International Development Association: Additional Information Sharing Could Improve U.S. Treasury Oversight of Top Risks

0

What the GAO found

Since 2018, the World Bank Group’s International Development Association (IDA), which provides financial assistance to low-income countries, has diversified its sources of funding by leveraging its own funds to borrow from capital markets. . In FY2021, IDA had borrowed about $21 billion in capital markets. IDA mainly allocates its funds to grants and loans on concessional terms (below market rates). Although market borrowing allows IDA to increase its funding, it represents a change in its operations and approach to funding.

Figure: Condensed IDA Balance Sheet, FY2021

Market borrowing has not affected IDA’s process of assessing countries’ financing needs. However, IDA has revised its financial and risk management framework to take into account the increased financial risks from market borrowing. IDA has also improved its analysis of the risk of borrowers defaulting on their IDA loans.

IDA’s greatest financial risk is the possibility of borrowing countries defaulting on IDA loans. Although defaults to IDA have historically been low, there are external factors that could affect borrower repayment to IDA, such as the amount of debt these borrowers owe to other creditors. and the legal terms of this debt. To measure this risk and understand how much IDA can safely borrow in the markets, IDA models the maximum potential losses on borrowing country loans in default that it could face over 3 years.

The Treasury Department provides oversight of IDA through the US Executive Director, a member of IDA’s Board of Directors. IDA has shared certain information about its loan loss model, such as certain model inputs, with its Board of Directors. However, the Board lacks important information, such as key model assumptions, that would improve its oversight of IDA’s risk management. Recommended practices for sound risk management include providing sufficient information to stakeholders. In addition, Treasury did not request information on how IDA accounts for incomplete debt data, such as China’s lending to low-income countries, in its risk assessments. This information would help the United States and IDA Board members assess the quality of IDA’s risk management.

Why GAO Did This Study

The United States is one of the biggest contributors to the IDA. IDA has traditionally funded its operations primarily by raising funds every 3 years from donors like the United States and using funds from loan repayments. In 2015, UN members adopted the 2030 Sustainable Development Goals to address global challenges such as poverty. To help low-income countries achieve these goals, in 2018 IDA began issuing bonds in capital markets to raise additional funds to provide more lending.

GAO was tasked with reviewing IDA’s financial model. This report examines: (1) sources of IDA financing and allocations; (2) how market borrowing has affected IDA’s country financing needs assessment process, and IDA’s financial management and risk management framework; (3) how IDA assesses key risks to its financial sustainability; and (4) the extent to which Treasury oversees IDA’s financial management and risk management. GAO reviewed and analyzed IDA financial documents, data on IDA financing for fiscal years 2012 through 2025, and Treasury documents. GAO also interviewed IDA and Treasury officials, as well as development finance experts.

Share.

Comments are closed.