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The International Finance Facility

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Executive summaryFive years ago, in signing the MillenniumDeclaration, every world leader made aclear commitment to ending extremepoverty and meeting the eight MillenniumDevelopment Goals (MDGs) by 2015 –including halving extreme poverty, gettingevery child into school and reducing childmortality by two-thirds.

Although progress has been made, it hasbeen uneven and slow, and at currentrates, the MDGs will not be met in severalparts of the world. It is already clear thatthe first interim target, to eliminate genderdisparity in education by 2005, is going tobe missed. Two million people each yeardie unnecessarily from tuberculosis andone million from malaria, while 40 millionare currently living with HIV/AIDS.Twenty-five million children will lose oneor both parents to HIV/AIDS by 2010. Oncurrent trends, it will take until 2165 todecrease child mortality by two-thirds insub-Saharan Africa.

The UK Government is committed toincreasing aid, cancelling debt and makingtrade work for all, but aid remains vital.Estimates suggest that the poorestcountries in the world need an increase inaid of at least $50 billion a year if theMDGs are to be met.

The confirmation by the G8 in July 2005that international donors will provide anadditional $50 billion a year by 2010,compared with 2004, is an important steptowards this. However, traditionalincreases in donor aid budgets will not beenough to provide these additionalresources and meet the aid targets thathave been set. Innovative financingmechanisms are needed to help deliverand bring forward the financing urgentlyneeded to achieve the MDGs.

Based on donors’ legally binding, long-term commitments, the IFF will leveragemoney from international capital marketsby issuing bonds. Bondholders will berepaid from future donor paymentstreams. Pledges made by donorcountries will not score on balance sheetsuntil donors make actual cash paymentsto the IFF. The International FinanceFacility (IFF) is a mechanism that willspecifically support these efforts to bringforward donor commitments. Usingexisting and new resources, the IFF willbe able to increase aid to the levelsrequired to achieve the MDGs.

There is a strong moral case for bringingforward these additional resources. It isnecessary to act now, or risk losinganother generation to poverty. In someAfrican countries, teachers are dying from

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Aid works: developing country views

‘To complement domestic efforts for development, developing countries need a criticalmass of additional, harmonized, flexible and predictable development assistance, andsustainable investment in the medium to long term... Ministers strongly believe thatthere is substantial capacity for absorbing additional resources at both country andregional levels.’

Statement from Finance Ministers of emerging market economies and developingcountries, Ministerial Forum on Financing for Development, 8 April 2004

IFF borrowing

Borrowing to invest is a well established domestic and development principle. Alldonor countries borrow to invest in their own future prosperity, as well as for deliveringaid to other countries. The World Bank and International Monetary Fund (IMF) arealso long-standing borrowers in the capital markets. To justify the IFF’s borrowing, itmust pass two economic tests. Firstly, it must meet the sustainable investmentprinciples of the donor country, whereby the rate of return on the investment must begreater than the donor country’s target rate of return and greater than the cost of theborrowing needed to bring forward the investment resources. Secondly, because theresources would be invested in recipient countries, the rate of return must also begreater than recipient countries’ own target rates of return for public investment. TheIFF would pass both these tests. Provided donor commitments are legally binding,and the risk of the high-level financing conditions being breached is sufficiently low,the IFF will be able to borrow at yields close to those of other internationalorganisations, such as the World Bank. The target rate of return for public investmentin developing countries varies between countries but tends to be around 8%. Projectand programme investments in the poorest countries deliver much higher returns thanboth these tests. Evaluations of World Bank projects show average annual rates ofreturn of around 25%.

32 The International Finance Facility

HIV/AIDS faster than they can be trained.But there is also a compelling economiccase. By frontloading aid, the IFF willbe able to deploy a critical mass of aidwhen it will have the most impact.The economic and social returns offrontloading aid in key sectors can bevery high; money spent now can tacklethe root cause of current difficulties, andso dramatically reduce the build-up ofexpensive problems in the future. Forexample, the economic rates of returnfrom infrastructure projects in low-incomecountries are estimated to be 30–40% for

supportive international action on aid,debt and trade.

The IFF is building real momentum andhas received support from more than 80developing and developed countries, aswell as from faith leaders, the businesscommunity and non-governmentalorganisations (NGOs).

telecommunications, over 40% forelectricity and over 80% for roads.

