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Standing Committee Debates

Draft International Development Association (Fourteenth Replenishment) Order 2006

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Third Standing Committee on Delegated Legislation

The Committee consisted of the following Members:


Mr. Edward O’Hara

Barrett, John (Edinburgh, West) (LD)
†Byers, Mr. Stephen (North Tyneside) (Lab)
†Cunningham, Tony (Workington) (Lab)
Curry, Mr. David (Skipton and Ripon) (Con)
†George, Andrew (St. Ives) (LD)
†Levitt, Tom (High Peak) (Lab)
†MacDougall, Mr. John (Glenrothes) (Lab)
†Purchase, Mr. Ken (Wolverhampton, North-East) (Lab/Co-op)
†Randall, Mr. John (Uxbridge) (Con)
Ruddock, Joan (Lewisham, Deptford) (Lab)
†Simmonds, Mark (Boston and Skegness) (Con)
†Smith, Ms Angela C. (Sheffield, Hillsborough) (Lab)
†Streeter, Mr. Gary (South-West Devon) (Con)
†Thomas, Mr. Gareth (Parliamentary Under-Secretary of State for International Development)
†Turner, Dr. Desmond (Brighton, Kemptown) (Lab)
†Vaizey, Mr. Edward (Wantage) (Con)
†Vis, Dr. Rudi (Finchley and Golders Green) (Lab)
Emily Commander, Committee Clerk

† attended the Committee

The following also attended, pursuant to Standing Order No. 118(2):

Connarty, Michael (Linlithgow and East Falkirk) (Lab)

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Tuesday 14 February 2006

[Mr. Edward O’Hara in the Chair]

Draft International Development Association (Fourteenth Replenishment) Order 2006

4.30 pm

The Parliamentary Under-Secretary of State for International Development (Mr. Gareth Thomas): I beg to move,

    That the Committee has considered the draft International Development Association (Fourteenth Replenishment) Order 2006.

The International Development Association was established in 1960 and is part of the World Bank group. It is the world’s single largest provider of concessional resources for poor countries. It helps such countries reduce poverty by providing them with interest-free loans and grants for programmes aimed at boosting economic growth and improving living conditions. IDA funds help poor countries to deal with the complex challenges that they face in striving to meet the millennium development goals.

Annual IDA commitments to the world’s 81 poorest countries, which are home to 2.6 billion people, the great majority of whom live on less than $2 a day, have increased steadily and have averaged about $8.4 billion—almost £5 billion—over the past three years. IDA’s resources are important because those countries have little or no capacity to borrow from commercial markets, least of all for projects to improve social services and build effective states.

IDA replenishment negotiations take place every three years and provide an opportunity to agree the framework within which the World Bank will operate in poor countries over that period. Negotiations on the 14th replenishment—for IDA 14—were concluded in February 2005. It was agreed to make a particularly large increase in IDA funds and major improvements in IDA’s effectiveness. The replenishment negotiations resulted in 23 billion special drawing rights—the so-called currency basket in which IDA replenishments are denominated—being made available for development assistance during the IDA 14 period from 2005 to 2008. That is equivalent to about £19.5 billion.

IDA’s 40 donor countries, including the United Kingdom, agreed to contribute £9.9 billion. The rest will come from transfers from the International Bank for Reconstruction and Development—the World Bank’s non-concessional lending arm—and from IDA’s internal resources, which will be furnished mainly through the repayment of IDA loans. The IDA 14 replenishment represents a 25 per cent. increase over IDA 13 and the largest expansion of IDA resources in two decades.

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The UK announced a core contribution of £1.33 billion to the replenishment, with a further £100 million linked to progress by the World Bank on working more effectively with other donors and reforming the way in which it attaches conditions to its aid. Our total contribution of £1.43 billion represents a 43 per cent. increase over our contribution to IDA 13 and constitutes 13.18 per cent. of IDA 14. In short, it makes us the second largest donor after the US, which has a slightly larger share.

