FINANCING LDC DEVELOPMENT - THE WORLD BANK AT THE FOREFRONT

Panel Discussion on “Building on Istanbul: Financial support for development efforts of LDCs, including through South-south and triangular cooperation” Geneva, Palais des Nations

Jeffrey D. Lewis Director, Economic Policy and Debt Department The World Bank July 12, 2011 Progress in the international development framework (GMR 2011)

1 Despite growing fiscal pressures from the recent crisis, there has not yet been a major impact on aid flows…

Aid flows from OECD Development Assistance Committee donors rose to a record in 2010, at $128.7 billion, an increase of 6.5 percent over 2009 in real terms.

Recent research suggests that the full impact on aid flows of a recession following a banking crisis might be felt for many years, and that aid flows may fall by 20-25 percent in donor countries with banking crises. Progress in the international development framework (GMR 2011)

2 The number of aid donors is increasing

New donors are emerging, including disbursements of some $9-10 billion a year from donors that are not members of the OECD Development Assistance Committee and a sharp rise in funds from the private sector (foundations) in advanced countries.

Low-income countries captured the largest share of net ODA and received the highest amount in per capita terms. But the pattern of aid flows to individual countries also reflects geopolitical priorities and/or responses to major global events/disasters. Progress in the international development framework (GMR 2011)

3 Trade integration / facilitation remain key for inclusive growth and poverty reduction

Global trade has largely recovered from sharp drop during crisis.

While trade has bounced back in all developing regions, many LICs struggle to regain lost markets.

Many LICs have been insulated from the global downturn than originally feared, but they also miss out on the recovery too. Need continuing vigilance against protectionism.

About half the trade-restriction measures imposed in the wake of the crisis by G-20 nations were by BRICs (86 measures) Progress in the international development framework (GMR 2011)

4 International financial institutions—the past decade ushered in significant changes Assistance strategies and resources have progressed.

Multilateral development banks have developed results-based, country-driven assistance frameworks grounded in regular reviews of country strategies with increasing reliance on independent evaluations to improve focus on results.

MDBs responded aggressively to mitigate the impact of the triple crisis (food, fuel, and financial) on the most vulnerable economies.

Resources have been augmented: Fifty-one donors pledged a $49.3 billion funding package for the next cycle of IDA (IDA 16, July 2011– June 2014), up 18 percent from the previous round, and concessional support has increased for IDB operations too.

Development finance has evolved.

More diverse and flexible finance instruments and products have helped to tailor assistance to the needs of particular countries (for example, those affected by conflict) and to countries in particular situations (for example, crises and emergencies). Progress in the international development framework (GMR 2011)

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Knowledge support continues to increase.

These institutions are delivering a wide variety of knowledge services, in linking country practitioners and policymakers to centers of knowledge and innovation, in developing and sharing tools for policy analysis, and in generating resources and research to improve global public goods. Greater attention to opportunities from South-South knowledge sharing.

Global programs and partnerships are also growing stronger.

Multilateral development banks are stepping up efforts to address common social sector and environmental challenges through global programs and partnerships. Examples include the Global Fund to Fight AIDS, Tuberculosis, and Malaria, the Consultative Group on International Agricultural Research. In the environmental arena, recent initiatives include the Climate Investment Funds; the Pilot Program on Climate Resilience; the Forest Investment Program; the Clean Technology Fund; and the Scaling Up Renewable Energy Program.

