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About Debt on Non-concessional terms (current US$)
11:53 PM |Non-concessional Long-term Debt Outstanding and Disbursed (LDOD) conveys information about the borrower's receipt of aid from official lenders on non-concessional terms as defined by the Development Assistance Committee (DAC) of the OECD. This is the difference between the total debt outstanding and disbursed less debt on concessional terms. Concessional debt is defined as loans with an original grant element of 25 percent or more. The grant equivalent of a loan is its commitment (present) value, less the discounted present value of its contractual debt service; conventionally, future service payments are discounted at 10 percent. The grant element of a loan is the grant equivalent expressed as a percentage of the amount committed. It is used as a measure of the overall cost of borrowing. Loans from major regional development banks--African Development Bank, Asian Development Bank, and the Inter-American Development Bank--and from the World Bank are classified as concessional according to each institution's classification and not according to the DAC definition, as was the practice in earlier reports. LDOD is the total outstanding long-term debt at year end. Long-term external debt is defined as debt that has an original or extended maturity of more than one year and that is owed to nonresidents and repayable in foreign currency, goods, or services. Data are in current U.S. dollars.
Non-concessional Long-term Debt Outstanding and Disbursed (LDOD) conveys information about the borrower's receipt of aid from official lenders on non-concessional terms as defined by the Development Assistance Committee (DAC) of the OECD. This is the difference between the total debt outstanding and disbursed less debt on concessional terms. Concessional debt is defined as loans with an original grant element of 25 percent or more. The grant equivalent of a loan is its commitment (present) value, less the discounted present value of its contractual debt service; conventionally, future service payments are discounted at 10 percent. The grant element of a loan is the grant equivalent expressed as a percentage of the amount committed. It is used as a measure of the overall cost of borrowing. Loans from major regional development banks--African Development Bank, Asian Development Bank, and the Inter-American Development Bank--and from the World Bank are classified as concessional according to each institution's classification and not according to the DAC definition, as was the practice in earlier reports. LDOD is the total outstanding long-term debt at year end. Long-term external debt is defined as debt that has an original or extended maturity of more than one year and that is owed to nonresidents and repayable in currency, goods, or services. Data are in current U.S. dollars.
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Non-concessional Long-term Debt Outstanding and Disbursed (LDOD) conveys information about the borrower's receipt of aid from official lenders on non-concessional terms as defined by the Development Assistance Committee (DAC) of the OECD. This is the difference between the total debt outstanding and disbursed less debt on concessional terms. Concessional debt is defined as loans with an original grant element of 25 percent or more. The grant equivalent of a loan is its commitment (present) value, less the discounted present value of its contractual debt service; conventionally, future service payments are discounted at 10 percent. The grant element of a loan is the grant equivalent expressed as a percentage of the amount committed. It is used as a measure of the overall cost of borrowing. Loans from major regional development banks--African Development Bank, Asian Development Bank, and the Inter-American Development Bank--and from the World Bank are classified as concessional according to each institution's classification and not according to the DAC definition, as was the practice in earlier reports. LDOD is the total outstanding long-term debt at year end. Long-term external debt is defined as debt that has an original or extended maturity of more than one year and that is owed to nonresidents and repayable in currency, goods, or services. Data are in current U.S. dollars.
Aiding transparency: what we can learn about China ExIm Bank’s concessional loans
11:49 PM |Very little is known about the nature of China’s lending to developing countires. This paper examines one of the key mechanisms the Chinese government uses to implement its aid - the Chinese Export-Import Bank (ExIm). Drawing on Chinese language sources, it investigates the nature of Exim lending and who is receiving ExIm loans.
Based on the available information, the study finds that:
over 48 countires have agreements with China for concessional loans through ExIm Bank
an average loan of US$20-30 million is made available to Chinese firms to develop infastrucutre in developing countires
the concessional loans appear to be provided for a term of between 10-20 years (mean is 15.5 years), at an interest rate between 2%-4% (mean 2.85%) and a grace period between 3-7 years
the purpose of Chinese concessional lending is more oriented toward Chinese export promotion than the national economic development of recipient countries
However, the paper also finds that the Chinese government is unwilling to provide information on many aspects of Chinese concessional loans. This includes the terms of the loan, and information on interest payments and debt forgiveness. The rationale behind this lack of transparency, it suggests, may be the desire to protect Chinese commerical interests or the fact that Chinese concessional loans may not classify as Official Development Assistance.
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Based on the available information, the study finds that:
over 48 countires have agreements with China for concessional loans through ExIm Bank
an average loan of US$20-30 million is made available to Chinese firms to develop infastrucutre in developing countires
the concessional loans appear to be provided for a term of between 10-20 years (mean is 15.5 years), at an interest rate between 2%-4% (mean 2.85%) and a grace period between 3-7 years
the purpose of Chinese concessional lending is more oriented toward Chinese export promotion than the national economic development of recipient countries
However, the paper also finds that the Chinese government is unwilling to provide information on many aspects of Chinese concessional loans. This includes the terms of the loan, and information on interest payments and debt forgiveness. The rationale behind this lack of transparency, it suggests, may be the desire to protect Chinese commerical interests or the fact that Chinese concessional loans may not classify as Official Development Assistance.