In the negotiations, donors supported a renewed focus on stronger economic growth as essential to enabling poor countries to reach the millennium development goals. Collectively, we identified a large and growing need for investment in poor communities’ access to clean water, better communications and reliable power. We viewed IDA, which has a large and expanding infrastructure programme, as a key funding instrument in meeting those requirements.

Countries that face the toughest debt problems, most of which are in sub-Saharan Africa, will get all their support in the form of grants, while less debt-burdened countries will receive IDA’s interest-free credits or, in one or two cases, a mixture of grants and credits. That is expected to result in about 30 per cent. of IDA 14 support being provided on grant terms. At the same time, donors agreed on measures to help offset the financial impact of grants on IDA’s ability to support poor countries in the future.

The UK’s objectives for the World Bank are set out in our institutional strategy paper “Working in Partnership with the World Bank”, which we published in September 2004. In March 2005, we submitted our first annual report to Parliament on the UK’s involvement with the World Bank. The second report, which we shall issue later this month, will provide an overview of institutional and policy developments at the bank over the past year, including key developments on IDA 14. My right hon. Friend the Secretary of State also provides written and oral evidence to the Select Committee on International Development on the outcomes of the annual meetings at the World Bank and IMF. Over the course of the parliamentary cycle, therefore, there is a variety of ways of checking the progress that the World Bank has made in spending IDA resources. On that basis I commend the statutory instrument to the Committee.

Mark Simmonds (Boston and Skegness) (Con): I do not wish to detain the Committee for any longer than necessary, nor do I wish to repeat the Minister’s factual comments on what the order is about and the sums of money involved. Suffice it to say that we are discussing significant sums of money.

However, it is important for the Committee to understand the factors that are relevant in determining whether countries are eligible for IDA assistance. Those are relative poverty—having a gross national product of less than $965 per capita per year; lack of creditworthiness, as the Minister correctly said; and—interestingly—good performance in implementing
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policies that promote growth and poverty reduction, such as the millennium development goals. The Opposition are deeply concerned that sub-Saharan Africa will not meet any of those targets—any of the millennium development goals—although I understand that 50 per cent. of the money will be allocated and spent in that region, which appears on the surface to be a contradiction, so I should be interested to hear the Minister’s comments.

Of the additional £33 billion that is being made available to the institution, which will lend on highly concessional terms to the poorest countries in the period 2005-08, only £18 billion is new money from donor countries. The remaining £15 billion will come from repayments from current IDA borrowers, investment income and other resources, including residual resources from past replenishment. That is a theme to which I want to return.

I have some questions for the Minister. He says that in addition to the £1.33 billion, a further £100 million could be allocated, depending on the progress made by the World Bank group in working more effectively with other development agencies, specifically in reducing the number of conditions that it applies to its lending. Is he still confident, particularly bearing in mind the situations that have occurred recently in Kenya, Uganda and Ethiopia, that it is constructive to reduce the number of conditions and criteria that are applied to lending through multilateral institutions such as the World Bank? Can he clarify what conditions and criteria the Department for International Development is hoping to persuade the World Bank to reduce or remove in order to free up the £100 million? Presumably it is not those criteria and conditions that are relevant to transparency of expenditure; promotion of democracy; civil society; and aid effectiveness.

I hope that the Minister agrees that there are circumstances in which conditions and criteria are useful in reducing corruption and ensuring that aid is spent effectively. My last point on the additional £100 million is this: are there any mechanisms in place to ensure that a proportion of it is payable and is transferred from DFID to the World Bank if some of the criteria, but not all of them, are met by the World Bank?

In addition to the £1.33 billion and the £100 million, an additional £250 million is proposed to support the World Bank in scaling up its development assistance to meet the millennium development goals. We support that transfer of funds to the World Bank. IDA 14 represents a 25 per cent. increase over IDA 13. That is the largest expansion of IDA resources in 20 years. We welcome that, but the target increase was originally 30 per cent., so it will be interesting to hear from the Minister why that target for replenishment was not reached.