Finance from the IFF will supportcountry-owned poverty reductionstrategies, ensuring that aid is used tofinance the key investments to putcountries on a sustainable and lastingpath to poverty reduction, prosperity andparticipation in the world economy. Theprimary responsibility for reducingpoverty and achieving the MDGs lieswith developing countries. Developingcountries know that it is important that

they put in place the right policies to driveeconomic growth and attract investment.They need to decide, plan and sequencetheir economic policies to fit with theirown development strategies. But evenwith all these policies in place, thepoorest countries in the world will not beable to meet the MDGs without

that recipient. For example, as with theIFF for Immunisation, avoidance ofprolonged IMF arrears could be onesuitable financing condition, being clearlydefined and capable of independentdetermination for the purpose of riskanalysis.

Financing costs

It is important that the IFF minimises thecosts of leveraging in funds from theinternational capital markets. This meanssecuring the highest possible rating forIFF bonds. Discussions with the financialcommunity have indicated that, subject tothe underlying credit quality of donorcommitments, the IFF could obtain thehighest AAA credit rating. This wouldmean that the IFF could borrow cost-effectively and on similar terms to othermultilateral agencies such as the WorldBank, and bilateral donors.

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These donor pledges would be legallybinding, subject to one or more high-levelfinancing conditions. Failure by a donor atany time to make any of the payments ina ‘stream’ to which it was committedwould be viewed by financial markets asa sovereign default.

Donors would be ‘severally’ (i.e.individually) liable for making theirpayments to the IFF. They would not haveany responsibility to make additionalpayments if another donor had defaultedand failed to make a payment asoriginally pledged.

High-level financingconditionality

Donor pledges would be subject torecipient countries meeting one or moreconditions of good governance, breach ofwhich would make it impossible for thedonor to continue to make the committedannual payments to the IFF in respect of

Disbursement

The IFF would seek to disburse its fundsthrough existing effective bilateral andmultilateral mechanisms. Funds would beallocated according to a set of high-levelprinciples, which would help to ensure theeffectiveness of aid financed through theIFF. These principles could includeproviding resources as predictable anduntied grants and focusing them onpoverty reduction in low-income countries.

The detailed mechanics of howdisbursement decisions are made willdepend on the IFF’s governancestructure. Both this structure, and thehigh-level principles, will be foragreement through consultation withdonors, recipient countries and thewider development community at theestablishment of the IFF.

How it would workThe IFF is a financing mechanism, not anew development bank or disbursementagency. It will not seek to become a newbody for disbursing aid with new criteriathat developing countries will need tomeet, and would not establish a new aidbureaucracy. It would disburse aid usingexisting mechanisms that have beentried, tested and shown to be effective.Chart 1 is an overview of the IFFstructure.

IFF income would consist of annualpayments from donors. At regularintervals, perhaps every three to fiveyears, donors would pledge 15-yearstreams of annual payments to the IFF.These regular ‘pledging rounds’ wouldbuild up a pattern of overlapping streamsof payments to the IFF. Donors wouldmake repayments over the longer term.Chart 2 illustrates the frontloading effectof the IFF.


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Chart 2: Illustrative diagram of disbursements and pledges – Global IFF $billion

PledgesDisbursements

Chart 1: Overview of the IFF

DONOR COUNTRIESINTERNATIONAL

CAPITAL MARKETS

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Making aid work betterThe IFF would not only increase aid flowsto the poorest countries in the short term,but could also help to improve the way aidactually works. In the past, aid has notalways been targeted or used effectively.But examples like Uganda – where extremepoverty has been reduced by 20% in thelast decade – show how aid can work wellin the right circumstances, wherecountries are committed to sustainableeconomic growth and poverty reduction.

Donors need to co-ordinate their aid sothat developing countries do not have todeal with the huge administrative burden

of reporting to numerous donors. The IFFcould improve donor co-ordination andharmonisation, and target aid towards thespecific purpose of achieving the MDGs.Furthermore, to work best, aid needs togo to the poorest countries and people,and on a long-term, predictable basis,that allows countries to effectively planhow best to spend resources. The long-term, multi-year commitments thatdonors would make to the IFF, accordingto an agreed set of high-level principlesto ensure aid effectiveness, wouldincrease the predictability and stability ofaid, allowing recipient countries to makesustainable investments in their futures.

IFF high-level aid principles

High-level principles to ensure aid effectiveness might include:

Aid to be invested in poverty reduction. Finance from the IFF should be used insupport of countries’ poverty reduction plans, making key investments to putcountries on a sustainable and lasting path to poverty reduction, prosperity andparticipation in the world economy.

