Committing IDA for a longer term? Gaiv Tata Operations 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 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 Domestic Revenues ODA total ODA multilateral IDA assistance Other multilateral assistance

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 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

IDA disbursement profile, per replenishment 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: Volatility allocations < Volatility commitments < Volatility disbursements IDA variable Number of observations Percentage deviation from the mean AverageMinimumMaximum Allocations Commitment Disbursement 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