Regional banks are helping their clients build country capacity under global agreements. For the African Development Bank, critical issues are post-conflict assistance and health, especially in the face of the HIV/AIDS epidemic. WBG Engagement in LDCs

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Bank was very active in preparations for and events in Istanbul „ Contributed to and participated in pre-conference events and consultations „ Organized events during the Conference including on: aid for trade, innovative sources of financing, remittances, success in Africa, disaster risk management, delivering for development in conflict affected LDCs, and SME Finance. WBG support for LDCs „ Bank’s IDA facility provides main vehicle to support LICs (includes 47 of 48 LDCs), and contributes around 12 percent of annual net ODA disbursements to LICs. „ LDCs are at the core of the Bank’s business, and the recent record IDA 16 replenishment of $49.3 bn for 2011-2014 will provide substantial additional resources and encourage innovation that will assist LDCs. „ IDA16 will give special focus to addressing gender issues and helping fragile and conflict affected countries. „ IDA framework allows for flexibility to help address the vulnerabilities of low- income countries with special rules for small island states, differing levels of concessionality a revised debt sustainability framework and a newly WBG in FY11 (July 2010-June 2011)

7 $57 bn committed to Developing Countries to support the global Economic Recovery „ In FY11, WB committed $4.1 bn for social protection—including safety net programs for the poorest and most vulnerable, $20 bn for infrastructure, critical for job creation and future productivity (46% of total lending), $1.4 bn for natural disaster management, also critical for adapting to climate change. Food Crisis Response „ Food prices climbed to near their 2008 peak, pushing an additional 44 million people into poverty over the year. „ A first-of-its-kind risk-management product that will provide up to $4 billion in protection from volatile food prices by giving consumers and agricultural commodity producers better access to hedging instruments. „ Agricultural financing boosted, almost double from its level three years ago (supply response). „ Global Food Crisis Response Program (GFRP) helping 40 mn people through $1.5 billion in support. „ Global Agriculture and Food Security Program (GAFSP), set up in April 2010 at the G20’s request, to assist country-led agriculture and food security plans and help promote investments in smallholder farmers. $925 mn pledged over the next 3 years. IDA in FY11

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The International Development Association † IDA commitments, a combination of low-interest loans and grants to 79 of the world's poorest countries (all but one LDC), rose to a record $16.3 bn in FY11. † Support for infrastructure grew to $7 bn (a record high and a 31% increase over FY10). † About half this amount went to Sub-Sahara Africa to empower and protect the poor; strengthen institutions and governance; foster gender equality; and address global challenges such as climate change. † Other priorities included regional public goods (water management, trade facilitation, roads networks); the new pilot Crisis Response Window ($1.4bn) designed to mitigate the impact of the economic crisis and protect the poor; fragile states ($4.8 bn); natural disasters (rapid response to the Haiti earthquake of Jan. 2010); and trade facilitation (Aid for Trade). † More is required to connect landlocked countries and lagging regions to regional and international markets. Significant results from the IDA14/IDA15 portfolio 9

† Education „ Over 1 million additional teachers qualified to teach at the primary level. „ Over 600,000 additional classrooms now available for use through new construction or rehabilitation. † Health „ 8 million people with access to a basic package of health, nutrition, or population services. „ 412,000 health personnel received training. „ 2,200 health facilities constructed, renovated, or equipped. „ 7.9 million children received a dose of Vitamin A, and over 12.6 million children immunized. „ Over 1.5 million pregnant women received antenatal care. „ 27.9 million insecticide-treated malaria nets purchased and/or distributed. „ 28,600 adults and children with HIV received antiretroviral therapy. † Road Transport „ 3,793 km of rural roads and 1,891 km of non-rural roads constructed or rehabilitated. † Water Supply „ About 11,600 community water points constructed or rehabilitated. „ About 334,000 new piped household water connections established, and another 157,000 rehabilitated. „ 1,280 water utilities and water service providers supported. External Debt Relief: HIPC and MDRI

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Results † HIPC Initiative is largely implemented: 32 completion point countries and 4 interim countries out of 40 eligible HIPCs willing to avail themselves to relief under the HIPC Initiative. External Debt Relief: HIPC and MDRI

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Results † Debt burdens have been reduced by 90% compared to Decision Point levels and key debt burden indicators have substantially declined

