Committing IDA for a longer term?

Gaiv TataOperations Manager, FRM

PREM-DEC Brainstorming Meeting on Improving the Delivery of Aid: Making Aid More Predictable

Dec. 17, 2007

Outline

• Significance of IDA in recipient countries and current estimates of IDA predictability

• The IDA cycle and causes of volatility

• Distinguishing between volatility and predictability

• Changes needed for IDA to commit longer-term

Significance of IDA for recipient countries

IDA disbursement in percent of government expenditure (annual and country average)

0

1

2

3

4

5

6

7

8

9

10

IDA7 IDA8 IDA9 IDA10 IDA11 IDA12 IDA13 IDA14(FY06-7)

IDA disbursement in percent of GDP(annual and country average)

0

0.5

1

1.5

2

2.5

IDA7 IDA8 IDA9 IDA10 IDA11 IDA12 IDA13 IDA14(FY06-7)

IDA disbursement in 2000 US$ per capita

0

2

4

6

8

10

12

IDA7 IDA8 IDA9 IDA10 IDA11 IDA12 IDA13 IDA14(FY06-7)

IDA disbursement (annual average)

0

1

2

3

4

5

6

7

8

9

IDA7 IDA8 IDA9 IDA10 IDA11 IDA12 IDA13 IDA14 (FY06-7)

US

$ b

illi

on

s

•IDA flows increased both in current dollar and constant per capita terms.

•Its macroeconomic importance was stable over the sample IDA replenishment period.

• 1.5 to 2 percent of GDP

• 6 to 9 percent of general government expenditure

Source: World Economic Outlook and the World Bank; staff calculations.Sample size: 80 current IDA members.

Volatility of IDA Disbursements Compared to Other ODA

• IDA disbursements are less volatile than other ODA as well as domestic revenues across different time periods.

Source: World Economic Outlook, the World Bank, OECD DAC; staff calculations.

  Standard Deviations

 Sources of Funds 1980-2003 1980-1989 1990-1999

Domestic Revenues 3.65 3.18 2.52

ODA total 6.54 4.91 5.63

ODA multilateral 3.50 2.66 2.87

IDA assistance 1.16 0.75 1.07

Other multilateral assistance 2.77 2.19 2.21

Outline

• Significance of IDA in recipient countries and current estimates of IDA predictability

• The IDA cycle and causes of volatility

• Distinguishing between volatility and predictability

• Changes needed for IDA to commit longer-term

IDA: long replenishment cycle

FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08IDA11 replenishment <-------->

IDA11 allocations <----------------------------->

IDA11 commitments <----------------------------->IDA11 disbursements <--------------------------------------------------Total period of 11 years-------------------------------------------------------->

Aid predictability considerations

Total level of resources

Country specific level of resources

Instrument & sector choices

Project specific choices (implementation period, capacity constraints, etc.)

IDA: several replenishment cycles simultaneously under implementation

FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08IDA11 replenishment <-------->IDA allocations <--------------------------->IDA11 commitments <--------------------------->IDA11 disbursements <--------------------------------------------------Total period of 11 years----------------------------------------->IDA12 replenishment <-------->IDA12 allocations <--------------------------->IDA12 commitments <--------------------------->IDA12 disbursements <---------------------------------------Total period of 11 years-------------------------------IDA13 replenishment <-------->IDA13 allocations <--------------------------->IDA13 commitments <--------------------------->IDA13 disbursements <-----------------Total period of 11 years-----------------IDA14 replenishment <-------->IDA14 allocations <--------------------------->IDA14 commitments <--------------------------->IDA14 disbursements <Total period of 11 yearsIDA15 replenishment <------->

IDA disbursement profile, per replenishment

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1 2 3 4 5 6 7 8 9 10 11Year

0%

20%

40%

60%

80%

100%

Cummulative Disbursements Annual Disbursement Profile

Source: IDA (2007), “IDA Commitments and Disbursements , FY95-07,” Technical Note.

Outline• Significance of IDA in recipient countries and

current estimates of IDA predictability

• The IDA cycle and causes of volatility

• Distinguishing between volatility and predictability

• Changes needed for IDA to commit longer-term

Causes of IDA volatility: summary

• Total size: – Level of donor contributions going up due to real

increases and compensation for HIPC/MDRI• Country allocation size:

– depends on country performance (CPIA particularly governance cluster and portfolio performance) and needs (population size and GNI per capita)

• Commitments: – Choice of instruments (DPOs vs. investment

operations) and sectors (infrastructure vs. social sectors) determine length of disbursement period

• Disbursements: – Also impacted by project/program implementation

Volatility vs. Predictability

• Changes in total size of IDA: – Unpredictable though on upward trajectory in recent

replenishments

• Changes in IDA allocations due to performance are volatile but can be predicted– upward and downward volatility in allocations based on

performance is part of incentive framework – Performance related volatility should not be seen as

synonymous with unpredictability.

• IDA instrument and sector choices should support country strategy. – While certain instruments (e.g. quick disbursing operations) may

be more predictable this should not be the only reason for their choice. They should lead to better outputs and outcomes.

Evidence on Volatility

• Volatility increases as we move “downstream” in the aid delivery process:

Volatilityallocations < Volatilitycommitments < Volatilitydisbursements

IDAvariable

Number ofobservations

Percentage deviation from the mean

Average Minimum Maximum

Allocations 684 -2.44 -17.38 2.77

Commitment 684 -2.83 -25.71 14.377

Disbursement 675 -3.91 -54.15 9.407

Source: the World Bank; staff calculations.

Note: The sample consists of 76 current IDA countries for the FY97-05 period; The methodology to measure volatility in the given time series is to compute the trend in each variable series and then calculate the percentage deviation from the

trend.

Outline

• Significance of IDA in recipient countries and current estimates of IDA predictability

• The IDA cycle and causes of volatility

• Distinguishing between volatility and predictability

• Changes needed for IDA to commit longer-term

Changes needed for longer-term IDA commitments

• Donors will need to be willing to move to longer replenishment cycles

• Allocations will need to not be adjusted annually. Contrary to performance focus and increased disclosure of CPIA and CPR ratings and allocations (forthcoming)

• If commitments are to translate into more predictable disbursements, this will still require improvements in project implementation or, in the case of programs, improved country systems

• More predictable disbursements will need to be demonstrated to lead to better results in IDA projects and country outcomes