abhishreshthaa
Abhijeet S
IDA's 79 eligible borrowers together have very significant needs for concessional funds. But since most of IDA's resources are donated by member governments, the amount of funds available for lending is virtually fixed once donations are pledged.
IDA therefore must allocate resources among eligible borrowing countries. This note describes how IDA resources are allocated on the basis of borrowers' policy performance and institutional capacity in order to concentrate resources where they are likely to have the most impact.
1. Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources:
• Relative poverty, defined as GNP per capita below an established threshold, currently US$885.
• Lack of creditworthiness to borrow on market terms and therefore a need for concessional resources to finance the country's development program.
• Good policy performance, defined as the implementation of economic and social policies that promote growth and poverty reduction.
2. Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is each country's performance in implementing policies that promote economic growth and poverty reduction. Per capita income is also a determinant, with the poorest of the eligible countries receiving higher allocations for a given performance level.
3. Performance Ratings
Every year World Bank staff assesses the quality of each borrower's policy performance. The criteria and methodology of these assessments have evolved over time to incorporate lessons from experience as well as research findings.
Beginning in 1998, the country performance assessment was broadened to include an evaluation not only of the government's policies but also of the institutions in place to implement them. In addition, a discount is applied to the ratings of countries with severe governance problems, as weak governance has been shown to be a major obstacle to development.
Finally, the performance assessment also takes into account the performance of the country's active project portfolio. The 20 performance criteria are grouped into four clusters
Economic Management
Structural Policies
Policies for Social Inclusion/Equity
Public Sector management and Institutions
4. Allocation Process
The allocation of IDA's resources is determined primarily by each borrower's rating in the annual country performance and institutional assessment. In addition, the IDA12 Agreement recommends that because the acceleration of economic and social development in Sub-Saharan Africa remains foremost among IDA's priorities, these countries should receive priority in the allocation process, provided that policy performance warrants it. Finally, for borrowers that are eligible for both IDA and IBRD funds ("Blend countries"), allocations must take into account those countries' creditworthiness for and access to other sources of funds as well as their ability to use IDA resources effectively to tackle poverty.
Lending allocations are determined on a three-year rolling basis and are used for planning purposes by the World Bank's operational departments. Individual country allocations serve as an anchor for the formulation of Country Assistance Strategy (CAS) lending programs, which, if appropriate, can deviate from the performance-based allocations to reflect changes in performance in between annual assessments and/or exceptional country circumstances.
5. Lending and Performance
IDA management monitors actual lending to each country in relation to the planning allocations. The allocations are administered flexibly, to ensure that they respond promptly to important changes in performance.
As a result, actual lending on per capita terms is robustly correlated with performance levels. The strong link between lending and performance has resulted in an increasing concentration of lending to countries where policy performance is most conducive to effective resource use.
IDA therefore must allocate resources among eligible borrowing countries. This note describes how IDA resources are allocated on the basis of borrowers' policy performance and institutional capacity in order to concentrate resources where they are likely to have the most impact.
1. Eligibility
Three criteria are used to determine which countries are eligible to borrow IDA resources:
• Relative poverty, defined as GNP per capita below an established threshold, currently US$885.
• Lack of creditworthiness to borrow on market terms and therefore a need for concessional resources to finance the country's development program.
• Good policy performance, defined as the implementation of economic and social policies that promote growth and poverty reduction.
2. Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries is each country's performance in implementing policies that promote economic growth and poverty reduction. Per capita income is also a determinant, with the poorest of the eligible countries receiving higher allocations for a given performance level.
3. Performance Ratings
Every year World Bank staff assesses the quality of each borrower's policy performance. The criteria and methodology of these assessments have evolved over time to incorporate lessons from experience as well as research findings.
Beginning in 1998, the country performance assessment was broadened to include an evaluation not only of the government's policies but also of the institutions in place to implement them. In addition, a discount is applied to the ratings of countries with severe governance problems, as weak governance has been shown to be a major obstacle to development.
Finally, the performance assessment also takes into account the performance of the country's active project portfolio. The 20 performance criteria are grouped into four clusters
Economic Management
Structural Policies
Policies for Social Inclusion/Equity
Public Sector management and Institutions
4. Allocation Process
The allocation of IDA's resources is determined primarily by each borrower's rating in the annual country performance and institutional assessment. In addition, the IDA12 Agreement recommends that because the acceleration of economic and social development in Sub-Saharan Africa remains foremost among IDA's priorities, these countries should receive priority in the allocation process, provided that policy performance warrants it. Finally, for borrowers that are eligible for both IDA and IBRD funds ("Blend countries"), allocations must take into account those countries' creditworthiness for and access to other sources of funds as well as their ability to use IDA resources effectively to tackle poverty.
Lending allocations are determined on a three-year rolling basis and are used for planning purposes by the World Bank's operational departments. Individual country allocations serve as an anchor for the formulation of Country Assistance Strategy (CAS) lending programs, which, if appropriate, can deviate from the performance-based allocations to reflect changes in performance in between annual assessments and/or exceptional country circumstances.
5. Lending and Performance
IDA management monitors actual lending to each country in relation to the planning allocations. The allocations are administered flexibly, to ensure that they respond promptly to important changes in performance.
As a result, actual lending on per capita terms is robustly correlated with performance levels. The strong link between lending and performance has resulted in an increasing concentration of lending to countries where policy performance is most conducive to effective resource use.