Low-cost financing is not just a lifeline for low-income countries but the world’s collective future in a time of uncertainty.
As the International Development Association (IDA) replenishment meeting in South Korea begins today, it’s clear that, with the shifting geopolitical landscape, the global community is at a crossroads.
For many African nations, which make up more than half of IDA recipient countries, recent geopolitical and global economic crises have effectively turned back the clock, leaving our countries relatively poorer and more vulnerable to climate change, conflict, and the whims of a global financial system that remains unresponsive to the continent’s needs. The latest round of pledges will determine the size of the IDA’s concessional financing for low-income countries’ development, and, in many ways, the future of their populations.
The last IDA replenishment in 2021 totalled $93 billion for use on vital projects, ranging from expanding electricity in Tanzania, improving water and sanitation in Malawi, and enrolling millions of girls in school in the Democratic Republic of the Congo.
But that record-breaking investment overshadowed signs of wavering donor commitment to the IDA. Wealthy nations’ official development assistance has sunk to a two-decade low as a percentage of GDP. Higher interest rates have made borrowing more expensive, and a strong US dollar means that simply maintaining previous investment levels would cost 23% more today in donor countries’ local currencies.
This stark reality imperils the impact of the IDA, which has become the single-largest source of low-cost financing for low-income countries.
In April, African heads of state called for a replenishment topping $120 billion. But commitments from donors have arrived slowly, with a limited number of states like Denmark, Spain, and Latvia announcing increased commitments. In the face of donor hesitance, there are concerns that the IDA might look to meet its replenishment goal by changing the terms of the funding, reducing the number of grants, and increasing the cost of the loans.
However, more onerous terms that would increase the sovereign debt of African borrowers are a nonstarter. Debt in many countries across the continent has already ballooned, devouring national budgets, and severely limiting their ability to raise development capital on reasonable terms. In 2024, African countries will pay some $90 billion in external debt service alone, thus diverting scarce resources away from investment in the sustainable development goals and climate resilience. Under these circumstances, it comes as no surprise that only 17% of the Sustainable Development Goal (SDG) targets are on track.
What makes IDA finance particularly valuable to African countries is that it funds country-led development programmes, allowing nations to assess and prioritise the needs of their communities to chart their own development path. But development also requires coordinated priorities and regional solutions. African heads of state are pushing common IDA funding priorities centred on job creation, expansion of energy and digital access, and climate resilience.
The roots of these coordinated efforts are already starting to take hold. The African Union’s Agenda 2063 development blueprint includes integration projects like the African Continental Free Trade Area (AfCFTA), pan-African financial institutions, a common digital data network, and a high-speed train network. The International Monetary Fund (IMF) estimates that with sustained investment in infrastructure, financial systems and strong regulatory frameworks, AfCFTA could increase intra-African trade by more than 53% and trade with the rest of the world by 15%, boosting real GDP per capita by 10%.
Such opportunities aside, the case for more IDA funding does not solely rest on need, but also on African countries’ ability to improve their absorptive and governance capacity to put the money to work, and the accountability to demonstrate their work. With fiscal space also tightening for donors facing electorates that already feel strapped for cash, committing to accountability is more important than ever.
This is in line with the commitment made by African leaders in Nairobi to promote economic transformation through robust governance, private sector development, and transparent and efficient use of resources mobilised. Moving forward, it is critical that African governments promptly undertake the policies and reforms needed to deliver on these commitments.
More African countries are already taking a proactive approach to financing their own development. Algeria, Egypt, Morocco, Nigeria, and South Africa contributed to the last IDA replenishment cycle, signalling to donor countries that this is a collaborative investment that, if successful, can create a new generation of self-sustaining donor nations.
The IDA remains a lifeline for many low- and middle-income countries. It can be the stepping stone to a more effective global financial safety net that can catalyse steady progress towards the aspirations and goals of Agenda 2063. It is also an opportunity for the global community to make inroads into the implementation of the recently adopted Pact for the Future, while planting the seeds for the much-needed success of the upcoming Fourth International Conference on Financing for Development. But for that to happen, we must reimagine it as a tool that better serves Africa by embracing the continent not as a beneficiary of donor funds, but as an equal partnership between borrowers and donors aimed at addressing global challenges and shaping the trajectory of our collective future.
Mahmoud Mohieldin is the UN Special Envoy for Financing the 2030 Development Agenda. Daouda Sembene is the founder and CEO of AfriCatalyst.
