Does IDA Engage in Defensive Lending?

Multilateral development banks are sometimes thought to engage in "defensive lending" -- the practice of extending new loans purely in order to ensure that existing loans are repaid.� We empirically examine this hypothesis using data on lending extended by and repayments to the International Development Association (IDA), which is the largest multilateral provider of concessional development loans to low-income countries.� We argue that key institutional features of IDA both (i) potentially create incentives for defensive lending and also (ii) enable particularly sharp tests of the defensive lending hypothesis.� We find that there is a surprisingly robust partial correlation between disbursements on new IDA loans and repayments on existing loans.� However, a closer look at the evidence suggests that defensive lending is unlikely to be a major explanation for this relationship