Banks begin to tap dollar loans under concessional swap programme
11:42 PM |Banks have begun tapping a new concessional swap facility for overseas fundraising, one of a spate of measures the Reserve Bank of India (RBI) has taken to attract offshore funds to support the battered rupee.
Under the programme launched on September 10, Indian banks can borrow overseas up to 100 percent of their Tier 1 capital level, although any loan over 50 percent of that level must be for a minimum 3 years - a duration some bankers said may deter overseas lenders.
Mid-sized Union Bank of India (UNBK.NS) has raised $50 million overseas under the programme and plans to raise up to $500 million, said K. Subrahmanyam, its executive director.
Bankers said the total pipeline of such loans is likely to reach around $5 billion, providing a cushion for the rupee and reviving what had been a moribund market for overseas borrowing by Indian banks this year.
The rupee has weakened by about 13 percent against the U.S. dollar this year.
The concessional swap rate offered by the RBI of 100 basis points below the market rate would enable banks to save up to 300 basis points on their funding costs compared with the cost domestically.
The $500 million that Union Bank is looking to raise would be for 2 and 3 years and cost about 8.5 to 9 percent, including the swap cost, Subrahmanyam said.
By comparison, a 1-year bank certificate of deposit in India has an interest rate of 10.30 percent.
HDFC Bank (HDBK.NS), Indian Overseas Bank (IOBK.NS), IDBI Bank (IDBI.NS) and Yes Bank (YESB.NS) said they are looking to raise overseas loans under the programme.
"This is a pricing arbitrage opportunity for Indian banks to raise cheap capital in the international markets," said one banker in Singapore.
Yes Bank this week closed a $255 million dual currency syndicated loan facility, which was arranged before the RBI implemented its programme. It said it has approached the central bank to use the concessional swap facility.
Indian banks typically borrow in tenors of one to three years in offshore loan markets. For longer maturities, Indian banks resort to overseas bond markets, which also offer bigger sizes.
In 2013, only three Indian banks tapped the offshore loan markets, raising a combined $270 million before the new swap facility was implemented, according to Thomson Reuters LPC data.
The requirement for a three-year minimum maturity for offshore borrowing above 50 percent of Tier 1 capital "is causing difficulty because overseas lenders are more willing to lend for a year than for a longer duration," said Mohan Shenoi, head of treasury at Kotak Mahindra Bank, which aims to raise $500 million to $600 million under the facility.
(Additional reporting by Swati Pandey and Prakash Chakravarti in Hong Kong; Editing by Richard Borsuk)
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Under the programme launched on September 10, Indian banks can borrow overseas up to 100 percent of their Tier 1 capital level, although any loan over 50 percent of that level must be for a minimum 3 years - a duration some bankers said may deter overseas lenders.
Mid-sized Union Bank of India (UNBK.NS) has raised $50 million overseas under the programme and plans to raise up to $500 million, said K. Subrahmanyam, its executive director.
Bankers said the total pipeline of such loans is likely to reach around $5 billion, providing a cushion for the rupee and reviving what had been a moribund market for overseas borrowing by Indian banks this year.
The rupee has weakened by about 13 percent against the U.S. dollar this year.
The concessional swap rate offered by the RBI of 100 basis points below the market rate would enable banks to save up to 300 basis points on their funding costs compared with the cost domestically.
The $500 million that Union Bank is looking to raise would be for 2 and 3 years and cost about 8.5 to 9 percent, including the swap cost, Subrahmanyam said.
By comparison, a 1-year bank certificate of deposit in India has an interest rate of 10.30 percent.
HDFC Bank (HDBK.NS), Indian Overseas Bank (IOBK.NS), IDBI Bank (IDBI.NS) and Yes Bank (YESB.NS) said they are looking to raise overseas loans under the programme.
"This is a pricing arbitrage opportunity for Indian banks to raise cheap capital in the international markets," said one banker in Singapore.
Yes Bank this week closed a $255 million dual currency syndicated loan facility, which was arranged before the RBI implemented its programme. It said it has approached the central bank to use the concessional swap facility.
Indian banks typically borrow in tenors of one to three years in offshore loan markets. For longer maturities, Indian banks resort to overseas bond markets, which also offer bigger sizes.
In 2013, only three Indian banks tapped the offshore loan markets, raising a combined $270 million before the new swap facility was implemented, according to Thomson Reuters LPC data.
The requirement for a three-year minimum maturity for offshore borrowing above 50 percent of Tier 1 capital "is causing difficulty because overseas lenders are more willing to lend for a year than for a longer duration," said Mohan Shenoi, head of treasury at Kotak Mahindra Bank, which aims to raise $500 million to $600 million under the facility.
(Additional reporting by Swati Pandey and Prakash Chakravarti in Hong Kong; Editing by Richard Borsuk)
World Bank will continue to give India concessional aid
11:38 PM |NEW DELHI: The World Bank is working on a special dispensation to maintain financial support to India even though the country is no longer eligible for concessional development funds.
