Leaders called on donors to replenish the World Bank’s grants and concessional loans arm with “at least $120 billion” for debt and climate.

19 Africa heads of state and other leaders were present at the IDA21 Summit in Kenya on 28-29 April 2024. Credit: WilliamsRuto

“The current system needs more than just adjustment – it needs an overhaul. Africa must be at the centre of these reforms, but our criticisms have for too long fallen on deaf ears.” 

This was the shared opinion of the presidents of Ghana, Kenya and Zambia in their piece on how to make global finance work better, for The Economist in March. In their oped, they specifically mention the International Development Association (IDA), the arm of the World Bank that provides grants and highly concessional loans to the lowest-income countries.

This weekend, this commitment to increasing access to these critical forms of finance led Kenya to host the IDA21 Summit. African Ministers of Finance, Heads of State, and civil society were all in attendance. 

The Nairobi summit came in the wake of a World Bank Spring meeting where the issue of how to replenish the IDA pot for the 21st time (IDA21) was on the table. It also came at a moment in which G7 countries have been scaling down their contributions to IDA. This began with the UK’s massive 54% cut in 2021, followed by Germany, Canada and the US at 10% each. As Kenya’s President Ruto articulated in his 2023 speech to the UN General Assembly, there is a “pervasive mistrust between the global north versus south” caused by unmet commitments and unhonoured resolutions. 

The Nairobi summit concluded in 19 Heads of States jointly sponsoring a Nairobi Communiqué calling for more ambitious grant and concessional finance to set the IDA on a pathway to tripling finance by 2030. “We call on our partners to meet us at this historic moment of solidarity and respond effectively by increasing their IDA contributions… to at least $120 billion,” said Ruto. The previous round of fundraising, in 2021, raised a new high of $93 billion.

Energy and climate change

For African countries, replenishment of the IDA is an act of reparation and social justice, especially in the context of a climate crisis for which Africa holds no historic blame. IDA21 is therefore an important signal to African leaders that G7 and other wealthy donor countries are willing to put their money where their mouths are to boost sustainable development in the continent – without seeing it as an act of charity. 

African countries are extremely vulnerable to the impacts of climate change. The region has been ravaged by droughts, flooding and cyclones in recent years, with East and Central Africa currently facing extreme flooding. 

IDA finance, 70% of which goes to Africa, is crucial to support these countries to adapt while transitioning towards renewable energy systems. As Ruto stated on 29 April: “Our continent possesses 60% of the world’s prime solar resources and our untapped renewable energy potential exceeds 50 times the projected global electricity demand by 2040. However, realising this requires a shift in investment strategies, with affordable, long-term capital at scale”.

IDA can help support the shared commitment of the Multilateral Development Banks (MDBs) to triple renewable energy capacity by 2030. However, this must be done with a clear plan to ensure that the Banks’ investments comply with environmental and social safeguards, and address the energy poverty of over 600 million people in Africa alone. IDA investments in renewables should not repeat the mistakes of the fossil fuel past – for example, by ousting people from their land to make way for large-scale solar or wind farms, or by exploiting workers to mine transition minerals. It should instead support community-based schemes that develop local economies and provide decent jobs.

Debt crisis

More than half of African countries are at high risk of or already under debt distress. This financial strain hampers efforts to combat climate change, transition to a low-carbon economy, and fund essential services like education and healthcare. The debt owed by low-income countries to MDBs is significant, with some countries owing more than 50% of their external debt to MDBs, and others as much as 75%. 

High interest rates are adding to the squeeze. “Projections for 2024 show a net outflow of $74 billion from IDA countries to donor nations, while net financial transfers to developing countries have plummeted from $225 billion in 2014, to a low of $51 billion in 2022,” said Ruto on Monday.

In the face of shrinking fiscal space, African states have called for IDA to ensure debt relief. When money is flowing from low-income to donor countries, there is clearly a need for urgent action. Tackling the debt crisis must be done together with increasing grant and concessional finance through IDA21 replenishment. 

This kind of debt relief is possible and has numerous precedents, including through the Heavily Indebted Poor Countries Initiative, launched in 1996, and Multilateral Debt Relief Initiative, approved in 2005, as well as the Debt Relief Trust Fund set up during the Covid-19 pandemic.

IDA21: an opportunity

The IDA21 replenishment is an opportunity for the wealthy, powerful nations of the World Bank to rebuild confidence in the multilateral system and provide vital support to countries struggling against a double-edged sword of climate impacts and debt crisis, particularly in Africa. The World should utilise this replenishment window to live up to its mission of being a “bigger, better bank” – one that does not entrench indebtedness, but instead fosters inclusive, transparent and sustainable development models that will benefit us all, including the most vulnerable.