Ida only countries

What Is IDA-Only Countries?

IDA-only countries are a classification of nations that are eligible to receive highly favorable financial assistance, including low-interest loans and grants, exclusively from the International Development Association (IDA), which is a part of the World Bank Group. This classification falls under the broader category of international finance and development aid. These countries are typically characterized by their low Gross National Income (GNI) per capita and their inability to borrow on commercial terms from private capital markets or even from the World Bank's other lending arm, the International Bank for Reconstruction and Development (IBRD). The goal of supporting IDA-only countries is to help them foster economic growth and achieve poverty reduction.

History and Origin

The International Development Association (IDA) was established in September 1960 to complement the IBRD, specifically addressing the needs of the world's poorest developing countries. During the 1940s and 1950s, many low-income nations found that the terms offered by the IBRD were not affordable, leading to a recognized need for more flexible lending options. Former U.S. President Harry S. Truman's Point Four Program also emphasized strengthening developing countries. By the end of January 1960, fifteen countries signed the articles of agreement that established the International Development Association. The association officially launched in September of that year, with an initial budget of $913 million.⁴⁰ Over its six-decade history, IDA has become a crucial provider of funds for economic and human development projects in these nations.³⁸, ³⁹

Key Takeaways

• IDA-only countries are the poorest nations eligible for the most concessional financing from the World Bank's International Development Association (IDA).
• Eligibility is primarily based on low Gross National Income (GNI) per capita and a lack of creditworthiness for market-based borrowing.
• IDA provides highly concessional loans (often interest-free with long repayment periods) and outright grants to these countries.
• The objective of IDA support is to promote economic development, reduce poverty, and improve living standards in the most vulnerable nations.
• IDA's funding model relies heavily on contributions from member countries, which are replenished every three years.

Formula and Calculation

While there isn't a single formula to classify a country as "IDA-only," the primary criterion for eligibility involves a country's Gross National Income (GNI) per capita. The World Bank annually updates an operational threshold for this GNI per capita. For example, in fiscal year 2025, the threshold was set at $1,335 or less.³⁶, ³⁷

The determination also considers a country's creditworthiness and access to private capital markets. Countries that meet the GNI threshold and lack the ability to borrow on market terms or from the IBRD are classified as IDA-eligible. The specific financing terms, whether concessional loans or grants, are then determined by factors such as the country's risk of external debt sustainability and its policy performance.³³, ³⁴, ³⁵

Interpreting the IDA-Only Status

A country's designation as an IDA-only country signifies a critical need for external, highly concessional development financing. This status indicates that the country faces significant challenges in economic development, often characterized by widespread poverty and limited access to global financial markets. For these nations, IDA financing is often the primary source of external funding for essential public sector services and infrastructure. The classification allows the IDA to tailor its support, providing longer repayment periods, lower interest rates, or direct grants, which are crucial for countries that cannot bear the burden of commercial debt. The objective is to help these nations build self-reliant economies and eventually "graduate" from IDA assistance.³¹, ³²

Hypothetical Example

Imagine the nation of "Agraria," a low-income country with a GNI per capita well below the IDA threshold. Agraria has been severely impacted by climate change, leading to frequent droughts that decimate its agricultural sector. The country lacks the financial resources and creditworthiness to secure commercial loans to build resilient irrigation systems or invest in climate-adaptive farming techniques.

Due to its low GNI and inability to access market financing, Agraria is designated an IDA-only country. The IDA, recognizing Agraria's urgent needs, approves an Investment Project Financing focused on water infrastructure. Instead of a standard loan, Agraria receives a combination of interest-free grants and concessional loans with a 50-year repayment period and a 10-year grace period. This allows Agraria to implement the project, improving food security and the livelihoods of its population without incurring unsustainable debt. The financing is disbursed incrementally, tied to project milestones and the country's performance in managing the funds effectively.

