Published Apr 29, 2024 The International Development Association (IDA) is a critical part of the World Bank that helps the world’s poorest countries. Established in 1960, IDA aims to reduce poverty by providing loans (known as “credits”) and grants to countries for projects and programs that boost economic growth, reduce inequalities, and improve people’s living conditions. Unlike the World Bank’s other branch, the International Bank for Reconstruction and Development (IBRD), which lends to middle-income and credit-worthy low-income countries, IDA supports the most financially vulnerable nations with highly concessional rates or no interest at all. IDA financing supports a wide array of interventions designed to address various developmental challenges. This financing can cover sectors such as education, health, water and sanitation, agriculture, environmental sustainability, and infrastructure development. The resources are allocated based on the recipient country’s need and the project’s potential impact on its development trajectory. Credits from IDA come with zero or very low interest rates and have long repayment periods. This concessional approach allows countries to invest in crucial sectors without the burden of heavy debt commitments. Grants, on the other hand, are funds provided to countries without the requirement of repayment, typically earmarked for projects expected to have a significant impact on improving living standards and economic development in the poorest and most vulnerable regions worldwide. To illustrate, consider a hypothetical IDA-funded project aimed at improving agricultural productivity in a low-income country. This project might include investments in irrigation systems, training for farmers on sustainable agricultural practices, and access to markets. Such an intervention can lead to increased food security, higher incomes for rural households, and significant steps toward economic development and poverty reduction in the participating country. The importance of IDA lies in its role in filling the gap for those countries that lack the financial strength to borrow from commercial sources or even from the IBRD. By providing resources on highly favorable terms, IDA enables these countries to undertake key developments and reforms that can break the cycle of poverty and foster long-term economic growth. Moreover, IDA’s efforts are aligned with achieving the Sustainable Development Goals (SDGs) by 2030. This alignment underscores the relevance of IDA’s work in the global agenda for sustainable development, particularly in efforts to end poverty, improve health and education, and promote sustainable economic growth. Eligibility for IDA support is determined based on a country’s per capita income. The IDA primarily focuses on countries that fall below a certain income threshold, which is updated annually. These are considered the world’s poorest countries, and within this group, IDA prioritizes projects based on necessity and potential impact. IDA stands out due to its focus on the poorest and most vulnerable countries, providing terms that are significantly more concessional than those of other financial institutions. This uniqueness enables IDA to support countries and projects that might not otherwise have access to funding, playing a crucial role in global poverty reduction efforts. IDA is funded by contributions from the governments of wealthier countries, known as donor countries, along with loan repayments from countries that have previously received IDA funds. Every three years, IDA undergoes a replenishment process where donors meet to pledge support, ensuring that IDA can continue its mission of poverty reduction and development support. Yes, IDA has mechanisms to provide rapid assistance to countries facing crises or emerging from conflict. These interventions can be crucial for stabilization, recovery, and rebuilding efforts. By focusing on resilience and reconstruction, IDA helps countries lay the foundation for sustainable development even in the most challenging contexts. In understanding the role of the International Development Association, it is evident that it serves as a cornerstone in the global fight against poverty. Through its targeted interventions and concessional financing, IDA plays a vital role in enabling the world’s poorest nations to achieve meaningful and sustainable development.Definition of International Development Association (IDA)
Working Mechanisms of IDA
Example of IDA’s Impact
Why the International Development Association Matters
Frequently Asked Questions (FAQ)
How does IDA decide which countries are eligible for its support?
What makes IDA different from other international financial institutions?
How is the International Development Association funded?
Can the investments of the International Development Association help in crisis or post-conflict situations?
Economics