According to a “evolution roadmap” seen by Reuters on Monday, the World Bank is seeking to vastly expand its lending capacity to address climate change and other global crises, and will negotiate with shareholders ahead of April meetings on proposals that include a capital increase and new lending tools.
The roadmap document, which was sent to shareholder governments, marks the beginning of a negotiation process to change the bank’s mission and financial resources and move it away from the country- and project-specific lending model that it has used since its inception at the end of WWII.
According to the document, the World Bank management hopes to have specific proposals to alter the organization’s mission, operational structure, and financial capacity ready for approval by the joint World Bank and International Monetary Fund Development Committee in October. According to a World Bank spokesman, the document aimed to give specifics on the evolution’s scope, strategy, and timetable, with regular updates for shareholders and decisions later in the year.
According to the document, the development lender will investigate options such as a potential new capital increase, adjustments to its capital structure to enable more lending, new financing tools like guarantees for private sector loans, as well as other approaches to mobilize more private capital.
The World Bank Group (WBG) has a longstanding AAA credit rating, but some non-profit organizations have urged it to be dropped in order to increase lending. According to the WBG, “Management will explore all options that increase the WBG’s capacity while maintaining the AAA rating of the WBG entities.”
The World Bank and other organizations have been urged to change their business models to increase lending and use private capital to finance investments that benefit the entire world, such as assisting middle-income countries in moving away from coal power, by Janet Yellen, the U.S. Treasury Secretary.
A representative of the US Treasury declined to comment on the World Bank report.
The bank reported that proposals under consideration include raising the statutory lending limits, lowering the equity-to-loan requirements, and using callable capital, or funds that member governments have pledged but have not yet paid in, for lending.
According to development experts, this change would significantly increase lending compared to the capital structure’s current use of only paid-in capital.
“The challenges the world is facing call for a massive step up in the international community’s support,” the bank said in the document. “For the WBG to continue to play a central role in development and climate finance, it will need a concerted effort by both shareholders and management to step up WBG financing capacity.”
The roadmap document warns that an increase in lending for needs such as food security, health care, and climate change may necessitate an increase in capital to increase the capacity of the International Bank for Reconstruction and Development, the World Bank’s middle-income lending arm (IBRD).
The COVID-19 pandemic, the war in Ukraine, and the effects of accelerating climate change were among the crises that the IBRD’s $13 billion capital increase in 2018 was “designed to be prepared for, rather than multiple, overlapping crises,” the document said. By mid-2023, the IBRD’s crisis buffers are likely to be exhausted, it predicted.
The roadmap also suggests that World Bank shareholder nations increase their regular contributions to the International Development Association (IDA), the lender’s fund for the world’s poorest nations, which have decreased in recent years despite rising needs.
The roadmap also provides the option of setting up a new trust fund for middle-income countries that would provide concessional loans with a focus on global public goods and a structure akin to IDA, with recurring funding replenishments that would be distinct from the capital structure of the bank.
“Such a fund may attract donor bilateral resources separate from shareholder budget lines supporting the WBG, and potentially include donors beyond shareholders,” such as private foundations, the bank said.
The bank stated that additional staff and budget resources, which have decreased by 3% in real terms over the past 15 years, are necessary to carry out its mission to increase climate lending while maintaining positive development outcomes.
(Adapted from ThePrint.in)