Let me return to the 50 per cent. of IDA money that is supposed to be spent in sub-Saharan Africa. Can the Minister give a general breakdown of where the
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remaining 50 per cent. is being spent, both in geographical regions and in specific areas? I understand that DFID originally lobbied very hard for the donations not to go to specific sectoral funding, and it would be interesting to know the logic behind that. I should also like to know how the expenditure fits with countries’ poverty reduction strategies, which are essential for economic growth and the alleviation of poverty.

Some of the donors’ money that is being allocated to IDA 14 will be used to compensate the World Bank for forgone reflows from previous loans. That will limit the effectiveness of the money that is being donated to the World Bank by not allowing it to be spent on projects to alleviate poverty and match the millennium development goals. Again, it would be interesting to hear from the Minister what the balance between those two income streams is and what the co-ordination and collaboration between the World Bank and the IDA is on the all-important private sector initiatives, such as micro-finance, which I know the Minister has been discussing with other Members earlier today.

We recognise that IDA 14 is the first replenishment order that includes provision for monitoring outputs through a results-based management system. If implemented well, I hope that it will result in vital accountability and transparency for resources spent through the IDA. I am also aware that IDA 14 will be the first to provide full disclosure of the IDA’s country performance ratings. We welcome both those things. But what are the effects for the long-term funding and allocation of resources of this country performance rating? Is its purpose to allocate more resources to those countries that are higher up the rating, rather than further down?

I am sure the Minister agrees with me that the governance and accountability are extremely important in developing countries too. Could he therefore explain why his Department recommended that the governance weighting of the formula should be reduced by 2 per cent. in the make-up of IDA 14? On a superficial level I would argue that the governance criteria should be increased rather than reduced. Could the Minister also explain how this mechanism will ensure that IDA grants and loans are directed towards alleviating poverty and targets such as the millennium development goals?

My final point concerns the level of debt—an issue which the Minister quite rightly raised in his opening statement. We agree and accept that when granting credit in future the IDA will pay greater attention to whether a country is already deeply indebted. Countries with high debts will only receive grants while others will receive long-term interest-free loans. Has there been any co-ordination with other parts of the World Bank that are responsible for nations’ debt, and has there been co-ordination and collaboration with the heavily indebted poor countries initiative? How do the multilateral debt-relief programmes fit
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into the allocation of resources through IDA 14 during the next three years? Finally, will there be penalties for countries which default on their loans and therefore have an impact on the potential availability of resources for both alleviating poverty and meeting the millennium development goals?

I have asked a number of questions, some of which are very detailed. I do not necessarily expect the Minister to be able to answer them today. In general, as he knows, he will find the Opposition extremely supportive of the work that he and the Secretary of State are doing in international development. The Conservative party has consistently supported the IDA project and the transfer of funds over the years. We certainly support these additional funds going in today.

4.44 pm

Andrew George (St. Ives) (LD): Like the hon. Member for Boston and Skegness (Mark Simmonds), I do not intend to detain the Committee unnecessarily. I simply want to press the Minister on issues of conditionality, which appear to apply in the background statements made by his Department about the offers being made under IDA 14. By way of background, it is perhaps worth reflecting on paragraph 31 of the G8 communiqué that came out of Gleneagles last July:

    “It is up to developing countries themselves and their governments to take the lead on development. They need to decide, plan and sequence their economic policies to fit with their own development strategies, for which they should be accountable to all their people.”

It is clear that the Minister and his Department wish to ensure that the World Bank meets the conditions that they place on its progress, especially in respect of conditionality, harmonising with other donors and improving results. I understand that, and support it. Presumably, in negotiating the delivery of the amount of money involved, the Minister and his Department will have prepared themselves in advance to consider what would happen if the World Bank failed to show any movement or progress in any of those areas.

My first question for the Minister is what structure or timetable he will put in place to hold back funds in order to encourage the World Bank to meet the Department’s targets in terms of meeting conditions that it deems worthy of attaching to the aid that it wants to make available through the multilateral process? Simply saying that the United Kingdom Government want to achieve less conditionality, more harmonisation and improved results, but not following that up by threatening to hold back or not to deliver funds if the World Bank fails to achieve those objectives, will undermine the ability of the Department to achieve what it states in its conditions for the provision of that aid.