India receives the bulk of funds from the World Bank through International Development Association (IDA), the development bank's fund for the poorest, and International Bank for Reconstruction and Development (IBRD).
IDA provides concessional credit at little or no interest and repayments are stretched over 25 to 40 years, including a 5- to 10-year grace period, to help the poorest countries fight poverty.
These funds are available to countries with per capita income, as computed under the World Bank atlas methodology that adjusts nominal income for purchasing power, of up to $1,260, a threshold India has crossed convincingly with a per capita income of around $1,500. So, strictly speaking, India is not eligible for funds support from the IDA, but the bank faces a dilemma in stopping access to a country that is home to a very large number of poor.
"The logic of World Bank fund for poor not supporting India is a little bit difficult to maintain," Onno Ruhl, country director for India at the World Bank, told ET in an interview. The bank has, therefore, agreed in principle — the negotiations are not finished — that India would benefit for the coming period through an arrangement called transition support.
"It is totally unique that India is getting transition support. No other country in history has had it. And there is no other country right now that we are proposing to give it to," he said. India would continue to get IDA support over the next few years, though the quantum of funds would be less and the terms may be somewhat stricter. "The amount is not fixed, though it is likely to be slightly less than what India got under IDA in the previous period," Ruhl said.
Over the last six years, India has received an average $4.3 billion a year from the World Bank through the IDA and the other lending programme, IBRD. The World Bank will maintain the same level of support from the next financial year, which runs from July to June, though concessional IDA element will go down. IBRD funds infrastructure projects in middle-income and credit-worthy low-income countries at interest rates higher than those provided by IDA but lower than those offered by other commercial lending agencies.
So, the World Bank will in effect stretch IBRD to maintain the funding support to India at the same level as in the recent period. In the upcoming five years, India is expected to get $4.5 billion to $5 billion funds a year. In the current fiscal, IDA is available to India. "The uniqueness of India's situation is clearly recognised in proposing a special purpose mechanism to support India," Ruhl said.
India still has more than 300 million people below the poverty line. The government had been in discussion with the World Bank for continued support given the high levels of poverty in the country. India also needs these long-term cheap funds to balance its rising reliance on short-term borrowings to fund its high current account deficit that touched 4.8% of GDP last year.
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India receives the bulk of funds from the World Bank through International Development Association (IDA), the development bank's fund for the poorest, and International Bank for Reconstruction and Development (IBRD).
IDA provides concessional credit at little or no interest and repayments are stretched over 25 to 40 years, including a 5- to 10-year grace period, to help the poorest countries fight poverty.
These funds are available to countries with per capita income, as computed under the World Bank atlas methodology that adjusts nominal income for purchasing power, of up to $1,260, a threshold India has crossed convincingly with a per capita income of around $1,500. So, strictly speaking, India is not eligible for funds support from the IDA, but the bank faces a dilemma in stopping access to a country that is home to a very large number of poor.
"The logic of World Bank fund for poor not supporting India is a little bit difficult to maintain," Onno Ruhl, country director for India at the World Bank, told ET in an interview. The bank has, therefore, agreed in principle — the negotiations are not finished — that India would benefit for the coming period through an arrangement called transition support.
"It is totally unique that India is getting transition support. No other country in history has had it. And there is no other country right now that we are proposing to give it to," he said. India would continue to get IDA support over the next few years, though the quantum of funds would be less and the terms may be somewhat stricter. "The amount is not fixed, though it is likely to be slightly less than what India got under IDA in the previous period," Ruhl said.
Over the last six years, India has received an average $4.3 billion a year from the World Bank through the IDA and the other lending programme, IBRD. The World Bank will maintain the same level of support from the next financial year, which runs from July to June, though concessional IDA element will go down. IBRD funds infrastructure projects in middle-income and credit-worthy low-income countries at interest rates higher than those provided by IDA but lower than those offered by other commercial lending agencies.
So, the World Bank will in effect stretch IBRD to maintain the funding support to India at the same level as in the recent period. In the upcoming five years, India is expected to get $4.5 billion to $5 billion funds a year. In the current fiscal, IDA is available to India. "The uniqueness of India's situation is clearly recognised in proposing a special purpose mechanism to support India," Ruhl said.
India still has more than 300 million people below the poverty line. The government had been in discussion with the World Bank for continued support given the high levels of poverty in the country. India also needs these long-term cheap funds to balance its rising reliance on short-term borrowings to fund its high current account deficit that touched 4.8% of GDP last year.
Funds for Development: Multilateral Channels of Concessional Financing
11:30 PM |Description
Funds for Development: Multilateral Channels of Concessional Financing, edited by Gerd Droesse, with contributions from senior experts of several international organizations, examines the concessional windows of the World Bank Group, African Development Bank Group, Asian Development Bank, Caribbean Development Bank, International Fund for Agricultural Development, and other multilateral financial development institutions. It also looks into trust funds, multipurpose vehicles, special facilities, and financial intermediary funds, such as the Global Environment Facility, and the Global Fund to Fight AIDS, Tuberculosis, and Malaria. It is an extensive study of the legal frameworks of such concessional windows, their modalities of concessional financing, resource structures and replenishment procedures, and analyzes how such replenishment efforts are implemented and impact on the development activities of these institutions.
