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Impoverished countriesGDP IDAIDA IDAIDA IDAIDAYour browser does not support the element. do not have much in common. Half the population of Niger, a landlocked African nation beset by military coups, live in extreme poverty, eight in ten people have no access to electricity and per person is just $620. By contrast, the average Bangladeshi is four times richer, and just one in 18 is among the world’s poorest. The country’s policymakers do not have to worry about simply providing power. They want to attract foreign capital to build renewable energy, so as to reduce reliance on coal.It is the World Bank’s job to lend to all 78 of the world’s poorest countries—defined both by their income per person and the sustainability of their debt burden—through a single fund, the International Development Association (), which disburses assistance on generous terms. In the last fiscal year it doled out $28bn in grants and loans, over a third of the bank’s total financing and enough to make it one of the biggest lenders to low- and middle-income countries. Meeting the needs of such a diverse range of countries is becoming more difficult, however, as was demonstrated on December 6th when aid officials gathered at a conference in Seoul.The recycles repaid loans but, since its terms are so munificent, requires a top-up every three years. In South Korea, Ajay Banga, the bank’s president, announced $100bn in funding, up from $93bn last time round. Although he lauded this as the most ever, there was a significant catch. Little of the pot’s increase came from donor contributions, which were roughly flat at $24bn. Indeed, adjusted for inflation and converted into dollars, rich countries made their most miserly contribution this century (see chart). This will have ramifications for the world’s poor.World Bank officials hope that economic growth will soar across the developing world, meaning countries will be prosperous enough to no longer qualify for support. With growth sluggish, and interest rates relatively high, that hope may prove forlorn. The next option is to make up the difference by borrowing from the market. Bank officials will now have to add $3.22 to every donor dollar, up from $2.96 under the deal negotiated three years ago. Financial engineering, such as switching some loans to floating interest rates, and offering a hedging service, which is cheaper than providing loans with fixed rates, will save a bit of money. Other measures will pass the additional cost of borrowing more directly to the poorest countries.At the moment, the poorest countries receive mainly grants, rather than loans. Over the past decade such grants have risen in value three-fold; over the next three years, their value will probably fall in real terms. Meanwhile, the maximum hand-out any country can receive will drop from $1bn to $650m. Further belt-tightening reforms are likely after the difficulty of raising funds in South Korea. Some countries will face an unpleasant choice: receive less money or convert grants to loans. Some will have no choice but to take the hit.The World Bank views this as a price worth paying to free up lending for other countries, many of which have fallen on hard times recently. Some of the ’s richer borrowers also want cash to tackle climate change. Solar panels and wind turbines are a worthy cause, and delight rich countries, which increasingly prefer climate finance to traditional aid. But this spending may undermine a rare successful form of development. In 2016 Stephen Knack, then of the World Bank, and co-authors calculated that a percentage point of extra disbursement, relative to a country’s income, produces 0.35 percentage points of extra per-person economic growth a year.Such spending is the most effective way to combat extreme poverty, since it allows cash-strapped governments to invest without increasing the risk of fiscal crises. Research by Charles Kenny of the Centre for Global Development, a think-tank, finds that the ’s cash is particularly helpful for the poorest countries, which receive it on the most generous terms. Even countries that will benefit from the fund’s change of approach would probably be better served by lending that is more affordable, rather than more plentiful.On top of this, the world’s poorest countries have nowhere else to turn when they are in need of money. Many are already struggling under the weight of higher interest rates, or are locked out of international markets owing to their potential for default—a problem richer borrowers from the do not face. The World Bank’s fiddles, which at first glance appear modest, could in time make hospitals, roads and schools unaffordable for countries such as Niger. That is a high price to pay, even if it does free up cash.
