THERE is a term in dating circles known as “breadcrumbing”.
It is basically a form of intentional or non-intentional manipulation whereby one partner “leads on” another by giving small morsels of attention to keep the other hooked into the relationship, feigning interest.
It is, of course, one of those traits of partners that any therapist or self-help guide would say to stay far away from!
Over the past months, a great deal of interest has been building in the World Bank, particularly due to the forthcoming 21st replenishment (IDA21) of what is arguably its most attractive instrument in interest rate and maturity terms, the International Development Association (IDA), although only countries that have an average per capita income of US$1 315 per year can access it.
That replenishment is meant to happen in December 2024, and there have been several preparatory meetings for it, with numerous calls for contributing countries to increase their pledges to IDA21.
Specifically, the president of the World Bank Ajay Banga has called for donor contributions to reach US$28-30 billion over the next three years, which he says the Bank could use in capital markets to raise another 60-75% to get to at least US$100 billion of available money to lend onwards.
Separately, African leaders have called for the overall lending plus leverage amount to reach US$120 billion. To put this in context, donors paid in US$23,5 billion in IDA20 in 2021, but the record was actually US$26 billion back in 2012.
So far, only one donor - Denmark - has preannounced its contribution of US$492 million, a 40% increase on its 2021 amount.
- Zim has 2nd highest rising food prices: WB
- 'Market discipline difficult to maintain'
- Govt policy unpredictability destroying formal economy
- UZ fiasco shows govt is aloof
Keep Reading
So why is breadcrumbing relevant in this context?
Surely, donors using today’s taxpayers’ money this way is all incredibly kind and thoughtful, even though of course it will be repaid to the donor’s taxpayers' tomorrow with a little interest in future.
As economists say, there is no free lunch.
Three major problems
The reason the breadcrumbing reference is relevant is that in reality, from an African borrower’s perspective, IDA suffers from three major problems that make it feel like a breadcrumbing organisation.
First, as mentioned earlier, 75 low-income countries around the world are eligible to access IDA, with 39 of these being African countries.
In reality, the continent disproportionately accesses IDA, borrowing over 75% of IDA’s overall loans.
Of African countries, Ethiopia, Nigeria, and Tanzania have borrowed the most from IDA, totalling US$23 billion, US$19 billion, and US$17 billion over IDA’s lifetime, respectively.
This highlights Africa’s reliance on IDA as a key funding mechanism for development projects.
Sounds great right?
But there are distinct challenges that African countries face when they try to access IDA. Since IDA was created in 1960, African countries submitted successful requests for IDA loans a massive 5 518 times.
To put this another way, take my home country, Ethiopia, for example, which has had to go 252 times to the bank to get that US$23 billion over the years.
Overall, eight African countries have had to seek IDA resources over 200 times, and another 27 over 100 times.
This is because the average size of an IDA loan is US$34 million, versus, for instance US$80 million from the International Bank of Reconstruction and Development (IBRD), the World Bank’s other major lending instrument reserved for middle income countries (albeit at higher interest rates and shorter maturities) or an average US$887 million from the IMF on even more expensive terms.
This is the breadcrumbing effect: although IDA finance is relatively cheap and attractive, African countries have to go back over and over to IDA for small amounts.
The second issue – to an extent linked to the first – is that a significant portion of IDA funding has been directed toward social spending.
For example, in IDA’s 19th replenishment, social expenditure accounted for 56% of IDA spending, with health and social care and public administration accounting for 26% and 16% of IDA19’s allocations, respectively.
While these sectors are undeniably important, this emphasis may not fully align with Africa’s urgent priorities, which require substantial investment in infrastructure and economic transformation.
Indeed, transportation and energy only received 7% and 10% of IDA19 funding respectively, well below social sectors.
While there was a shift towards productive spending in the subsequent IDA replenishment (IDA 20), where 53% of IDA share went towards productive sectors, up from a total of just 40% in IDA19, the fact is many of Africa’s urgent needs – such as infrastructure deficits and climate adaptation – remain unmet.
For instance, the African Development Bank estimates that the continent faces a US$402 billion annual financing gap to accelerate structural transformation by 2030.
Approximately 76% of these resources would need to focus on road and energy infrastructure alone.
In other words, with small amounts being disbursed each time from IDA, African countries are unable to seek funds for large transformational, growth-inducing projects that might reduce their dependency on future lending.
Instead, they get “crumbs” of funds that go to recurrent spending, for example on salaries of officials running ports or schools, or even worse, on salaries of international consultants working on institutional strengthening.
Third, the non-transformative nature of the IDA’s breadcrumbing approach to lending leads to a situation where African countries find it difficult to “graduate” from the IDA to the IBRD.
And when they do, there remains a risk of reverse graduation which has indeed been a reality for a non-trivial number of African countries. Out of 32 African countries that have been eligible for the IDA since its inception, only 13 have managed to graduate —a pass rate of only 40%.
Moreover, of the 13 that have graduated, six have “reverse graduated” i.e., fallen back into IDA eligibility – a recidivism rate of almost 50%.
Three solutions
So how can, in the context of an IDA replenishment, the organisation change itself to do less breadcrumbing, and really become a committed partner?
First, given the immense demand for IDA resources in Africa, creditor countries – the Banks’ major shareholders – should commit to at least double their contributions by December 2024, with the G20 Independent Expert Group recommending a tripling of resources by 2030.
This will allow IDA to lend out larger amounts to each African country, so that it can more accurately meet the continent’s growing needs.
Second, African decision-making and representation within the World Bank board and its staffing must be significantly enhanced.
This is essential to ensure that leadership and staffing better reflect the regions they serve, for example supporting the preparation of much larger project preparation and borrowing requests by African nations.
As my colleague, Trevor Lwere, emphasised in a recent webinar, diverse leadership is crucial for IDA to effectively address the unique challenges facing African countries.
Third and last but not least, the IDA-IBRD system must be reformed to eliminate perverse incentives in the system.
For instance, raising or removing the thresholds for IDA eligibility would allow all African countries more sustained access to concessional financing.
This is particularly important as graduating from IDA often restricts countries’ access to affordable funding, raising debt servicing costs (even if no longer breadcrumbing as much), potentially stalling the development progress.
At 80 years old this year, it’s high time for the World Bank to not just get bigger, but really transform to meet African countries’ needs.
It starts with avoiding breadcrumbing. — African Business.
- Thomas is the editor of African Business.