This book also analyzes different paradigms of organizational structures and the close connection between such structures and the institutional frameworks governing matters such as membership, representation in governing bodies, decision-making procedures, and voting rights—all of which play a part in the shaping of aid discussions. In navigating the ever-increasingly complex landscape of aid architecture, this book is a valuable guide for all persons interested in concessional financing and the law of international organizations.
Contents
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This book also analyzes different paradigms of organizational structures and the close connection between such structures and the institutional frameworks governing matters such as membership, representation in governing bodies, decision-making procedures, and voting rights—all of which play a part in the shaping of aid discussions. In navigating the ever-increasingly complex landscape of aid architecture, this book is a valuable guide for all persons interested in concessional financing and the law of international organizations.
Contents
- Proliferation, Fragmentation, and Earmarking of Concessional Financing: Introductory Remarks and Overview of Publication
- Concessional Resources and Development Thought
- Organizational Structures, Institutional Frameworks, and Decision-Making Procedures of Multilateral Concessional Financing
- Modalities of Multilateral Concessional Financing
- Concessional Financing of the Asian Development Bank and other Channels of Concessional Financing
- Concessional Financing Windows of the African Development Bank Group: Organization, Decision Making, and Modalities
- Unified Special Development Fund of the Caribbean Development Bank
- Multilateral Concessional Financing of the International Fund for Agricultural Development
- Global Environment Facility: Institutional and Operational Aspects
- A Practical Guide to Creating a Collective Financing Effort to Save the World: The Global Environment Facility Experience
- Global Fund to Fight AIDS, Tuberculosis, and Malaria: A New Legal and Conceptual Framework for Providing International Development Aid
Non Concessional Debt Accumulation Policy
11:25 PM |The provision of grants and debt relief to eligible ADF countries is intended to help bring their debt to sustainable levels and create fiscal space for priority development expenditures. The accumulation of new debts on non-concessional terms can undermine these objectives and introduce the risk of free-riding – a situation in which grants and debt relief provided by one or more parties cross-subsidize new borrowing from third party lenders on non-concessional terms. This risk is particularly high in resource rich countries in which non-concessional borrowing may be secured against future export receipts.
The Boards of Directors of the African Development Bank Group approved in 2008 the Bank Group Policy on Non-Concessional Debt Accumulation with the view to mitigating the impact of rapid accumulation of non-concessional debt on grant-eligible post-HIPC/MDRI debt relief ADF countries and guiding the use of its concessional resources. The policy, which is closely aligned with the World Bank’s IDA policy on non-concessional borrowing and the IMF’s external debt limit policy, is based on a two-pronged approach: enhancing creditor coordination around the joint IMF-World Bank Debt Sustainability Framework, and discouraging unchecked non-concessional debt accumulation by applying compliance measures, including volume discounts and hardening of borrowing terms of ADF loans.
In 2011, a number of amendments to the policy were introduced to provide a more flexible and streamlined approach. The amendments were aligned with the changes adopted by the IMF in regards to its external debt limit policy and concessionality framework, and brought the Bank’s policy up to date with current practices in supporting low income countries’ financing needs. The amendments focused on applying the IMF-World Bank framework while allowing the Bank Group to use informed judgment and take the specificity of African countries into account where applicable. This is consistent with the Bank Group’s commitments to the Paris and Accra declarations on donor harmonization and coordination.
Specifically, the following amendments to the 2008 Bank Group Policy on Non-Concessional Debt Accumulation Policy were adopted:
More flexibility in determining the Bank Group concessionality limits, by replacing the single benchmark grant element of 35 per cent approach with a more nuanced concessionality framework, to better take into account the diversity of country circumstances as reflected in their debt vulnerability and their debt management capacity. For ADF-only countries with low risk of debt distress (green light countries), flexibility will be applied to accommodate their non-concessional borrowing needs consistent with the assessment of their debt management capacity, while for ADF-only countries assessed to have a moderate and high risk of debt distress (yellow light and red light countries), the previous minimum concessionality limit of 35 per cent will continue to apply with a limited flexibility. This amendment provided greater flexibility to nearly half of the ADF-only countries to access some level of non-concessional external debt; thereby enabling them to mobilize much-needed additional development resources.
With the view to ensuring ADF resources are channeled to those countries that need concessional resources the most, and to reduce the risk of moral hazard with respect to borrowers, the amendments included a more streamlined mix of compliance measures that will be applied on a case-by-case basis to client countries that breach the policy, taking into account the scale of the breach. The compliance measures are intended to ensure consistency with application of the revised concessionality framework.