Aid to be untied to contracts using suppliers from the donor country. Untying aidcan increase the value for money achieved from aid by up to 20% and it can boostskilled labour markets with direct and positive spill-over for the private sector.

Aid to be provided in predictable multi-year programmes lasting at least threeyears. To tackle the causes rather than the symptoms of poverty, aid commitmentsmust last into the medium term. Unpredictable aid flows make macroeconomicmanagement difficult and add uncertainty to already shock-prone economies.

Aid to be disbursed in grant form. The poverty of many of the countries strugglingto meet the development goals and the need to avoid an unsustainable burden ofdebt mean that the bulk of the IFF’s funds should be disbursed as grants.

Aid to be disbursed to a wide range of countries committed to povertyreduction. This would ensure that a range of countries benefit and also that the IFFreceives the highest possible credit ratings for its bonds and could improve the globalallocation of aid resources.

Aid to be targeted at low-income countries. There is too high a proportion of aidgoing to countries that have relatively high income levels. For example, in 2001, aidper poor person was $675 in the Middle East and North Africa, compared with only$13 per poor person in South Asia.

Aid absorption

There is good evidence to show that the countries needing the most support to meetthe MDGs have the capacity to absorb much higher levels of aid. The World Bank hasestimated that countries in Asia and sub-Saharan Africa could effectively manage atleast a 60–100% increase in aid flows in the short term. The World Bank has alsoestimated that, of the 65 countries unlikely to meet the poverty goal without furtherexternal assistance and/or policy changes, 43 could effectively absorb more aid today.Where absorptive capacity constraints do exist, these can often be addressedrelatively quickly and simply when there is the incentive and policy framework to doso. The assurance of predictable and increasing aid flows can itself provide theincentive to address constraints.

Returns from aid can stay high as aid increases. Economic theory predicts that themarginal benefits of aid reduce as the amount of aid increases, but studies indicatethat diminishing returns are very dependent on how aid is managed and rarely set inbefore aid reaches 25–50% of GDP. In many cases, declining returns are caused byunpredictable aid flows causing macroeconomic volatility.

In Mozambique, net resource flows more than doubled between 1996 and 2001, andaid as a proportion of GDP reached 40%. Growth has averaged between 7 and 8%over the last five years, while inflation has remained low, and poverty has declined by15% since 1996. And in Vietnam, economic growth – supported by aid – hascontributed to a halving of poverty in the past 15 years, and a two-thirds reduction inchild mortality.

Of course, not all developing country governments will be able to plan for and uselarge new increases in aid immediately, and some will face capacity constraints in thepublic sector. That is why the IFF would phase in aid flows gradually, and why donorsmust help governments to improve their systems. In many cases, institutional capacityresponds quickly and effectively to increased flows of finance.

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IFF resources should support country-owned poverty reduction strategies,financing the key investments needed toput countries on a sustainable and lastingpath to poverty reduction, prosperity andparticipation in the world economy.Developing countries need to decide,plan and sequence their economicpolicies to fit with their own developmentstrategies. Recipient countries would beexpected to show strong progress andresults against these strategies. Tomaintain confidence, developing countriesneed to show that they can use aid totackle poverty effectively throughimproving public financial managementand increasing efforts to fight corruption.


Aid works: Rwanda Revenue Authority

Rwanda is recovering from a devastating genocide and civil war in 1994 in whichmore than 10% of the population is believed to have died. Around half of the nationalbudget is now financed through aid.

With donor support, the Rwanda Revenue Authority was established in 1998 toovercome existing administrative bureaucracies, an absence of professional staff andcorruption. Faced with a very low tax base (due to a large subsistence agriculturesector), there has been considerable focus on improving tax administration.

Improvements in revenue performance have been remarkable. Domestic revenueincreased by 42% between 1999 and 2002, increasing the share of revenue in GDPfrom 10% to 13%.

DFID

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The benefits offrontloadingFrontloading can help to improve theeffectiveness of aid. By frontloading aid,the IFF will be able to deploy a criticalmass of aid when it will have the mostimpact on reducing poverty, which meansthat the benefits of investing early easilyoutweigh the borrowing costs. The WorldBank estimates that average returns to itsaid programmes are around 25%, incomparison with annual borrowing costsof around 5%.

Frontloading creates economies of scaleand allows the benefits of earlyintervention. The economic and socialreturns of frontloading aid in key sectors

can be very high; money spent now cantackle the root cause of currentdifficulties, and so dramatically reducethe build-up of expensive problems inthe future.

