Speeches & Transcripts

IDA17 Mid-Term Review: Opening Session

November 18, 2015

Makhtar Diop, Vice President, Africa Region IDA17 Mid-Term Review Washington DC, United States

As Prepared for Delivery

Thank you Madam Chair.

H.E. Macky Sall, President, Republic of Senegal; H.E. Lionel Zinsou, Prime Minister of Benin; Honorable Ministers; IDA Deputies; Distinguished Guests; Ladies and Gentlemen.

I would like to join Sri Mulyani Indrawati in thanking the Government of Senegal for hosting us this week, and in welcoming you to Dakar for this Mid-Term Review of IDA17. Allow me, too, to offer my most heartfelt condolences to the people of France, and the people of Lebanon, following the horrific attacks that took place in Paris and in Beirut last week. Our work here this week, to do our utmost for the poorest, is all the more urgent in the face of fragility, conflict, and violence across the world.  

When we last met for the IDA Mid Term Review in Abidjan, African was one of the fastest-growing regions, underpinned by sound macroeconomic management and rising prices for our primary commodities, with a signficantly improved business climate that attracted a wide range of foreign investments.  This period of sustained economic growth, which averaged five percent per year and was dubbed “Africa Rising”, also led to reduced levels of poverty in the continent.   

Fast-forward to the present day, and economic conditions are far more uncertain.  Africa is facing significant headwinds:   we have reached the end of the commodity super-cycle; the downturn in a number of emerging markets is impacting trade and investment; and the likely rise in global interest rates will further impact growth.  Yet the past decade’s record of growth must be sustained, and even accelerated.  The Bank’s commitment to such sustained growth is articulated in the twin goals of eliminating extreme poverty and boosting shared prosperity. And we are redoubling our efforts to help African countries achieve growth that is stronger, more resilient, more inclusive, and more sustainable.  

A number of  issues are occupying our minds these days – sadly, the risk of conflict and violence has leapt to the top of that list, along with the continued influx of refugees from Africa and the Middle East;  the challenge of delivering on the newly agreed Sustainable Development Goals; and the hopes for reaching a bold and impactful agreement in Paris next month on climate change.   

Solving each of these challenges requires that we forge partnerships, formulate ideas and commit to take action.  This  focus on partnerships, ideas and action represents the story of IDA17 – it is what we do, every day, in 80 countries around the world with our clients and partners. 

The Mid-Term Review of IDA17 is a good opportunity to look back – and look ahead --  at how we can mobilize ideas, resources and a shared commitment to operate in an increasingly complex world.   Some important innovations were introduced under IDA17.  Here, at the mid-point in the cycle, we should ask ourselves which of these are ready to be scaled-up, and what sort of next-generation innovations IDA can support going forward. In this context, I would like to share three points.

First, IDA responds and delivers.  There continues to be strong demand for IDA financing from our clients across all regions.   In FY15, the first year of IDA17, we delivered $19 billion in new commitments – a record for the first year of any IDA replenishment period.  That same year,  IDA disbursed nearly $13 billion through its various  instruments.   We have a strong pipeline of projects for the remainder of IDA17, with demand for IDA in many cases far exceeding the resources available.  Let me add that IDA stepped up to respond to shocks and emergencies. 

No one could have anticipated the tragic outbreak of Ebola at the start of IDA17.  IDA responded to Ebola, in strong measure, through $1.2 billion in financing and Technical Assistance; as well as to other shocks such as the Nepal earthquake.  As a result of these two emergencies, the IDA17 Crisis Response Window  is now completely exhausted, thereby depleting our capacity to respond to the next wave of shocks and crises, including the impact of climate change.   

Beyond just replenishing these funds, we need to look more critically at the nature of shocks and fragility which have prevented unleashing even higher, shared growth in Africa.  These shocks include natural disasters, as intensified by climate change; and fragility and conflict. 

The increased frequency and intensity of weather-related events – floods, droughts, cyclones – indicates these are no longer one-off disasters to which we must respond.  Rather, they have become the norm and require a long-term plan for climate adaptation.  For this very reason, we will be launching an Africa Climate Business Plan at the CoP21 in Paris next month.

Similarly, as we respond to crises, it is essential to examine the root causes of fragility – in Africa, it is often a result of geographic imbalances.  This phenomenon of “spatial inequality”, whereby we see “two countries within a country”, is evident is several African countries.  Better human development indicators in one region of a particular country correspond to higher levels of public investment in education and health in those same regions.  This imbalance perpetuates inequality, lack of opportunity, and eventually spurs conflict within countries.

Beyond emergency responses, IDA17 has provided critical support to infrastructure and human development.  IDA17 financing is expected to provide, among other things, electricity access to an estimated 15 to 20 million people, vaccines for 200 million children, and basic health services for 65 million people.   Our work to date has also yielded significant improvements in maternal and child health indices, and rates of primary school completion, to name just two examples. Much has been achieved so far, but there is a large unfinished agenda which lies ahead.

Notably, African countries must surmount the challenge of financing their massive infrastructure needs.  Rather than looking solely at energy and other projects in individual countries, we are intensifying our approach to Regional Integration, so as to create synergies and unleash the growth potential in sub-regional clusters of economies. Here, too, demand for IDA resources far exceeds supply, as the IDA Regional Window is already over-subscribed.        