Practical Applications

IDA financing plays a vital role across various sectors in IDA-only countries, addressing critical development gaps. These applications include:

• Infrastructure Development: Funding for roads, bridges, electricity grids, and water and sanitation facilities is a common application, essential for economic activity and improving quality of life.³⁰
• Human Capital Development: Significant investments are made in education, health services, and nutrition programs to build a healthier and more skilled workforce.²⁹
• Agriculture and Rural Development: Support for agricultural productivity, irrigation, and rural services helps enhance food security and rural livelihoods, particularly important in agrarian economies.²⁷, ²⁸
• Governance and Institutional Reform: IDA funds projects aimed at improving the capacity of the public sector, strengthening legal institutions, and promoting anti-corruption measures.
• Response to Shocks: IDA provides crucial support in times of crisis, such as natural disasters, pandemics, and conflicts, helping countries to respond to immediate needs and rebuild.²⁵, ²⁶

For instance, South Korea, once an IDA recipient, leveraged early IDA support for transport and agricultural infrastructure in the 1960s, contributing to its transformation into a global economic powerhouse.²⁴

Limitations and Criticisms

Despite its crucial role, the IDA and the concept of IDA-only countries face certain limitations and criticisms. One significant concern is the escalating debt sustainability challenges faced by many IDA client countries. Over half of the 69 client countries are assessed at "high risk" of debt distress or are already in debt distress.²³ This growing indebtedness can strain IDA's funding model, potentially forcing a reduction in critical grant-based support or eroding its financial base.²²

Critics also point out that while IDA provides crucial funding, its assistance is sometimes linked to specific policy reforms that may not always align perfectly with a country's unique development path. There are also ongoing discussions about the effectiveness of aid and whether the IDA's policy framework, which has a strong pro-liberalization and private sector bias, consistently leads to desired outcomes. Some argue that the pace of graduation from IDA eligibility is slow, with only a limited number of countries successfully moving beyond the need for Official Development Assistance since 1996.²¹ Furthermore, the "soft bailout" effect is a concern, where IDA's support to highly indebted countries may inadvertently subsidize other creditors by freeing up funds for debt service, thereby undermining IDA's countercyclical role in the long run.¹⁹, ²⁰

IDA-Only Countries vs. Blend Countries

The distinction between IDA-only countries and Blend Countries lies in their eligibility for different types of World Bank financing.

While IDA-only countries rely exclusively on the IDA for highly concessional financing, blend countries are those that, despite being eligible for IDA support based on their income levels, also demonstrate sufficient creditworthiness to access some loans from the IBRD. This means blend countries have access to both highly concessional IDA funds and less concessional IBRD loans, providing them with a broader range of financing options as they progress economically.¹⁰, ¹¹

FAQs

What does "IDA" stand for?

IDA stands for the International Development Association. It is a part of the World Bank Group and focuses on providing financial assistance to the world's poorest countries.⁹

How often are IDA-only countries re-evaluated?

The eligibility criteria, particularly the GNI per capita threshold, are updated annually by the World Bank. The IDA's resources are replenished every three years by donor countries, which involves a review of its policy framework.⁷, ⁸

Can a country graduate from being an IDA-only country?

Yes, countries can graduate from being IDA-only if their GNI per capita rises above the established operational cutoff and they become creditworthy enough to receive non-concessional financing from the IBRD. Many countries have successfully graduated, including South Korea, China, and India, with some even becoming IDA donors.⁴, ⁵, ⁶

What types of projects does IDA typically fund in these countries?

IDA funds a wide range of projects aimed at sustainable development and poverty reduction. These include investments in infrastructure (e.g., roads, energy), human development (e.g., education, health), agriculture, and Development Policy Financing for governance reforms. The specific focus is determined by the needs and priorities identified by the recipient country.³

Why is IDA funding considered "concessional"?

IDA funding is considered "concessional" because it offers significantly more favorable terms than standard market loans. This includes zero or very low interest rates, long repayment periods (up to 50 years), and extended grace periods before repayments begin. For the poorest and most vulnerable countries, a portion of the assistance is provided as outright grants, which do not need to be repaid.¹, ²