Worldwide Improvement Affiliation: Extra Info Sharing May Improve U.S. Treasury Oversight of Key Dangers

What GAO Discovered

Since 2018, the World Financial institution Group’s Worldwide Improvement Affiliation (IDA), which gives monetary help to low-income international locations, has diversified its funding sources by leveraging its fairness to borrow from capital markets. As of fiscal 12 months 2021, IDA had borrowed about $21 billion from capital markets. IDA primarily allocates its funds for grants and loans on concessional phrases (under market charges). Whereas market borrowing permits IDA to extend its financing, it represents a change in its operations and funding strategy.

Determine: IDA’s Condensed Steadiness Sheet, Fiscal Yr 2021

Worldwide Improvement Affiliation: Extra Info Sharing May Improve U.S. Treasury Oversight of Key Dangers

Market borrowing has not affected IDA’s course of for assessing financing wants of nations. Nevertheless, IDA revised its monetary and danger administration framework to mirror elevated monetary dangers attributable to market borrowing. IDA additionally enhanced its evaluation of the danger of debtors defaulting on their IDA loans.

IDA’s largest monetary danger is the potential for borrower international locations to default on loans from IDA. Whereas defaults to IDA have traditionally been low, there are exterior components that would have an effect on borrower compensation to IDA, reminiscent of how a lot debt these debtors owe to different collectors and the authorized phrases of that debt. To measure this danger and perceive how a lot IDA can safely borrow from the markets, IDA fashions the utmost potential mortgage losses from borrower international locations defaulting that it may face over 3 years.

The Division of Treasury conducts oversight of IDA via the U.S. Govt Director, an IDA Board member. IDA has shared some info on its mortgage loss mannequin, reminiscent of sure mannequin inputs, with its Board. Nevertheless, the Board doesn’t have necessary info, such because the mannequin’s key assumptions, that might improve its oversight of IDA’s danger administration. Advisable practices for sturdy danger administration embody offering ample info to stakeholders. As well as, Treasury has not requested info on how IDA accounts for incomplete debt knowledge, reminiscent of China’s loans to low-income international locations, in its danger assessments. This info would help the U.S. and IDA Board members in assessing the standard of IDA’s danger administration.

Why GAO Did This Examine

The U.S. is likely one of the largest contributors to IDA. IDA has historically financed its operations primarily by elevating funds each 3 years from donors just like the U.S. and utilizing funding from mortgage repayments. In 2015, UN members adopted the 2030 Sustainable Improvement Objectives to deal with world challenges reminiscent of poverty. To assist low-income international locations meet these targets, IDA in 2018 started issuing bonds on the capital markets to boost extra funds to offer extra loans.

GAO was requested to evaluation IDA’s monetary mannequin. This report examines: (1) IDA’s funding sources and allocations; (2) how market borrowing has affected IDA’s course of for assessing international locations’ financing wants, and IDA’s monetary and danger administration framework; (3) how IDA assesses key dangers to its monetary sustainability; and (4) the extent to which Treasury oversees IDA’s monetary and danger administration. GAO reviewed and analyzed IDA monetary paperwork, knowledge on IDA’s funding from fiscal years 2012 via 2025, and Treasury paperwork. GAO additionally interviewed IDA and Treasury officers, and growth finance specialists.