Which brings me to the second point about the rapidly changing landscape of development financing.   In IDA countries, the levels of investment needed to meet development objectives far exceed the domestic savings and existing development financing.   That is why several IDA countries, including our hosts here in Senegal, have gone to the global capital markets.  How can IDA respond to the needs of this group of countries for non-concessional borrowing?  What are the parameters within which such lending can help deliver real development results while maintaining both macroeconomic stability and debt sustainability?  We need the IDA of the future to  build on the successes achieved thus far, and be bold and innovative.  A proposal will be presented to you later in the week, which would better enable us to respond to the growing demand for the resources needed to invest in growth. 

We need to help IDA borrowers unlock financing for critical investments in infrastructure and human development.  These funds will come from three primary sources:  1) domestic resource mobilization; 2) crowding in the private sector; and 3) IDA and other donors. 

IDA borrowers need to generate resources for public investments – and the capacity to do so varies widely among IDA clients.  The IMF has produced an analysis of so-called “compliance gaps” in tax collection, to help countries build effective tax administration systems.  This support to tax authorities has the double-benefit of enhancing revenues and building trusted public institutions.     Crowding in the private sector is only possible when there is confidence in these institutions and transparent revenue collection.  And yet it takes time to build the confidence of the private sector to invest in IDA countries.  IDA is essential in supporting improvements in tax collection, and helping to strengthen and consolidate the overall governance that will attract private investment in these growth sectors. 

Allow me to share a recent example of innovation in leveraging IDA resources.   The recently approved Sankofa Gas Project – a $500-million IDA payment guarantee, combined with a $200-million IBRD enclave loan guarantee -- is expected to mobilize $7.9 billion in new private investment in offshore natural gas in Ghana. This project will bring significant benefits to Ghana by fueling up to 1,000 megawatts of clean power generation, replacing polluting and expensive oil-burning electricity, and allowing Ghana to reduce its oil imports by up to 12 million barrels per year. More significantly, it is currently the largest private-sector investment being undertaken in Sub-Saharan Africa.

We need the IDA of the future to build upon innovations such as Sankofa and to help meet the financing needs of the range of our client countries, including those with projects which can be financed through non-concessional lending. 

While we have a number of faster-growing countries that are accessing global capital markets, IDA continues to play a critical role in poor and fragile countries which have huge development needs but no such access to the markets, not least for those 34 countries which receive IDA resources wholly or in part as grants. Examples include Central African Republic, Burundi, Liberia, and South Sudan. Aid also has a role to play in helping countries to build viable institutions and thereby exit out of fragility. And this is why IDA matters.  Resource mobilization in many of these countries is low and reliance on concessional finance is high. Aid supports critical spending in health, education, and social safety net programs.  In FY15, IDA doubled its lending to Fragile & Conflict-Affected States (the so-called FCS) compared to FY14. Support to these countries is critical, not just as individual borrowers but because their fragility can have significant externalities and spillover effects on neighboring countries, thereby jeopardizing the growth agenda for Africa as a whole. Our focus on FCS must be more than an aspirational target: addressing the drivers of fragility, and supporting inclusive growth will be critical to help prevent countries from slipping back into conflict and violence.

This brings us to the third point:  IDA delivers in times and places of crisis.  The  ongoing flow of migrants from Africa and the Middle East highlights the critical  nexus between development, security and politics.  We have made important progress in this regard during IDA17.  In Africa, we have worked closely with the United Nations and other partners in three major regional initiatives – in the Great Lakes, the Sahel, and the Horn of Africa.  Each of these efforts was launched during joint visits by President Jim Kim, UN Secretary-General Ban Ki-moon, and heads of other partner agencies.  At the core of these initiatives is a simple yet profound principle:  where there is political willingness  to address security and development challenges, IDA’s technical skills, financing and convening power can be mobilized with other partners to reduce risks and manage economic recovery.  IDA serves as a platform to further step up our work on this agenda, demonstrating leadership and the ability to innovate and contribute.

In August, the international community met  in Addis Ababa and committed to the ‘From Billions to Trillions Agenda’.  What will be IDA’s contribution to this agenda?  Clearly, concessional financing should remain at the core of IDA as the poorest of our member countries  need continued access to grant and concesssional resources. In the current environment of global economic slow-down and fiscal pressures on our donor governments, how will we continue to finance these concessional resources?  The session later this week will address the outcomes of the IDA17 Working Group on Long-Term Vision and Financial Sustainability.  

More broadly, the ability to deliver on the SDGs requires that IDA borrowers improved their domestic revenue mobilization, with the capacity challenges I described earlier.  At the other end of the spectrum, countries that are accessing increased volumes of non-concessional borrowing require greater capacity in debt management and the ability to appraise projects for their technical and financial feasibility.  IDA is already working in these areas and stands ready to provide the needed support to those countries seeking to make the quantum leap to non-concessional borrowing.   

With these three points, we see IDA in a period of transition. As we take stock of progress towards meeting the goals of IDA17, these new challenges in the global environment will inform the pillars and instruments of IDA18.  Our efforts to strengthen domestic resource mobilization will not be a “quick fix”. Rather, IDA18 – and beyond -- must include a sustained commitment to improve revenue administration;  enhance the governance of state-owned enterprises, most urgently that of state-owned electric utilities; and support compliance with simplified tax regimes. Operations such as Sankofa, now seen as an innovative approach to crowd in private funding,  must but be replicated many times over, so as to spur increased private investment in key productive sectors.

As we consider this long-term vision for IDA, let us take note of recent innovations, opportunities to scale-up prior programs, and be open to further innovation to devise customized financial solutions to respond to the next set of development challenges for our increasingly diverse client base.

Thank you again for the opportunity to offer these opening remarks.  I look forward to engaging  with you over the coming days on how to deliver on the remaining agenda for IDA17, and to look ahead at how we will work together to build a strong and sustainable IDA for the future.

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