The Bank Group’s approach to mitigating the accumulation of unsustainable non-concessional debt by ADF countries continues to be anchored on the guiding principles of strong partnership and coordination, flexibility and country-differentiated approach, and effective and implementable measures. Within this broad framework, the four pillars of the 2008 Bank Group Policy on Non-Concessional Debt Accumulation will continue to apply:
Strengthening partnerships and coordination with sister financial institutional and bilateral agencies, with the view to adopting a common strategy in dealing with the problem, including conducting Debt Sustainability Analysis, outreach and advocacy exercises;
Maintaining a standing inter-departmental Committee to monitor the status of non-concessional borrowing;
Ensuring the inclusion of and close monitoring of adherence to a clause requiring reporting on new non-concessional borrowing in all ADF grant/loan agreements for ADF-only borrowers; and Enhancing economic and debt management capacity building support at country and regional levels, in collaboration with other partners. The policy on non-concessional borrowing should not be viewed in isolation, but within the broader context of the Bank Group’s efforts to support and facilitate regional member countries’ efforts to achieve their development goals. Management is acutely cognizant of the need for striking the right balance between the policy objectives of debt sustainability and financing for development. The amendments reflect the Bank Group’s attempt to move in this direction by adopting a country-differentiated concessionality framework that supports client countries’ debt sustainability. In view of the fast-changing global economic reality and the implications for development financing flows to African low income countries, the Bank Group’s approach and policy on non-concessional borrowing will be reviewed regularly to take into account lessons and policy frameworks that are more enabling to advance the development goals of its regional member countries.
Read more…
The Boards of Directors of the African Development Bank Group approved in 2008 the Bank Group Policy on Non-Concessional Debt Accumulation with the view to mitigating the impact of rapid accumulation of non-concessional debt on grant-eligible post-HIPC/MDRI debt relief ADF countries and guiding the use of its concessional resources. The policy, which is closely aligned with the World Bank’s IDA policy on non-concessional borrowing and the IMF’s external debt limit policy, is based on a two-pronged approach: enhancing creditor coordination around the joint IMF-World Bank Debt Sustainability Framework, and discouraging unchecked non-concessional debt accumulation by applying compliance measures, including volume discounts and hardening of borrowing terms of ADF loans.
In 2011, a number of amendments to the policy were introduced to provide a more flexible and streamlined approach. The amendments were aligned with the changes adopted by the IMF in regards to its external debt limit policy and concessionality framework, and brought the Bank’s policy up to date with current practices in supporting low income countries’ financing needs. The amendments focused on applying the IMF-World Bank framework while allowing the Bank Group to use informed judgment and take the specificity of African countries into account where applicable. This is consistent with the Bank Group’s commitments to the Paris and Accra declarations on donor harmonization and coordination.
Specifically, the following amendments to the 2008 Bank Group Policy on Non-Concessional Debt Accumulation Policy were adopted:
More flexibility in determining the Bank Group concessionality limits, by replacing the single benchmark grant element of 35 per cent approach with a more nuanced concessionality framework, to better take into account the diversity of country circumstances as reflected in their debt vulnerability and their debt management capacity. For ADF-only countries with low risk of debt distress (green light countries), flexibility will be applied to accommodate their non-concessional borrowing needs consistent with the assessment of their debt management capacity, while for ADF-only countries assessed to have a moderate and high risk of debt distress (yellow light and red light countries), the previous minimum concessionality limit of 35 per cent will continue to apply with a limited flexibility. This amendment provided greater flexibility to nearly half of the ADF-only countries to access some level of non-concessional external debt; thereby enabling them to mobilize much-needed additional development resources.
With the view to ensuring ADF resources are channeled to those countries that need concessional resources the most, and to reduce the risk of moral hazard with respect to borrowers, the amendments included a more streamlined mix of compliance measures that will be applied on a case-by-case basis to client countries that breach the policy, taking into account the scale of the breach. The compliance measures are intended to ensure consistency with application of the revised concessionality framework.
The Bank Group’s approach to mitigating the accumulation of unsustainable non-concessional debt by ADF countries continues to be anchored on the guiding principles of strong partnership and coordination, flexibility and country-differentiated approach, and effective and implementable measures. Within this broad framework, the four pillars of the 2008 Bank Group Policy on Non-Concessional Debt Accumulation will continue to apply:
Strengthening partnerships and coordination with sister financial institutional and bilateral agencies, with the view to adopting a common strategy in dealing with the problem, including conducting Debt Sustainability Analysis, outreach and advocacy exercises;
Maintaining a standing inter-departmental Committee to monitor the status of non-concessional borrowing;
Ensuring the inclusion of and close monitoring of adherence to a clause requiring reporting on new non-concessional borrowing in all ADF grant/loan agreements for ADF-only borrowers; and Enhancing economic and debt management capacity building support at country and regional levels, in collaboration with other partners. The policy on non-concessional borrowing should not be viewed in isolation, but within the broader context of the Bank Group’s efforts to support and facilitate regional member countries’ efforts to achieve their development goals. Management is acutely cognizant of the need for striking the right balance between the policy objectives of debt sustainability and financing for development. The amendments reflect the Bank Group’s attempt to move in this direction by adopting a country-differentiated concessionality framework that supports client countries’ debt sustainability. In view of the fast-changing global economic reality and the implications for development financing flows to African low income countries, the Bank Group’s approach and policy on non-concessional borrowing will be reviewed regularly to take into account lessons and policy frameworks that are more enabling to advance the development goals of its regional member countries.
