The scope for lowering the interest rates on IBRD, IDA and ESAF loans is limited. This suggests that a better option for improving the terms of World Bank and IMF resources would be to lengthen the repayment and grace periods.
Extending the maturity of IBRD loans would help to off-set the effects of the recent increase in interest rates and charges. This would have little or no impact on the Bank's financial position.
Extending the maturity on IDA loans could only be achieved at the expense of reducing future IDA loans. IDA credits are not generally too expensive for IDA borrowers, so it is probably only realistic to argue for more concessional terms in specific circumstances where there is a particular need, for example:
Extending the maturity of ESAF loans would need to be subsidised from bilateral aid budgets. Since this would immediately affect the availability of resources, and the policy conditions attached to IMF loans make them less attractive than bilateral loans, this would be undesirable. In principle, the IMF could contribute to the ESAF subsidy account from its own resources, including sales of its gold reserves, but this is unlikely and probably less desirable than using the available resources to finance the HIPC Initiative.
The scope for increasing the volume of resources for Bank and Fund lending is also limited. The mechanisms available for doing so represent little more than a switch of control over an essentially fixed amount of aid from bilateral to multilateral donors. Since most bilateral aid is provided on grant terms and IDA and ESAF provide loans, this is unlikely to be justifiable.
The cost of multilateral loans arises partly from their terms of repayment, partly from the transfer of policy control from borrowing governments to the Bank and Fund and partly from frequent weaknesses in the preparation, design and implementation of their programmes and projects. This suggests that there may be more scope for improving the quality than the quantity of multilateral lending. A number of measures could be taken to achieve this.
IMF and World Bank staff could ensure that governments participate fully in the process of formulating programmes and projects and that civil society is consulted.
Flexibility could be built into the programme cycle so that programmes coincide with a government’s term in office rather than an arbitrary 3-year cycle.
Improvements could be made to the Bank’s internal quality control mechanisms such as the Operations Evaluation Department and the Inspection panel; and an independent evaluation mechanism called be established for the IMF.
The Bank’s incentive structures could be changed so that staff are rewarded for the results of projects rather than the volume of money spent on them.
A mechanism could be developed whereby the Bank would assume a portion of the burden of repayment for projects which fail due to poor Bank advice or project design.