There are a number of concerns about the operation of the World Bank , which I understand the Minister and the Secretary of State share. First is the lack of predictability; the development programmes in these
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countries often need to be in place for five or more years but the World Bank donor programmes generally run for only three years.

The second issue is how the development programmes are proceeding and progressing. As the hon. Member for Boston and Skegness knows well, civil society organisations are of growing importance, especially in those countries where there is either a suspicion or evidence of severe corruption. Kenya is in the frame this week, and the hon. Gentleman and I recently visited Yemen, where there are question marks about the probity of its systems. If there are serious concerns about pursuing development programmes by providing funds through the Government of a country, the World Bank needs to develop more programmes that direct its funding to a greater extent through civil society organisations.

Having said that, the UK Government may wish to add conditions to the funds that they intend to channel through the International Development Association as part of the 14th replenishment. However, according to the UK Government, far too many conditions are being attached to the grants and loans available through that mechanism.

Although the World Bank has acknowledged that there are too many conditions, benchmarks and triggers in relation to a lot of the grants and loans channelled through it, there seems to be no movement at all in its attempts to reduce them. What discussions has the Minister’s Department had with the World Bank to set a timetable to reduce that approach, which is seemingly universally accepted to be too widespread?

Will the Minister comment on the World Bank’s attitude to user fees for health programmes and in relation to the millennium development goal of access to free education? The bank often supports schemes that involve user fees and charges for access to health and education projects.

I would be interested to hear the Minister’s comments about the governance of the World Bank. Reflecting on paragraph 31 of the G8 communiqué, which I quoted earlier, if one accepts the spirit of what was intended there, it is clear that although recipient countries may need to have different status from donor countries in relation to the World Bank, those recipient developing countries should be allowed to be more centrally involved in the management and governance of the World Bank and the IMF.

I hope that there were not too many questions for the Minister. I expect he probably anticipated most of them.

Mr. Thomas: I shall try to answer some of the questions raised by the hon. Members for Boston and Skegness and for St. Ives (Andrew George).

Let me be clearer about conditions. The conditions to which I referred and the £100 million being used as an incentive to reduce the use of conditionality relate to economic policy conditions, not safeguards against corruption. The World Bank has a well-deserved reputation for having sought to challenge and prevent corruption in the past nine years. It has a department of institutional integrity, with more than 50 staff,
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which investigates claims of fraud and corruption, and works with developing countries on anti-corruption efforts. The World Bank has succeeded in prosecuting a number of individuals who have been guilty of fraud and corruption. With its programmes, it lends specifically for work on governance and on helping to strengthen the public sector and the rule of law. Indeed, in 2005, some $2.9 billion of its lending was in those areas, helping to prevent the spread of corruption, tackle it where it exists, and bear down on any attempt to spend World Bank resources corruptly.

The £100 million that I talked about relates to whether we can incentivise the bank to shift further its position on economic conditionality, about which the hon. Member for St. Ives talked. Both he and the hon. Member for Boston and Skegness know that my right hon. Friend the Secretary of State published in March 2005 our policy on conditionality, which emphasised the centrality of country leadership in a development partnership. That document made it clear that we will not attach economic policy conditions to our aid, insist that countries privatise particular industries or insist that they cannot use non-governmental organisations, co-operatives or other forms of economic models. Those are decisions for them to take.

In a similar vein, we also made it clear in the document that we want the World Bank to give ground on its conditions. We persuaded the World Bank to undertake a review of its use of conditionality, bearing in mind the fact that many other shareholders sit on its board, which is a not inconsequential feat in its own right. The World Bank undertook that review, and in September last year it published a set of five good-practice indicators, the first of which was to re-emphasise the centrality of country ownership. We will use some of the £100 million to judge the World Bank’s performance in implementing its new policy.

