Considering vulnerability in access to concessional financing

Abdoul Salam Bello, Executive Director of the Africa Group II at the World Bank Group Board of Directors

Arnaud Buissé, Executive Director representing France for the World Bank Group and the IMF  

Rt Hon. Patricia Scotland, Commonwealth Secretary-General                 

Mze Abdou Mohamed Chanfiou, Minister for Finance, the Budget and the Banking Sector, Union of the Comoros   

Rabab Fatima, Under-Secretary-General of the United Nations - High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States

Akihiko Nishio, World Bank Vice President of Development Finance

Hassatou Diop N'sele, AfDB Vice President for Finance

Moderation: Pr. Patrick Guillaumont, President of FERDI. 

The aim was to get this high-level panel to react on the desirability and feasibility of taking vulnerability into account in access to concessional financing.

As a reminder, in last June, the MDBs Vision Statement of the Paris Summit invited multilateral banks to explore “eligibility to concessional finance for the most vulnerable countries with a multidimensional approach to vulnerability, encompassing economic, environmental and social dimensions”.  And the conclusions of the Summit presidency state that "to attenuate vulnerabilities...there is a need to identify the conditions and criteria under which concessional, low-cost finance could be mobilized to tackle global challenges... and to ensure that this would not negatively impact poorest countries’ allocations". Multidimensional vulnerability indices have recently proposed to this end.

The discussion opened with an overview of the concept of vulnerability. Vulnerability encompasses various dimensions, including economic, environmental-climatic, and social. It can be either structural or non-structural, i.e. independent or not independent of the current political will of beneficiary countries, and that vulnerability to shocks that do not depend on this will constitutes a structural handicap for development. The panelists commended Ferdi for its extensive and meticulous work over the years in refining a robust conceptual framework on vulnerability.

Why consider vulnerability?
All the panelists stressed the importance of considering vulnerability in development analyses. The recurrence of crises in recent years has illustrated this need, making vulnerability an inescapable subject, particularly for countries with significant structural handicaps. It was emphasized on this occasion that considering vulnerability is a question of justice, since taking account of vulnerability as a structural handicap helps to equalize opportunities for all, of efficiency, since the marginal impact of foreign aid is higher in vulnerable countries, and strengthening prevention is more effective than ex-post compensation for shocks, and of transparency, by avoiding multiple discretionary exceptions and special windows.     

How to take vulnerability into account in public policies?
After the panelists had made a strong case for the concept of vulnerability, particularly on behalf of representatives from developing countries, the speakers were able to discuss how vulnerability can be taken into account in public policy. 
First of all, we need to be able to measure it using an index that is exogenous to remain independent of current policy, multidimensional and universal, three conditions met by the Multidimensional Vulnerability Index (MVI) presented at the Annual Meetings by USG Rabab Fatima, who mentioned the important work carried out by the United Nations to define it. These conditions are also met by the Commonwealth's Universal Vulnerability Index (UVI), which Rt Hon. Patricia Scotland mentioned. Above all, she stressed that the most important step in taking vulnerability into account lies in the use to which these indices are put. 
Such an index is naturally expected to be used as a criterion both for eligibility to funds granting concessional resources, and  and more importantly, for the allocation of these resources between countries in order to distinguish them according to their needs. Several speakers emphasized that it was particularly important to include a vulnerability index of this type in the allocation, in the right combination with per capita income, as the two are not substitutes.  

Multilateral development banks must take this on board.
On this basis, the representatives of developing countries have called on multilateral development banks to consider vulnerability and an index of this type in the allocation of their resources, with African countries and SIDS being particularly targeted by such a measure. This call builds on the "MDBs Vision Statement" of the Paris Summit last June, which invited multilateral banks to explore "eligibility for concessional financing for the most vulnerable countries with a multidimensional approach to vulnerability, encompassing economic, environmental and social dimensions".  We were reminded of the feasibility of such an approach, based on the experience of the European Union and the Caribbean Development Bank.  The two representatives of the multilateral development banks, the World Bank and the African Development Bank, agreed on the need to adapt the international development financing architecture to take greater account of vulnerability in all its dimensions. They recalled the evolution of their respective banks' actions in this direction in recent years, even if the operational inclusion of such an index in the allocation models of their concessional funds is not yet clearly considered at this stage. The Vice-President of the World Bank did, however, raise the prospect of an open discussion on this subject during forthcoming discussions on the future of IDA (International Development Association).