One of the strongest cases forfrontloading is that it allows investmentacross a range of sectors at the sametime, the results of which are reinforcing.For example, investing in water supportsoutcomes in health and education.However, the arguments for frontloadinginvestment in individual sectors are alsovery strong.


In the fight against AIDS, tuberculosis and malaria, there are three key benefits offrontloading: (i) timing – the resources to fight the three diseases would be madeavailable more quickly, helping to curtail their spread and reducing mortality amongthose already infected; (ii) scale – the volume of aid made available throughfrontloading would allow an integrated approach of treatment and prevention,resulting in substantial gains in the numbers of lives saved and infections averted; and(iii) predictability – stable, predictable resources stimulate market demand for theproduction of additional products, expanded research and development, and thecreation of additional manufacturing capacity. Most importantly, predictabilityincreases treatment effectiveness by lowering the likelihood of drug resistance andallowing the use of more expensive, newer treatments.

There is no near-to-marketvaccine for HIV, but frontloadedresources could play a role inincreasing the funding forresearch. The benefits wouldbe realised in at least 10 years’time, but early estimates showthat for each year we couldbring forward a vaccine wecould save up to 2 million livesand the equivalent of $40 billion.This supports the case forpublicly financed research anddevelopment spending increasingby 50–75% over current levels,a rise of $300–450 million ayear. This means that an extra$3–5 billion in frontloadedfinancing would be requiredover the next decade up to 2015. There are high start-up costs connected with the expansion of AIDS vaccine research and development – to establish trial sites, build up laboratory and other infrastructure, and create co-ordination and monitoring systems. The IFF would be well suited to providingthis financing.

Aside from investment in thedevelopment and purchase ofvaccines, the frontloading caseis also strong for malaria – theinternational community under-stands the needs, and alreadyhas effective interventions. TheWorld Health Organization(WHO) estimates that at least2.3 billion people are at riskfrom malaria and that it killsbetween one and two millionpeople in the world’s poorestcountries every year, includingmore children in sub-Saharan

Africa than any other infectious disease. Malaria has been estimated to costAfrica more than $12 billion every year in lost GDP. And there are existingactivities to combat malaria that can be scaled up immediately – bed nets andcombination therapies.


Water and sanitation is one of the most capital intensive of infrastructure investments.The March 2003 World Panel on Financing Water Infrastructure’s report concluded that“in view of the capital intensive nature of water investments... means should be foundfor governments to create a special national or international facility to pre-financedisbursements budgeted for a later period... The panel has been encouraged to hearthat suggestions of a similar nature are being presented by the Chancellor of theExchequer.” Financing from the IFF would be highly suited for funding investments inwater and sanitation, as these have high economic and social rates of return, offsettingthe initial outlay in the medium to long term. Policies and sector strategies for improvingwater and sanitation should be developed as part of countries poverty reductionstrategies and given a high priority in scaling up donor support.

Building the capacity to trade presents a very strong case for frontloading. The up-front costs are large, but the economic and social returns are also high and clearlyexceed the cost of IFF borrowing over the medium to long-term. The estimatedeconomic rates of return from infrastructure projects in low-income countries areparticularly high: 30-40% for telecommunications, over 40% for electricity, and over80% for roads. Studies also show that infrastructure plays a particularly importantrole in delivering other MDGs. For example, a Moroccan study showed that pavedroads doubled school attendance by girls. And electricity, which is vital to growth andtrade, increased the number of Colombian children reading books in the evening from43% to 72%.

Frontloaded finance could also be used to supporteducation. There is strong evidence that educationhas significant private and social returns. Investing ineducation is one of the best ways to ensure economicprosperity and business competitiveness for developingcountries, and it is essential to create an economy thathas the flexibility to respond to market forces.Frontloading aid will help to provide the predictablefinances that governments need for targetedprogrammes to get more girls into school, and to recruitand train the extra teachers needed at all levels of thesystem. Teacher salaries make up an estimated 60% ofthe financing gap for the primary education MDG.Evidence also shows that investing in education now

will have spillover effects leading to improvements in health, nutrition and child mortality.

The InternationalFinance Facilityfor ImmunisationAlongside the Global Alliance forVaccines and Immunization (GAVI) whichincludes UNICEF, WHO, the World Bank,The Vaccine Fund, and the Bill andMelinda Gates Foundation the UK andFrench governments have developed apilot International Finance Facility forImmunisation (IFFIm). The IFFIm will usethe frontloading principles of the IFF toprovide urgently needed frontloadedfunding for vaccine and immunisationservices in the poorest countries all overthe world. In addition to increasingthe overall funding available forimmunisation, this mechanism has theadded merit of providing a predictableflow of resources to the immunisationchallenge – where, historically, the lackof secure financing has impededprogramme planning and productdevelopment efforts.

