Time for In­dia to stretch its wings

Financial Mirror (Cyprus) - - FRONT PAGE -

Imag­ine you are a par­ent with a large num­ber of chil­dren and lim­ited re­sources. Your old­est child is ma­ture enough to move out of your home, but he does not want to. So he stays, con­sum­ing re­sources that his sib­lings des­per­ately need. Is it right to al­low your other chil­dren to suf­fer be­cause their big brother is re­luc­tant to strike out on his own?

A sim­i­lar dy­namic is play­ing out be­tween the World Bank and the re­cip­i­ents of its In­ter­na­tional De­vel­op­ment As­so­ci­a­tion pro­gramme. IDA sup­ports eq­ui­table growth in poor coun­tries by pro­vid­ing low-in­ter­est, long-term loans and grants to na­tional gov­ern­ments. The pro­gramme sup­ports 77 of the poor­est coun­tries in the world – half of which are in Africa. It also pro­vides as­sis­tance to one coun­try that no longer de­serves it: In­dia.

At the end of the 2014 fis­cal year, In­dia of­fi­cially grad­u­ated from the IDA pro­gramme, be­cause it was no longer poor enough to qual­ify. The World Bank sets a thresh­old for re­ceiv­ing as­sis­tance, based on per capita gross na­tional in­come (GNI). In the fis­cal year 2016, the thresh­old is $1,215. In­dia’s per capita GNI has ex­ceeded the World Bank’s limit each year since 2010. In 2014, it was $1,570.

In­dia is also con­sid­ered cred­it­wor­thy, giv­ing it ac­cess to in­ter­na­tional cap­i­tal mar­kets. And yet In­dia con­tin­ues to re­ceive $3.2 bln per year in tran­si­tional sup­port from the IDA pro­gram, even as coun­tries plead for more funds.

In the 2015 fis­cal year, In­dia was al­lo­cated 20% per­cent of the $14.6 bln pro­vided by the IDA pro­gramme, leav­ing the other 77 re­cip­i­ents to di­vide the re­main­ing 80%. There is no rea­son that In­dia should be given this ex­cep­tional treat­ment. The IDA funds it re­ceives would be bet­ter spent in Sub­Sa­ha­ran Africa, where the needs are greater and the fi­nanc­ing op­tions are more lim­ited.

If In­dia’s al­lo­ca­tion were di­vided equally among the re­main­ing IDA coun­tries, each would en­joy an av­er­age fund­ing in­crease of more than 25%. Fund­ing for just the top five Sub-Sa­ha­ran African IDA bor­row­ers – Ethiopia, Nige­ria, Kenya, Tan­za­nia, and Ghana – would in­crease by about $1 bln. This would be enough to fi­nance 4,845 kilo­me­ters of paved roads, the dis­tance from South Africa to Kenya.

The World Bank’s 2016 grad­u­a­tion pol­icy re­view states that the funds be­ing given to In­dia are in­tended to smooth its tran­si­tion from re­ceiv­ing IDA by pre­vent­ing a sud­den drop in fi­nanc­ing. In­dia can han­dle the an­tic­i­pated drop off. It is sub­stan­tially wealth­ier than its Sub-Sa­ha­ran peers, and it boasts nearly $400 bln in in­ter­na­tional re­serves.

Some ar­gue that, be­cause a large share of the world’s poor live in mid­dle-in­come coun­tries, the donor com­mu­nity should re­think how fund­ing is di­rected. Ravi Kan­bur, a pro­fes­sor at Cor­nell Univer­sity and a for­mer World Bank chief economist for Africa, has called for re­set­ting the IDA grad­u­a­tion pol­icy. He points out that in a world in which in­equal­ity is in­creas­ing within states, us­ing a coun­try’s over­all wealth as a gauge of poverty ne­glects mil­lions of poor peo­ple.


poor Bank. IDA should be re­served for poor coun­tries for which reg­u­lar mar­ket ac­cess is blocked. This is not about In­dia per se. African coun­tries like Zam­bia, Nige­ria, Kenya, and Ghana are ex­pected to grad­u­ate soon – and should be pre­pared to ad­here to the same rules when they do.

World Bank Pres­i­dent Jim Yong Kim has urged donor coun­tries to step up their sup­port of IDA dur­ing this year’s tri­en­nial re­plen­ish­ment round, ar­gu­ing that ad­di­tional fund­ing “will be es­sen­tial for us to work on our goals to end ex­treme poverty and boost shared pros­per­ity.” He listed both Africa and South Asia as im­por­tant ar­eas of fo­cus.

Sub-Sa­ha­ran African lead­ers need to en­sure that the World Bank’s words trans­late into ac­tion. They should lobby for ac­cel­er­ated and timely grad­u­a­tion for coun­tries like In­dia and make sure that the Bank lives up to its mis­sion to serve poor coun­tries. Al­low­ing coun­tries to hang onto IDA for years, as In­dia has done, means there is lit­tle re­course for those with much larger needs.

If the World Bank did not send 20 cents out of ev­ery dol­lar of IDA fund­ing to In­dia, it would have am­ple re­sources to in­vest in Africa – even if do­na­tions re­mained flat. IDA’s tran­si­tional sup­port to In­dia is sched­uled to end in 2017. It is time for big brother to leave home for good.

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