What next for the World Bank's concessional finance arm?
11:22 PM |Drastic changes in the supply of and demand for the World Bank’s concessional finance mean that IDA’s purpose, tools, and broader role within both the international aid system and the World Bank Group need to be reconsidered.
Fifty-two years after its creation, the International Development Association (IDA), the World Bank’s soft loan window, is facing a watershed moment. Drastic changes in the supply of and demand for the World Bank’s concessional finance mean that IDA’s purpose, tools, and broader role within both the international aid system and the World Bank Group need to be reconsidered.
Even under conservative assumptions, IDA will face a wave of likely client graduations over the next 10 ro 15 years. Nearly all of IDA’s biggest and best-performing borrowers—including India, Vietnam and Ghana—are approaching or have passed the income threshold for eligibility and will soon transition out of IDA. By 2025 IDA’s client base will be much smaller, more fragile, and almost entirely African, with major implications for its operational model and its relationship with other multilateral development institutions.
Global circumstances are also changing. Most of the world’s poor now live in middle-income countries. Aid budgets are tightening, and the need for financing global public goods is increasingly clear. An IDA created more than half a century ago may not be ideally suited to this new set of development challenges.
Instead of lobbying for ever-increasing replenishment envelopes and tweaking at the margins, World Bank shareholders and management should push for bold and creative ideas to modernize IDA. The IDA-17 talks, which begin informally during the IDA-16 midterm review next month, should begin a hard-headed appraisal of IDA’s purpose, systems, and financing.
Last fall, the Center for Global Development convened a working group on the future of IDA to examine how these changes in clientele and the global environment will affect IDA’s core business, and to think through some of the options for adapting IDA to its new challenges. The group's report, "Soft Lending without Poor Countries: Recommendations for a New IDA", was released last week and lays out the challenges and puts several new ideas on the table.
To adapt IDA to the new world, the Bank will have to rethink and redesign its products. Plain vanilla loans to national governments may not be effective tools to tackle climate change or address pockets of poverty in middle-income countries.
And if the Bank is looking to promote the private sector, a place to start would be to end the practice of subsidizing IDA with profits from the International Finance Corporation (IFC), the private sector arm of the World Bank. Instead, IFC income could be deployed via an IFC venture fund with a specific mandate to be aggressive in IDA countries.
If IDA is to be successful in post-conflict and fragile countries—a majority of its client base by 2025—it will need innovative approaches with more effective feedback loops. This will require rethinking the current allocation system, especially to find better ways to create positive incentives for countries at the low end of the performance spectrum. And as IDA’s client base becomes almost exclusively African, the World Bank will also have to rethink its relationship with the African Development Bank. Current ad-hoc arrangements will become insufficient as their client bases converge.
World Bank presidents have frequently defined their success through ever-larger replenishment campaigns, but this is no longer an appropriate expectation. The wave of approaching graduations means that IDA replenishments could shrink while maintaining (or even increasing) per-capita IDA allocations to the remaining countries. Shareholders and the incoming leadership should not be afraid to declare success and, despite their bureaucratic instincts, even allow IDA to shrink. They must focus on modernizing IDA’s mandate and business model rather than obsess over the size of its coffers.
The World Bank has so far proven to be one of the most effective and efficient institutions for tackling poverty and other global challenges. The Bank's shareholders and its management need to act now to ensure it continues to be relevant in the 21st century.
Todd Moss is vice president of programs and senior fellow, Center for Global Development
Stephanie Majerowicz is research assistant, Center for Global Development
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Fifty-two years after its creation, the International Development Association (IDA), the World Bank’s soft loan window, is facing a watershed moment. Drastic changes in the supply of and demand for the World Bank’s concessional finance mean that IDA’s purpose, tools, and broader role within both the international aid system and the World Bank Group need to be reconsidered.
Even under conservative assumptions, IDA will face a wave of likely client graduations over the next 10 ro 15 years. Nearly all of IDA’s biggest and best-performing borrowers—including India, Vietnam and Ghana—are approaching or have passed the income threshold for eligibility and will soon transition out of IDA. By 2025 IDA’s client base will be much smaller, more fragile, and almost entirely African, with major implications for its operational model and its relationship with other multilateral development institutions.
Global circumstances are also changing. Most of the world’s poor now live in middle-income countries. Aid budgets are tightening, and the need for financing global public goods is increasingly clear. An IDA created more than half a century ago may not be ideally suited to this new set of development challenges.
Instead of lobbying for ever-increasing replenishment envelopes and tweaking at the margins, World Bank shareholders and management should push for bold and creative ideas to modernize IDA. The IDA-17 talks, which begin informally during the IDA-16 midterm review next month, should begin a hard-headed appraisal of IDA’s purpose, systems, and financing.
Last fall, the Center for Global Development convened a working group on the future of IDA to examine how these changes in clientele and the global environment will affect IDA’s core business, and to think through some of the options for adapting IDA to its new challenges. The group's report, "Soft Lending without Poor Countries: Recommendations for a New IDA", was released last week and lays out the challenges and puts several new ideas on the table.
