Countries increased their contributions to the International Development Association in its largest replenishment yet, but experts warn rising inflation means a real-term cut
The World Bank has reached a $100 billion funding target for its lending arm dedicated to the world’s poorest countries, raising hopes for a boost in climate resilience financing.
Donor countries pledged $23.7 billion to the International Development Association (IDA) at a replenishment meeting in Seoul, South Korea. This represents a slight increase on the $23.5 billion pledged in 2021 but falls far short of the $30 billion that World Bank president Ajay Banga was hoping to secure.
The bank will be able to stretch the donors’ money to $100 billion through various financial engineering methods, including borrowing more from markets and freeing up capital for lending.
The money will be deployed through grants and concessional loans to 78 poor and vulnerable nations to help them respond to climate change, food insecurity and conflict, among other developmental needs under the overall theme of “ending poverty on a livable planet“.
But while the World Bank celebrated its largest-ever IDA fundraising round, experts said rising inflation means the $100 billion figure represents a real-term cut compared to the previous round.
“Obviously we would have liked to see a bigger number,” Amy Dodd, a fellow at think-tank E3G, told Climate Home News. “But I would still see it as a success in the context of many donor countries slashing spending and aid budgets coming under a lot of pressure”.
G7 countries make up the majority of IDA’s traditional contributor base, which has grown from 48 to 59 countries in this cycle. While the World Bank has not yet disclosed a detailed breakdown of pledges, it said 17 donors increased their contributions by more than 25% in national currency.
The United States has pledged $4 billion under the outgoing Biden administration, but that will be tested under Donald Trump as Congress needs to approve the disbursement of funding.
“We know it’s going to be difficult, so we are not going to count our chickens too early there,” said E3G’s Dodd, adding that the final US contribution might be lower than it has pledged given Trump’s record of reneging on climate finance promises.
The United Kingdom announced a £1.98 billion ($2.52 billion) pledge, while Denmark, Latvia, Spain and Poland have made significant increases to their contributions.
In an open letter published on Friday, Banga applauded donor countries’ “generosity”, which he said contributed to making the IDA replenishment the largest in its history.
He added that the IDA has become critical in addressing the climate crisis.
Over the past 10 years, the IDA invested $85 billion globally with half of that going into building adaptation in poor countries by protecting communities from rising seas, building heat-resistant schools, and ensuring farmers have the right seeds for the right conditions, he wrote.
African nations receive nearly three-quarters of IDA’s financing and the bank is the main source of concessional climate capital, especially in supporting countries cope with climate impacts.
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In 2022, 35% of IDA’s projects had climate mitigation or adaptation co-benefits, according to the World Bank. Since then, the bank has committed to channelling 45% of its overall funding to climate projects by mid-2025.
Eleonora Cogo, Italian think-tank ECCO’s senior associate international finance, said the IDA replenishment was “good news” for climate finance and “particularly significant given the highly concessional nature of its funding”.
The IDA, she said, together with contributions from other multilateral development banks, will play a crucial role in channelling at least $300 billion a year from developed to developing countries by 2035 – a finance goal agreed at the UN COP29 climate talks in Baku in November.
Source: Climate Change News
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