The hon. Gentleman asked about the opportunities to hold the World Bank to account for how it spends its money against our various objectives. Some 12 months have elapsed since the replenishment negotiations took place. We have had a good chance already to judge the World Bank’s performance. There is further mid-term review period, which provides us with another opportunity to review formally the World Bank’s performance. Of course, we can threaten to reduce our contribution in future years, not least at IDA 15 in the future round.

The hon. Member for Boston and Skegness asked why we did not achieve even more funding for the World Bank. The simple answer is that a number of countries, including our friends from across the Atlantic and others, were not willing to maintain their share of the contribution. Nevertheless, we welcome the 25 per cent. increase in donor resources going into IDA 14, which was a significant achievement that, in the context of 2005 and the huge, helpful focus on development—particularly in sub-Saharan Africa—will have been welcomed by world leaders more generally.

The hon. Member for Boston and Skegness asked why we did not want to designate particular pots of money to particular sectors. As I indicated, we
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recognise the importance of the World Bank in funding a number of areas, such as infrastructure and social services, but we did not want to allocate specific sums of money up front. We would rather countries brought forward, through the poverty reduction strategy process, their own ideas for how World Bank resources should be spent and for the bank to have the flexibility to back the proposals that would come forward in the usual way.

The Member for Boston and Skegness also asked about how the World Bank helps with micro-finance. One of the most important ways in which it assists with microfinance is by hosting the Consultative Group to Assist the Poor, a multi-donor fund that helps to identify ways to improve access to financial services for the world’s poorest people.

As I said earlier in the House, some 2 billion people live on less than $2 a day and do not have access to financial services at the moment. Micro-finance is playing an important role around the world in helping some 80 million people have access to such services. The hon. Gentleman and others will be aware of the huge disparity between those two figures and the huge potential for microfinance to do more. The World Bank will continue to play a role in that area and it is important that donors, such as ourselves, continue to do so. We will do that. It is also important that we continue to strengthen the financial sector in many developing countries, so that private sector banks and other private sector financial institutions can provide resources and move into the microfinance field. Citigroup is one example of a banking group that already does that and ICICI Bank already does it in India. Those are two good examples. We need to encourage the private sector to do more.

I will write to the hon. Gentleman about why we wanted the specific change in the governance indicator. It is not because we want a more general reduction in interest in governance; there are various technical reasons. I will write to him and other hon. Members to set out in more detail the rationale for our approach on that.

The hon. Gentleman also asked about the relationship with the multilateral debt relief initiative. He will know that G8 finance Ministers agreed that in future replenishments the cost of the multilateral debt relief initiative would have to be dealt with through additional resources being pledged. The IDA component for the UK amounts to some £635 million over the next 10 years. We have indicated that we will provide a separate allocation over that period, so that does not come into the current replenishment round; it is a separate issue. We might need to return to get the House’s approval for those additional resources, in which case I am sure he will want to engage further in the discussions.

The hon. Gentleman asked me to set out where IDA has been spent, apart from in Africa. Some 39 countries in Africa benefit from IDA, as do 13 countries in east Asia, 10 in Europe and central Asia, nine in Latin America and the Caribbean, eight in
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south Asia, and two in the middle east and north Africa specifically. I hope that provides him with clarity about where the money is spent.

The hon. Member for St. Ives also asked me about user fees and the importance of access to free education and health care. The World Bank will be crucial in providing resources that help to strengthen health systems and access to basic education more generally. We can be particularly proud of one World Bank project to which our resources are helping to contribute: funds that are being allocated to basic education in India. In the past two years the number of children out of school has reduced from 23 million
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to 13.5 million. Massive progress has been made, although there is still much more to do. The World Bank also plays a crucial role in hosting the fast track initiative, which is helping to galvanise additional resources for free education.

Having answered those questions, I will check the record to see whether I need to answer others. If I do, I shall write to hon. Members.

Question put and agreed to.


    That the Committee has considered the draft International Development Association (Fourteenth Replenishment) Order 2006.

Committee rose at two minutes past Five o’clock.


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