| The International Development Association (IDA), the World Bank's soft loan window for the world's poorest countries, has always focused on the poverty levels of countries as the main criterion in determining eligibility to and allocation of its resources. Despite emerging policy changes, limited attention has been paid to country- and loan-specific risk factors that may affect the development effectiveness of its lending.; This is the first attempt to examine systematically the relationship between IDA loans' development effectiveness, including its different aspects—operational outcome, institutional development impact, and the sustainability of benefits—and the various risk factors. The research includes performance and loan-specific data on all 1180 IDA loans completed from fiscal years 1986 to 2001 and evaluated by an independent office within the World Bank, and country risk estimates from an outside source, the Political Risk Group. Bivariate analysis, multivariate regression and logistic models were used to determine the potential association between risk factors and development effectiveness of IDA loans.; Among the main findings are that benign country environments, active borrower involvement, and conducive policy contexts vastly improve results. Political risk factor is best captured in terms of its dynamics. Quality-at-entry of IDA loans appears the most important among loan-specific factors, and World Bank efforts to salvage poorly-designed projects appear to be ineffective. The duration of investment project loans, perhaps because of this factor, is found to be negatively correlated to the quality of results. Policy-based program loans are found to have different pattern of risk exposure, which shows that the choice of lending instrument can affect outcomes. On the basis of these findings, the study recommends a three-tier system to optimize the allocation of the World Bank's concessional financial resources, and makes specific recommendations regarding the maximization of positive operational results—overall and in their different aspects—in the light of country- and loan-specific risk factors, choice of lending instrument, and other factors that have been shown to have an effect on development effectiveness. It is recognized, however, that these recommendations may be constrained by the political realities stemming from the intergovernmental nature of the Bank. |
