IDA12 Replenishments

Executive Summary

Developing countries have made major strides in poverty reduction, with strong support from donors — directly and through the International Development Association (IDA). Over the past generation, more has been done to reduce poverty and raise the quality of life than during any comparable period in history.

Since 1970, infant mortality rates have been cut in half and life expectancy has increased from 55 years to 64 years. Growth in food production has outpaced that of population. Child malnutrition rates are 20 percent lower than 30 years ago and certain nutrition deficient diseases have almost disappeared. Primary school enrollment rates in developing countries have reached almost 80 percent and gender disparities have narrowed, with the ratio of girls to boys in secondary schools rising to 45 percent. Adult literacy has similarly risen from 46 to 70 percent. And the consensus in rich and poor countries alike is broader and deeper than ever before on what governments must and must not do to improve the lives of their people in a sustainable way. The developing countries themselves have been the motor driving these achievements, but their efforts have received strong support from donors, including IDA.

But major challenges remain, especially for the poorest countries that IDA serves. Today three billion people live on less than $2 a day and 1.3 billion on less than $1 a day. Some two billion people have no electricity, 1.5 billion people have no access to safe drinking water, and 115 million children receive no schooling. And in too many places, the poorest are not sharing the benefits of economic growth. The greatest challenge at the threshold of the new millennium is to provide a brighter, more prosperous future for the world's poor. The current global economic uncertainties compound this challenge. The crisis and its aftermath are threatening the poverty reduction gains that have been made and creating dislocation as well as hardship in many developing countries. IDA, in partnership with other donors and with recipient countries, is now all the more important to help these countries meet these challenges.

IDA's mission — poverty reduction. The mission of IDA is to support efficient and effective programs to reduce poverty and improve the quality of life in its poorest member countries. IDA helps build the human capital, policies, institutions, and physical infrastructure needed to bring about equitable and sustainable growth. IDA's goal is to reduce the disparities across and within countries, to bring more people into the economic mainstream, and to promote equitable access to the benefits of development. Sustainable poverty reduction depends on forming effective partnerships, and on systematic inclusion of the poor, affected groups, and women in the development process. To achieve this, the focus must be on: results — to get the biggest development return from scarce aid resources; sustainability — to achieve enduring development impact within an environmentally sustainable framework; and equity — to remove barriers and open up opportunities for the disadvantaged.

IDA's assistance is provided under a broad policy framework that reflects priorities agreed by its donors, represented by their IDA Deputies, and endorsed by the Executive Directors. These priorities are set out in this report of the IDA12 Deputies. The current policy framework for the Twelfth Replenishment of IDA (IDA12) — which will span the transition to the next century — is also guided by the poverty reduction and social development goals for the 21st century (International Development Targets) endorsed by the international community. These goals include reducing the proportion of the population living in extreme poverty by half and achieving universal primary education in all countries by 2015.

A broad-based policy framework for poverty reduction. IDA works in partnership with recipient countries and with other development and financing agencies. IDA is also often asked to play a key role in coordinating assistance to borrowing countries in support of the common objective of poverty reduction. IDA's programs involve non-governmental organizations and local communities as well as active participation by beneficiaries, including women and the very poor. A Country Assistance Strategy (CAS) sets out the broad development challenges for each country and IDA's role in helping them address these challenges. The CAS incorporates analysis from poverty assessments, public expenditure reviews and economic and sector studies. The CAS process is being strengthened to ensure greater country ownership and a more transparent, participatory, and consultative process. Donors have agreed that IDA12 resources will focus on four key areas:

• Investing in people. Development experience demonstrates that investments in basic social services are vital. These include primary education, clean water and sanitation, preventative and reproductive health services, nutrition and social protection to address special needs such as ensuring that children who must work do not sacrifice opportunities to learn. These investments are designed to increase the productivity of the poor and hasten their emergence from poverty. IDA's investments in social sectors, particularly in key areas such as education for girls, have been increasing steadily in recent years. While new investments in these sectors fluctuate from year to year, virtually all active IDA borrowers have ongoing projects in education and health which are closely coordinated with community providers and other donors. The social sectors now account for some 40 percent of IDA's total investment lending. IDA expects social sector lending to remain around 40 percent of investment lending during IDA12 and will report annually on lending and disbursements in this area.
• Promoting broad-based growth. Development experience also shows clearly that sustainable, broad-based economic growth is essential for poverty reduction. IDA will therefore support macroeconomic and sectoral reforms that promote labor-intensive, broad-based growth and benefit the poor within the IDA recipient countries. In particular, IDA will support policy changes and projects that encourage the role and growth of the private sector, including local small businesses, microentreprises, and small farmers — both men and women.
• Supporting good governance. Good governance is critical to sustainable, broad-based economic development and improvements in human well-being. Poor governance, including corruption, undermines the efficient and equitable provision of public goods and services and blocks opportunities for the poor and weak to benefit from the development process. Key components of good governance are: good public sector management with accountable public institutions that give priority to productive social programs and to policies designed to reduce poverty and support sound fiscal choices; transparent policy making and implementation; clarity, stability, and fairness in the rule of law; and openness to the participation of affected citizens in the design and implementation of policies and programs that impact them. IDA has strengthened its analytical framework to assess the quality of overall policy performance in recipient countries, including governance factors, that will be applied in the allocation of IDA12 resources. Where weak governance is an important development constraint, the issue will be treated thoroughly in the CAS.
• Protecting the environment. IDA supports strategies that promote environmentally sustainable development since the effects of poverty and environmental damage are often mutually reinforcing. IDA will increase its efforts to mainstream environmental objectives into its work, taking into account local conditions and relevant international environmental agreements. It will encourage and support projects which build environmental management capacity and related regulatory and legislative infrastructure (such as free-standing institutional development projects). IDA will take steps to promote and support energy efficiency in both energy and non-energy operations, greater rural energy availability and, in partnership with the Global Environment Facility (GEF), expansion of renewable energy markets in countries or areas (especially rural areas) where renewable energy technologies offer promising economic alternatives to conventional ones.