PV of Debt after HIPC Initiative, Additional Bilateral Debt Relief and MDRI Debt stock ratio for the 36 Post-Decision-Point HIPCs (In billions of U.S. dollars, in end-2010 PV terms ) External Debt Relief: HIPC and MDRI

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Results † As of 2009, poverty-reducing expenditure increased in similar proportions as the debt-service reduction External Debt Relief: HIPC and MDRI

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Cost Implications

Potential Costs of the HIPC Initiative by Creditor Group Potential MDRI Debt-Service Savings by Creditor and Country Group Total estimated cost: US$76 billion, end-2010 NPV terms (in billions of US dollars, in 2010 NPV terms) Dealing with External Commercial Debt 14 Debt Reduction Facility (DRF)

Objective: Help IDA-only, reforming, heavily indebted countries buyback their sovereign external commercial debt (ECD) as part of broader debt resolution program, at a deep discount.

Since 1991: completed 25 buyback operations in 22 IDA countries, extinguished $10.4 billion at average discount of 8.1 cents to the US$. Buyback costs shared between IBRD net income and bilateral contributions. Challenges ahead

Estimated remaining stock of ECD: over US$10 bn.

Complex cases: countries with large stocks & small stocks.

Distressed funds and international litigation Advocating for LDCs at the G20 table: the case of trade liberalization 15 The global community can support poverty reduction through improving trade integration in low-income countries.

Poor countries’ market access could improve significantly if high- income countries and emerging G-20 economies extend duty-free, quota-free access to their exports, simplify rules of origin in preference agreements , and support trade facilitation & access to trade finance through Aid for Trade. Duty-free, Quota-free Access Obvious links to Doha round discussions and the “trade development package” being negotiated for December trade ministerial: † DFQF access for LDCs… † Plus liberal rules of origin (viz. Canada, EU, AGOA)… † And action on trade facilitation/trade costs Action on all three fronts could generate up to a 1.5% increase in LDC GDP and lift 3+ million over the poverty line (> 10% of ODA in many countries) Action on all three fronts could generate up to a 1.5% increase in LDC GDP and lift 3+ million over the poverty line (> 10% of ODA in many countries) Aid for Trade: cost reduction and export promotion for LDCs 16

† AFT – a new trade paradigm? The focus of trade policy has shifted from economy-wide reductions in tariffs and trade restrictions towards targeted interventions aimed at reducing trade costs and promoting exports. AFT increasingly seen as a means of helping low-income countries integrate into the global economy. † AFT increasingly focussed on LICs as well as on global and regional programmes. AFT flows to sub-Saharan Africa increased by 40% to reach $13 bn in 2009. Africa now receives the largest share of total AFT among the different regions † The World Bank is the largest multilateral provider of AFT. 216 trade-related lending operations in 90 countries since 2007. Africa accounts for about one third of these operations. „ Average of $15bn per year in AFT to developing countries since 2002 (using OECD/WTO definition that includes infrastructure). „ Of which $1.8bn in FY10 for trade-related lending , almost half of it dedicated to trade facilitation and market access projects (such as the $260mn Northern Transport Corridor project in East Africa) – other trade related lending supports regional integration and export development and competitiveness Aid for Trade: building LDC capacity

17 WBG capacity building activities in AFT include: „ Improving competitiveness: diagnostic studies, assessment of regulatory regimes and infrastructure constraints, toolkits to help countries design comprehensive programs to improve their competitiveness; „ Reducing trade costs through support for trade facilitation and trade finance; „ Expanding the supply of trade-related infrastructure including support for hard infrastructure (e.g. ports, roads, bridges and railways); soft infrastructure (e.g. regulatory reform); and, regional trade initiatives (e.g. improving transit regimes and one- stop border posts); „ Promoting regional integration through technical assistance to design effective regional trade agreements that support a more open and transparent multilateral trade regime; „ Advocacy for liberal trade policies in G20 countries, supporting export led growth opportunities for developing countries; Thank you