Loans From the IMF and World Bank Won't End Poverty In Africa

On May 23 the World Bank approved a $50 million loan to Burkina Faso, one of many international development projects that will go into effect this year throughout West Africa and the world. Yet for all of the loans and aid projects in the region, Burkina Faso is just one of many African countries that is not on track to complete the Millennium Goal of reducing the poverty rate to 35%, among other objectives.

This particular loan from the World Bank will go to the Ministry of Labor and will create programs to train unemployed and underemployed youth to promote economic development. Most of Burkina Faso's economy is based around agriculture and mining, particularly cotton and gold, so the lack of industry diversity can negatively affect economic growth. Even with a drop in poverty rates since 2003, from 49.2% to 46.7% in 2009, a huge percentage of Burkina Faso's population still lives in poverty. In order to create the necessary jobs for youth in the coming years, the World Bank's loan will go toward training programs for young people aged 15 to 34 in order to diversify the economy and hopefully reduce poverty rates.

When discussing these credits by international institutions, the following question arises: Are loans from the World Bank and other organizations such as the United Nations or individual governments — the United States gives more money in aid than any other country in the world — effective ways to helping developing countries such as Burkina Faso? There are certainly success stories such as the NGO Right to Play, which promotes education and health among young children through the medium of sports and playtime, or United Nations organizations such as UNICEF, which runs a large variety of programs for children's health, education and economic future across the world. These organizations depend on money from governments such as the United States and European countries to fund their many programs and have had a largely positive impact on many people.

But as the Heritage Foundation published in 1996, many countries that receive loans from the World Bank or enjoy the presence of a large international aid organization are not necessarily better off than they were 50 or 60 years ago. In Burkina Faso, for example, the Gross National Income per capita is slowly growing, but has not seen a convincing increase in the past decade, In addition, its GNI is much lower than the GNI of other Sub-Saharan countries, as shown on the graph from the World Bank below, in spite of international aid and loans.

GNI per capita, Atlas method (current US$)

Data from World Bank

While in many cases a loan from the World Bank can prove useful to the receiving country, too often it leaves developing countries in increasing debt to these international organizations and struggling to repay it. This accumulating debt has an indirect impact on the taxpayers in the countries whose governments support these programs, so if for no other reason it is important for us to understand where this money is going and whether or not the programs that it funds are successful. 

International aid and bank loans are certainly not all bad, however. A report funded by the World Bank entitled "Yes Africa Can: Success Stories from a Dynamic Continent" paints a different picture from the Heritage Foundation report. Inflation is down from the 1990s and private investment, particularly from China, flows freely across the continent, outspending international aid. It emphasizes the improvements in security and in trade in many countries and perhaps most importantly highlights a dynamism that it argues will be sustainable for the long term.

Although there may continue to be questions about aid and its success in developing countries long into the future, for now it seems that it is a necessary addition to private investments and government-based initiatives in many countries. There is no one way to achieve healthy economic growth, but at least for the moment, the efforts of international organizations whether governmental or not are essential to economic productivity and potential growth in West Africa.