IDA funds are allocated according to each country's policy performance. IDA resources are scarce and must be allocated where they are most likely to promote sustainable, broad-based, labor-intensive growth — where countries are implementing sound policies. IDA12 resources will be allocated based on current assessments of each borrower's policy performance with regard to poverty reduction, broad-based economic policies, governance and project implementation. Countries are assessed using the Country Policy and Institutional Assessment framework, which has undergone significant improvements during the past year. IDA will provide an annual report on the evolution of the country performance assessment process, including its impact on poor performers and potential turn-around countries and its treatment of governance.

Support to countries with weak policy performance and to post-conflict countries. A large number of the world's poorest people live in countries with poor policy performance. These countries can receive non-lending and selective lending support from IDA, in collaboration with other donors, if their governments show determination to improve their policy performance. This support can help these countries further improve their performance and become eligible for more substantial financial assistance from IDA and the international community. Poor countries emerging from conflict must contend, in particular, not only with human suffering and loss, but also with destroyed institutions and infrastructure; IDA resources can play a critical role in post-conflict reconstruction in these countries. IDA will provide selective lending and non-lending support to countries with poor policy performance, commensurate with government progress in implementing policy reform programs and donor willingness to provide concerted support.

IDA is also improving its internal efficiency to support its mission. To meet the challenges it faces in promoting development, the World Bank adopted an action plan — the Strategic Compact — in early 1997. The primary objective of the Compact is to make the World Bank Group more effective in helping member countries reduce poverty. Under the Compact, the World Bank is transforming its operations — improving its products, making processes more responsive and participatory, lowering its costs, and more generally increasing the effectiveness of its work in developing countries. It is decentralizing operations with 40 percent of Country Directors now in offices in the borrowing countries. This, in turn, is bringing IDA closer to its clients and enabling it to be more responsive and flexible in addressing the needs of the world's poorest people.

A special effort is needed in Sub-Saharan Africa. This region continues to present a particularly difficult development challenge. Donors have asked that IDA continue to make special efforts in Sub-Saharan Africa, in view of its minimal access to alternative sources of investment capital, low social indicators, and severe institutional and infrastructure constraints. Many of these countries are now pursuing sound policies and experiencing greatly improved growth rates, opening up a window of opportunity to improve the lives of their poorest citizens. Yet investment levels in these countries are too low to sustain this growth. Sustaining and building on their efforts will require substantial support from the international community, including both the public and private sector. To support African countries that are committed to poverty reduction, economic reform, and sustainable, broad-based growth, IDA intends to increase Africa's share of IDA resources with the aim of reaching 50 percent of IDA12 resources, as long as the performance of individual countries warrants it. IDA will report annually on the regional distribution of its lending.

Most of the world's poor live in Asia. Donors also recognize that the greatest concentration of poor people in the world is in Asia and that in many parts of Asia social indicators are worse than those found in Africa. Donors also noted the special needs of the "blend" borrowers which have limited access to non-concessional funds but differ widely in their economic development prospects. IDA will concentrate its support for "blend" countries on priority social and environmental programs and will report annually on IDA lending to these countries. IDA will also undertake a review of IDA's graduation policies and of options for the lending terms for IDA borrowers.

The global economic crisis hurts all poor countries. The economic crisis that began in East Asia and has now spread to other parts of the world has put at risk one of the most remarkable achievements in poverty reduction in modern history. Development gains are rapidly eroding, especially in East Asia where the greatest strides to combat poverty had been made, and many of these countries face the prospect of prolonged economic recession and worsening social conditions. The World Bank Group is supporting international efforts to restore confidence and sustainable growth in the most severely affected countries across all regions by providing financial and technical assistance to address both the financial and human dimensions of the crisis. IDA will monitor the impact of the global crisis on all regions and will adjust its lending to respond to IDA recipient needs within the agreed IDA12 eligibility criteria.

IDA12 funding recommendation. The 39 IDA12 donors have recommended that the IDA12 Replenishment should comprise donor funding of SDR 8.65 billion. These funds will be combined with reflows from past IDA credits, expected transfers from IBRD and other resources, to enable IDA to commit about SDR 15.25 billion between July 1, 1999 and June 30, 2002 to the poorest countries in the world.

IDA's Twelfth Replenishment will contribute significantly towards a brighter future for the world's poorest people as they enter the 21st century. In the 37 years since IDA extended its first credit, it has been a major source of advice and concessional finance for the world's poorest countries. IDA, working together with the strong efforts and commitment of recipients and other donors, will help accelerate the pace of human development at this critically important time.