To adapt IDA to the new world, the Bank will have to rethink and redesign its products. Plain vanilla loans to national governments may not be effective tools to tackle climate change or address pockets of poverty in middle-income countries.
And if the Bank is looking to promote the private sector, a place to start would be to end the practice of subsidizing IDA with profits from the International Finance Corporation (IFC), the private sector arm of the World Bank. Instead, IFC income could be deployed via an IFC venture fund with a specific mandate to be aggressive in IDA countries.
If IDA is to be successful in post-conflict and fragile countries—a majority of its client base by 2025—it will need innovative approaches with more effective feedback loops. This will require rethinking the current allocation system, especially to find better ways to create positive incentives for countries at the low end of the performance spectrum. And as IDA’s client base becomes almost exclusively African, the World Bank will also have to rethink its relationship with the African Development Bank. Current ad-hoc arrangements will become insufficient as their client bases converge.
World Bank presidents have frequently defined their success through ever-larger replenishment campaigns, but this is no longer an appropriate expectation. The wave of approaching graduations means that IDA replenishments could shrink while maintaining (or even increasing) per-capita IDA allocations to the remaining countries. Shareholders and the incoming leadership should not be afraid to declare success and, despite their bureaucratic instincts, even allow IDA to shrink. They must focus on modernizing IDA’s mandate and business model rather than obsess over the size of its coffers.
The World Bank has so far proven to be one of the most effective and efficient institutions for tackling poverty and other global challenges. The Bank's shareholders and its management need to act now to ensure it continues to be relevant in the 21st century.
Todd Moss is vice president of programs and senior fellow, Center for Global Development
Stephanie Majerowicz is research assistant, Center for Global Development
Africa: What Next for the World Bank's Concessional Finance Arm? (This is Africa)
11:19 PM |Vice president of programs and senior fellow Todd Moss and research assistant Stephanie Marjerowicz discuss the future of IDA at the World Bank in this piece for This is Africa.
Drastic changes in the supply of and demand for the World Bank’s concessional finance mean that IDA’s purpose, tools, and broader role within both the international aid system and the World Bank Group need to be reconsidered.
Fifty-two years after its creation, the International Development Association (IDA), the World Bank’s soft loan window, is facing a watershed moment. Drastic changes in the supply of and demand for the World Bank’s concessional finance mean that IDA’s purpose, tools, and broader role within both the international aid system and the World Bank Group need to be reconsidered.
Even under conservative assumptions, IDA will face a wave of likely client graduations over the next 10 ro 15 years. Nearly all of IDA’s biggest and best-performing borrowers—including India, Vietnam and Ghana—are approaching or have passed the income threshold for eligibility and will soon transition out of IDA. By 2025 IDA’s client base will be much smaller, more fragile, and almost entirely African, with major implications for its operational model and its relationship with other multilateral development institutions.
Global circumstances are also changing. Most of the world’s poor now live in middle-income countries. Aid budgets are tightening, and the need for financing global public goods is increasingly clear. An IDA created more than half a century ago may not be ideally suited to this new set of development challenges.
Instead of lobbying for ever-increasing replenishment envelopes and tweaking at the margins, World Bank shareholders and management should push for bold and creative ideas to modernize IDA. The IDA-17 talks, which begin informally during the IDA-16 midterm review next month, should begin a hard-headed appraisal of IDA’s purpose, systems, and financing.
Last fall, the Center for Global Development convened a working group on the future of IDA to examine how these changes in clientele and the global environment will affect IDA’s core business, and to think through some of the options for adapting IDA to its new challenges. The group's report, "Soft Lending without Poor Countries: Recommendations for a New IDA", was released last week and lays out the challenges and puts several new ideas on the table.
To adapt IDA to the new world, the Bank will have to rethink and redesign its products. Plain vanilla loans to national governments may not be effective tools to tackle climate change or address pockets of poverty in middle-income countries.
And if the Bank is looking to promote the private sector, a place to start would be to end the practice of subsidizing IDA with profits from the International Finance Corporation (IFC), the private sector arm of the World Bank. Instead, IFC income could be deployed via an IFC venture fund with a specific mandate to be aggressive in IDA countries.
If IDA is to be successful in post-conflict and fragile countries—a majority of its client base by 2025—it will need innovative approaches with more effective feedback loops. This will require rethinking the current allocation system, especially to find better ways to create positive incentives for countries at the low end of the performance spectrum. And as IDA’s client base becomes almost exclusively African, the World Bank will also have to rethink its relationship with the African Development Bank. Current ad-hoc arrangements will become insufficient as their client bases converge.
World Bank presidents have frequently defined their success through ever-larger replenishment campaigns, but this is no longer an appropriate expectation. The wave of approaching graduations means that IDA replenishments could shrink while maintaining (or even increasing) per-capita IDA allocations to the remaining countries. Shareholders and the incoming leadership should not be afraid to declare success and, despite their bureaucratic instincts, even allow IDA to shrink. They must focus on modernizing IDA’s mandate and business model rather than obsess over the size of its coffers.
