The World Bank division that lends to the world's poorest countries is preparing to raise billions of dollars from capital markets next year after winning top-tier, first-ever credit ratings from Moody's Investors Service and Standard and Poor's.
The World Bank said on Thursday that its International Development Association unit, funded entirely by donor countries since its founding in 1960, now would be able to leverage its balance sheet and boost lending for clean water and energy projects, public health programs and aid to refugees, Reuters reported.
Axel van Trotsenburg, the World Bank's vice president for development finance, called IDA's move to tap capital markets a "paradigm shift for development finance" that could boost its lending resources by 50% over the amount of money raised in its current funding round this year to more than $75 billion.
"It will allow us to have a more ambitious replenishment for the next three years, and in turn, that will allow us to undertake critically needed investments in the 77 poorest countries," van Trotsenburg said.
Moody's and Standard and Poor's issued their highest triple-A ratings to IDA with stable outlooks. In its statement on Wednesday, Moody's cited IDA's strong capital base and high liquidity and its profile as a World Bank Group entity.
The bank's other main units, the International Bank for Reconstruction and Development and the International Finance Corp, already enjoy strong access to capital markets.
Timing for the first IDA bond issue is somewhat uncertain but would not occur before July 2017, van Trotsenburg said. That is when the money raised in the current round becomes available for lending, with negotiations over the total amount to be completed in December this year.
Could Curb US Influence
The financing revamp is part of a broader restructuring by World Bank President Jim Yong Kim to evolve the development institution into a more agile and efficient banking group. In a new era of emerging-market wealth, with a broadening of cross-border remittances, private-sector lending and international consultancies, the bank has struggled with a fading profile in development finance.
Besides boosting the IDA’s lending resources, the move also would likely weaken the power the US and other major shareholders have over the institution. IDA’s resources have for decades been funded by its shareholders in multiyear capital replenishments.
By using existing assets as collateral and raising fresh funding from the private markets, the IDA’s debt-financed operations would undermine some of the sway US lawmakers have realized via those funding renewals. The US Congress in the past has held up its capital contributions to the World Bank, using its budgetary power in the US to influence World Bank policies.
Even with its financing overhaul, the IDA would take contributions from the US and other shareholders, said Scott Morris, a senior fellow at the Center for Global Development. But “those contributions will fall pretty dramatically as a share of overall IDA resources.”
New Capital
Trotsenburg declined to detail how much debt the IDA would seek to raise in capital markets, but he said it would be billions of dollars. The IDA has around $180.5 billion in total assets it can leverage, most of which are concessional loans for third-world development projects.
The financing-revamp comes as World Bank shareholders, including the US, negotiate how much new capital to provide IDA between 2017 and 2020. “This innovation offers donors exceptional value for money, with every dollar they contribute translating into about $3 in finance directly from IDA,” the World Bank vice president said.
That might prove to be an attractive leveraging of contributions for some shareholders, especially as demand from poor countries for bank lending swells and donors tighten their own budgets. But it might also stoke the ire of congressional Republicans who want to maintain their current level of influence over the institution.