The IFFIm will demonstrate the technicalfeasibility of the larger IFF and the cleareconomic benefits of frontloadingresources. Without the use of frontloadedinvestments, it will not be possible toscale up immunisation coverage to thelevel needed to reduce child mortality andhelp meet the MDGs. $4 billion spent over15 years, without frontloading, wouldsave an estimated 2.8 million lives before2015. But by frontloading $4 billion over10 years through the IFFIm mechanism,an estimated 5.3 million lives could besaved in the years to 2015, and a further5 million adult lives from death caused byhepatitis B in adulthood. The economicbenefits from years of life savedsignificantly outweigh the borrowingcosts. We estimate an economic rate ofreturn of well over 25%.

The UK has already announced that, over20 years, it will provide one-third of theresources required for a $4 billion IFFIm.


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Delivering aid to meetthe MDGsSubstantial progress has been made inrecent months towards increasing levelsof aid. The agreement by the G8 andother donors to increase the levels of aidby around $50 billion a year by 2010,compared with 2004, shows donors’commitment to providing the financenecessary to meet the MDGs.

However, traditional increases in aidalone will not be enough to meet thetargets set by donors. If the internationalcommunity is to meet the MDGs by 2015,then these increases will be required now,not in five or ten years’ time. Inrecognition of this, support for innovativefinancing mechanisms – such as the IFFand international levies, which arecomplementary to and could partlyrefinance the IFF – has continued toincrease in recent months.

The IFF now has support from more than80 countries, including France, Italy,

Sweden, Brazil, China and South Africa,as well as from faith leaders, the businesscommunity and NGOs. The IFF alsoremains at the forefront of UN debateswith strong endorsement from theSecretary-General, Kofi Annan. Inaddition, the World Bank and the IMFhave stated that the IFF is technicallyfeasible and the most advanced proposalto frontload aid. The DevelopmentCommittee at the Spring Meetings of theWorld Bank and IMF in April 2005 alsostated: “The analysis of technicalfeasibility of the IFF has created theconditions for the necessary politicaldecisions on participation. We encourageinterested donors to proceed with theseproposals.”

The UK continues to consult withgovernments, international institutions,faith communities, NGOs and business inboth developed and developing countriesto build on the existing support for the IFFand IFFIm as an immediate and concretestep towards achieving the MDGs.


“The international community should in 2005 launch an International Finance Facilityto support an immediate frontloading of official development assistance (ODA),underpinned by scaled-up commitments to achieving the 0.7 per cent ODA target nolater than 2015.”

Kofi Annan, speech to the UN, 21 March 2005.

“... an absolutely necessary and timely initiative and deserves an active responsefrom all members of the international community.”

Nelson Mandela, letter to G8 Heads, September 2003.

“The Church therefore welcomes the search for innovative solutions, such as theInternational Finance Facility.”

Statement by Pope John Paul II to 100 church and NGO leaders at the Vaticanseminar, Poverty and Globalisation, 9 July 2004.

“Ways of financing the doubling of aid to Africa should include the immediate launchof the International Finance Facility.”

Commission for Africa Report, March 2005.

“We wholly endorse and support this proposal and look forward to its earlyimplementation.”

Heavily Indebted Poor Countries Finance Ministers’ letter, 30 April 2004.

“… the IFF is elegant, timely, simple, necessary.”

Bob Geldof, press conference, Addis Ababa, 7 October 2004.

Aid works: eliminating river blindness in West Africa

River blindness (or onchocerciasis) causes blindness, disfigurement and unbearableitching. But, over 30 years, donor funding for the Onchocerciasis Control Programresulted by 2002 in the elimination of the disease from 11 countries in West Africa,including Burkina Faso, Ghana, Mali and Sierra Leone.

The result: 600,000 cases of river blindness prevented, 5 million productive years oflabour added to the economy, 16 million children with lives free of the disease and 25 million hectares of land available for safe settlement.

Development Initiatives

How many donor countries arerequired to launch the IFF?

The number of donor countries neededdepends on the size of the commitmentindividual countries are willing to make.Clearly, a critical mass of donors isneeded to achieve certain increases andto take advantage of scales of economy.The UK, France, Italy and Swedensupport the IFF – in addition to over 80developing and emerging marketeconomy countries – and we continue tocall for support from other donors.