The World Bank has so far proven to be one of the most effective and efficient institutions for tackling poverty and other global challenges. The Bank's shareholders and its management need to act now to ensure it continues to be relevant in the 21st century.
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Drastic changes in the supply of and demand for the World Bank’s concessional finance mean that IDA’s purpose, tools, and broader role within both the international aid system and the World Bank Group need to be reconsidered.
Fifty-two years after its creation, the International Development Association (IDA), the World Bank’s soft loan window, is facing a watershed moment. Drastic changes in the supply of and demand for the World Bank’s concessional finance mean that IDA’s purpose, tools, and broader role within both the international aid system and the World Bank Group need to be reconsidered.
Even under conservative assumptions, IDA will face a wave of likely client graduations over the next 10 ro 15 years. Nearly all of IDA’s biggest and best-performing borrowers—including India, Vietnam and Ghana—are approaching or have passed the income threshold for eligibility and will soon transition out of IDA. By 2025 IDA’s client base will be much smaller, more fragile, and almost entirely African, with major implications for its operational model and its relationship with other multilateral development institutions.
Global circumstances are also changing. Most of the world’s poor now live in middle-income countries. Aid budgets are tightening, and the need for financing global public goods is increasingly clear. An IDA created more than half a century ago may not be ideally suited to this new set of development challenges.
Instead of lobbying for ever-increasing replenishment envelopes and tweaking at the margins, World Bank shareholders and management should push for bold and creative ideas to modernize IDA. The IDA-17 talks, which begin informally during the IDA-16 midterm review next month, should begin a hard-headed appraisal of IDA’s purpose, systems, and financing.
Last fall, the Center for Global Development convened a working group on the future of IDA to examine how these changes in clientele and the global environment will affect IDA’s core business, and to think through some of the options for adapting IDA to its new challenges. The group's report, "Soft Lending without Poor Countries: Recommendations for a New IDA", was released last week and lays out the challenges and puts several new ideas on the table.
To adapt IDA to the new world, the Bank will have to rethink and redesign its products. Plain vanilla loans to national governments may not be effective tools to tackle climate change or address pockets of poverty in middle-income countries.
And if the Bank is looking to promote the private sector, a place to start would be to end the practice of subsidizing IDA with profits from the International Finance Corporation (IFC), the private sector arm of the World Bank. Instead, IFC income could be deployed via an IFC venture fund with a specific mandate to be aggressive in IDA countries.
If IDA is to be successful in post-conflict and fragile countries—a majority of its client base by 2025—it will need innovative approaches with more effective feedback loops. This will require rethinking the current allocation system, especially to find better ways to create positive incentives for countries at the low end of the performance spectrum. And as IDA’s client base becomes almost exclusively African, the World Bank will also have to rethink its relationship with the African Development Bank. Current ad-hoc arrangements will become insufficient as their client bases converge.
World Bank presidents have frequently defined their success through ever-larger replenishment campaigns, but this is no longer an appropriate expectation. The wave of approaching graduations means that IDA replenishments could shrink while maintaining (or even increasing) per-capita IDA allocations to the remaining countries. Shareholders and the incoming leadership should not be afraid to declare success and, despite their bureaucratic instincts, even allow IDA to shrink. They must focus on modernizing IDA’s mandate and business model rather than obsess over the size of its coffers.
The World Bank has so far proven to be one of the most effective and efficient institutions for tackling poverty and other global challenges. The Bank's shareholders and its management need to act now to ensure it continues to be relevant in the 21st century.
Concessional loans: Concessional contributions
12:01 AM |
What is concessional? Concessional is a term used to describe favourable tax treatment. For example, earnings in superannuation funds receive concessional tax treatment. The term 'concessional contributions' means that such contributions receive special tax treatment.
Generally, a concessional contribution is a contribution that is made by or for you to a complying super fund and is assessable income of the fund (which means that the fund will pay tax on the contribution). If the contributor is able to claim an income tax deduction for the contribution, the contribution effectively comes from their ‘before-tax’ income.
Concessional contributions include:
Personal contributions by an eligible person (such as a self-employed person) that are allowed as an income tax deduction transfers from reserves (as defined by the regulations to the legislation) the taxable component of a directed termination payment (or the total of directed termination payments plus any transitional eligible termination payments) in excess of $1 million.
Generally, a concessional contribution is a contribution that is made by or for you to a complying super fund and is assessable income of the fund (which means that the fund will pay tax on the contribution). If the contributor is able to claim an income tax deduction for the contribution, the contribution effectively comes from their ‘before-tax’ income.
Concessional contributions include:
- employer contributions such as
- compulsory super guarantee contributions
- any additional voluntary super contributions your employer may make
- any fund costs paid by your employer on behalf of your super fund, such as administration fees and insurance premiums the equivalent of your employer contributions under a defined benefit scheme as determined by the trustee salary sacrifice amounts
Personal contributions by an eligible person (such as a self-employed person) that are allowed as an income tax deduction transfers from reserves (as defined by the regulations to the legislation) the taxable component of a directed termination payment (or the total of directed termination payments plus any transitional eligible termination payments) in excess of $1 million.
