World Bank Reaches $100B for Lending to Poorest Nations
Dec 6, 2024 at 5:30 PM
The World Bank has made significant progress in its efforts to provide financial support to the world's poorest nations. With a $100 billion funding target reached for its lending arm, there is renewed hope for enhanced climate resilience financing. At a replenishment meeting in Seoul, South Korea, donor countries pledged $23.7 billion to the International Development Association (IDA). This marks a slight increase from the $23.5 billion pledged in 2021 but still falls short of the $30 billion goal set by World Bank president Ajay Banga. Through various financial engineering methods, the bank is able to stretch the donors' money to reach the $100 billion mark, including borrowing more from markets and freeing up capital for lending.The funds will be allocated through grants and concessional loans to 78 poor and vulnerable nations, addressing a wide range of developmental needs such as climate change, food insecurity, and conflict. Under the theme of "ending poverty on a livable planet," these resources will play a crucial role in helping these countries.However, despite celebrating this largest-ever IDA fundraising round, experts have pointed out that rising inflation means the $100 billion figure represents a real-term cut compared to the previous round. Amy Dodd, a fellow at think-tank E3G, stated, "Obviously we would have liked to see a bigger number. But I would still see it as a success in the context of many donor countries slashing spending and aid budgets coming under a lot of pressure."G7 countries form the majority of IDA's traditional contributor base, which has grown from 48 to 59 countries in this cycle. Although the World Bank has not disclosed a detailed breakdown of pledges, it is known that 17 donors increased their contributions by more than 25% in national currency.The United States has pledged $4 billion under the outgoing Biden administration, but this will be tested under Donald Trump as Congress needs to approve the disbursement of funds. E3G's Dodd added that the final US contribution might be lower given Trump's record of reneging on climate finance promises.The United Kingdom announced a £1.98 billion ($2.52 billion) pledge, while Denmark, Latvia, Spain, and Poland have made significant increases to their contributions.In an open letter, Banga applauded donor countries' "generosity," emphasizing its significance in making the IDA replenishment the largest in history. He also highlighted the critical role of the IDA in addressing the climate crisis. Over the past 10 years, the IDA has invested $85 billion globally, with half going towards building adaptation in poor countries by protecting communities from rising seas, constructing heat-resistant schools, and ensuring farmers have the right seeds for the right conditions.African nations receive nearly three-quarters of IDA's financing, and the bank is the main source of concessional climate capital, especially in supporting countries in coping with climate impacts.In 2022, 35% of IDA's projects had climate mitigation or adaptation co-benefits. Since then, the bank has committed to channeling 45% of its overall funding to climate projects by mid-2025. Eleonora Cogo, senior associate international finance at Italian think-tank ECCO, believes the IDA replenishment is "good news" for climate finance and is particularly significant given its highly concessional nature. The IDA, along with contributions from other multilateral development banks, will play a crucial role in channelling at least $300 billion a year from developed to developing countries by 2035, a goal agreed at the UN COP29 climate talks in Baku.