Do developing countries have thecapacity to absorb more aid?

The World Bank estimates that countriesin Asia and sub-Saharan Africa couldsupport at least a 60–100% increase inaid flows in the short term withsubstantially higher levels in the mediumterm. The World Bank has also estimatedthat, of the 65 countries unlikely to meetthe poverty goal without further externalassistance and/or policy changes,43 could effectively absorb more aid today.

How will the IFF improve theeffectiveness of aid?

Firstly, by locking in commitments from awide range of donors, the IFF wouldprovide recipient countries withpredictable, stable and co-ordinated aidflows. Secondly, it could ensure that theseaid flows are used effectively throughdonor agreement to high-level principles,such as investing in poverty reduction,untying aid and providing aid inpredictable, multi-year programmes.Thirdly, the IFF would improve thetransparency of development assistanceallocation since the IFF’s responsibilitiesto bondholders would mean thatinformation on the spread of countriesreceiving IFF funds would be freelyavailable.

What kind of organisation will theIFF be?

The IFF will be a temporary financingframework specifically designed to raiseand allocate money needed to meet theMDGs by 2015. Its purpose is to raisemoney and it will not replace existingeffective bilateral and multilateralmechanisms for disbursement. It willrequire only a small number of staffand administrative costs will be low.

What will the governancestructures be?

The IFF will not establish a new aidbureaucracy and will disburse aid usingexisting mechanisms that have beenshown to be effective. Funds would beallocated according to a set of high-levelprinciples, helping to ensure theeffectiveness of aid financed through theIFF. The detailed mechanics of howdisbursement decisions are made willdepend on the IFF’s governancestructure. Both this structure, and thehigh-level principles, will be foragreement through consultation withdonors, recipient countries and the widerdevelopment community at theestablishment of the IFF.

Which countries could benefit fromthe IFF?

The IFF will be explicitly designed to helpmeet the MDGs, so the majority of itsfunds will go to poor countries – forexample, the poorest countries in receiptof concessional loans from the WorldBank. There could be a limit on spendingof finance raised by the IFF in any onecountry to ensure that a range ofcountries benefit and that the IFFreceives the highest possible creditratings for its bonds.

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Frequently askedquestionsWhy frontload aid? Is it wrong toborrow for development?

There is a moral imperative to act now tomeet the MDGs, or risk losing anothergeneration to poverty. Borrowing to investis a well established domestic anddevelopment principle. All donorcountries borrow to invest in their ownfuture prosperity and deliver aid to othercountries, while the IMF and World Bankare long-standing borrowers in the capitalmarkets. The very significant returns toinvesting early easily outweigh theborrowing costs. The World Bankestimates that average returns to its aidprogrammes are around 25%, incomparison with annual borrowing costsof around 5%.

Will the borrowing be expensive?

Provided donor commitments are legallybinding, and the risk of the high-levelfinancing conditions being breached issufficiently low, the IFF will be able toborrow at yields close to those of donorcountries and other internationalorganisations, such as the World Bank.

Is the IFF an alternative to 0.7%?

No. The UK Government is committed toreaching the target of 0.7% ODA/GNI,and, at current rates of growth, expectsto do so by 2013. With the IFF, we couldreach the equivalent of this target by2008–09. The IFF should be seen as acomplement to donors’ long-termcommitment to 0.7% ODA/GNI: it wouldmeet the immediate need for resourcesas donors move towards the target.

Will frontloading mean a drop in aidflows post-2015?

No, we expect aid flows to increasebeyond 2015. Donor countries havepledged to increase their aid budgets andthe IFF will support these increases. After2015, when the IFF will start to enter therepayment-only phase, aid flows areexpected to continue to rise throughfurther increases in aid budgets as wellas the emergence of major donors, suchas China, after 2015. If the IFF alsoincreases aid effectiveness, as expected,then the IFF would be positivelysupporting the case for further increasesin aid.

Can governments really commit tosomething over 20 years in the future,and what are the budgetaryimplications?

There are examples throughout the worldwhere governments make commitmentsfor lengthy periods – for example, in majorprocurement programmes such astransport or defence.

How will AAA credit rating beachieved?

Realistic assumptions about the financingframework include that:

i. the overall risk of countries breachingthe high-level financing condition issufficiently low to ensure that donorpayments will allow the IFF to meet itsobligations to its bondholders; and

ii. the individual credit ratings of donorcountries will be good, and there willbe a broad range of donors.


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