to environmentally sustainabledevelopment programs under both scenarios, the

44. IDA intends to increase the priority given high scenario would have a substantial impact on

to environmentally oriented programs and projects the scope and depth of what IDA can accomplish

under both scenarios. Nonetheless, this would not in this area. While there already has been

ease the difficult allocation decisions required if considerable progress on environmental

donors were to opt for the low scenario. Under management in IDA9, more integration of

this scenario, IDA would be able to maintain environmental objectives into countries' regular

support for IDA-only recipients at only 5 percent development strategy and programs is needed.

less than IDA9 levels. However, traditional This involves more strategic thinking about the

blends, especially China, would face a hardening environmental linkages between programs and

of their blend ratio. Lending to new blends would projects, more funding of environmentally related

be reduced substantially relative to other projects and project components, and substantial

recipients. And IDA's capacity to respond to institution building and consciousness raising in

reactivated borrowers would be weakened. Under many IDA countries. A significant effort of this

the high scenario, in contrast, both the blends and kind, however, would divert resources in the low

the reactivated borrowers would be assisted on the scenario from other priorities, especially poverty

same basis as other IDA recipients in IDA9. In reduction, human resource development, and

addition, current IDA-only recipients would infrastructure provision. In the high scenario, no

receive increased allocations. such diversion need take place in order to provide

substantial new resources for environmentally

45. As far as the regional impact of the two oriented programs.

scenarios is concerned, the lower scenario would

result in a small reduction of the Africa share if 47. While in theory there is no inconsistency

cuts are proportional. In practice, however, since between the shift in country allocations and the

African blend borrowers have very limited shift in program content, in practice there may be

creditworthiness, the cuts in these categories are significant problems. The problem relates mainly

likely to affect them less than other blends. This to the ability of individual borrowers to absorb

is likely to restore the decline in the Africa share. new lending for environment-related activities. It

By contrast the two largest borrowers, China and is evident that a large increment in lending for

India, are likely to fall well below the ceiling of these purposes needs to be accompanied by

30 percent established in the IDA9 negotiations. adequate project preparation and institutional

The increase would be mainly in the group of development activities if it is to be used effectively

other recipients outside of China, India and Sub- by recipients. Without this, expanding IDA's

~~~~~~~~

support in this area could result in allocations at of its analytic work. But the latter also is notthe country level which are inconsistent with those independent of the size of the lending program.outlined above. To the extent IDA is forced to narrow its focusand limit its overall view of the economy, this will48. Aside from the issues of allocations to in turn impact on the quality of its analysis. Thecountries, regions, sectors and objectives, the two high case would reverse this erosion.scenarios also have important implications for

IDA's role in the international aid system. In the 50. The decision on the size of any IDAlow case, IDA may not be in a position during the replenishment is dominated by donors' budgetaryIDA10 period to maintain its role in the policy capacity and by agreement on a particular burdendialogue and its leadership in the area of aid sharing arrangement. This is tempered, however,coordination fcr all of its borrowers. If there is by a sense of the response capacity available to thefairly rapid reactivation of programs in countries Association to meet the objectives which thesuch as Afghanistan, Cambodia, Ethiopia and international community has established. There isVietnam, the substantial cuts made in this category little doubt that the country and program objectivesmight diminish IDA's capacity to take the lead in which are important to donors--covering suchthese countries. areas as strengthening programs in Africa,supporting new efforts in South-East Asia, and49. An even more important concern is longer- promoting poverty reduction and environmentallyterm. As the paper on IDA's Role in sustainable development--need to be backed byDevelopment Assistance indicated, since 1985 sufficient resources. In IDA8 and IDA9, IDA wasthere has been a steady erosion in IDA's share of able to tap the increased availability of non-donortotal ODA and of recipients' investment programs. resources. Further real increases will be difficultIt is not possible to point to a particular share at to attain. In their absence, a replenishment whichwhich IDA's credibility as the lead donor is only maintains IDA9 in real terms is likely todiminished. This is a function both of how much involve difficult and costly trade-offs in allocationsmoney IDA can bring to the table and the quality among countries, regions, and program priorities.

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