International Development Association

3 key takeaways

• The IDA is part of the World Bank Group and focuses on reducing poverty by providing financial and technical assistance to low-income countries.
• It offers concessional financing, meaning loans with low-interest rates and long repayment periods, as well as grants that do not need to be repaid.
• IDA funding supports projects in various sectors, including education, health, infrastructure, and agriculture, aiming to foster sustainable development and improve living standards.

What is the International Development Association?

The International Development Association (IDA) was established in 1960 as a branch of the World Bank Group to help the world’s poorest countries by providing concessional financing. The IDA aims to reduce inequalities, promote economic growth, and improve living conditions in low-income countries. Its support helps countries address development challenges and build the foundation for long-term prosperity.

Importance of the IDA

• Poverty Reduction: By providing financial resources and expertise, the IDA helps the poorest countries implement projects that directly reduce poverty.
• Economic Growth: IDA-funded projects stimulate economic growth by improving infrastructure, education, health, and other critical sectors.
• Sustainable Development: The IDA promotes environmentally and socially sustainable development practices, ensuring that progress benefits future generations.

Example of IDA-funded project

An IDA-funded project in a low-income country might involve building a new school, training teachers, and providing educational materials. This project would improve educational access and quality, contributing to better long-term economic prospects for the population.

How the IDA works

The IDA provides financial support through two main types of assistance:

• Concessional Loans: Loans offered at very low or zero interest rates with long repayment periods, typically 30 to 40 years, including a grace period of 5 to 10 years.
• Grants: Financial assistance that does not need to be repaid, often provided to countries at high risk of debt distress.

Example of concessional loan

A low-income country receives a concessional loan from the IDA to upgrade its water supply infrastructure. The loan has an interest rate of 0.75% and a repayment period of 40 years with a 10-year grace period. This financing allows the country to improve access to clean water while maintaining financial stability.

Areas of focus

The IDA supports a wide range of sectors to promote comprehensive development:

• Education: Funding projects to build schools, train teachers, and improve educational outcomes.
• Health: Supporting healthcare infrastructure, disease prevention, and access to medical services.
• Infrastructure: Financing roads, bridges, and other critical infrastructure to enhance connectivity and economic activity.
• Agriculture: Investing in agricultural development to increase productivity and food security.
• Climate Change: Supporting initiatives to mitigate and adapt to the impacts of climate change, promoting environmental sustainability.

Example of health sector support

An IDA grant funds the construction of a rural health clinic, the training of healthcare workers, and the provision of essential medical supplies. This project improves healthcare access for underserved populations, reducing disease prevalence and improving health outcomes.

Impact of the IDA

The IDA’s support has a significant positive impact on the countries it assists:

• Improved Living Standards: Projects funded by the IDA improve access to essential services, such as education and healthcare, leading to better living conditions.
• Economic Resilience: By building infrastructure and enhancing human capital, the IDA helps countries become more resilient to economic shocks.
• Social Inclusion: IDA projects often target marginalized communities, promoting social inclusion and reducing inequalities.

Example of economic resilience

Through an IDA-funded project, a country develops a robust agricultural sector that can withstand climate variability. By adopting climate-resilient farming practices and improving irrigation systems, the country enhances its food security and economic stability.

Challenges and future directions

While the IDA has made significant strides, it faces challenges such as:

• Resource Mobilization: Ensuring sufficient funding to meet the growing needs of low-income countries.
• Implementation Capacity: Enhancing the ability of recipient countries to implement and manage development projects effectively.
• Sustainability: Ensuring that development gains are sustainable and resilient to future challenges, including climate change.

Example of resource mobilization

To address funding challenges, the IDA engages in periodic replenishment cycles where donor countries contribute to its financial resources. These contributions enable the IDA to continue supporting critical development projects in the world’s poorest countries.

The International Development Association (IDA) plays a vital role in promoting sustainable development and reducing poverty in the world’s poorest countries. By providing concessional financing and grants, the IDA helps improve living standards, stimulate economic growth, and foster long-term prosperity in low-income nations.