It’s time for a better, bigger, World Bank.
Three weeks ago, the World Bank and the International Monetary Fund (IMF) convened in Marrakech, Morocco, marking the return of their annual meetings to the African continent after 50 years. This year’s meetings were also notable due to the appointment this June of a new World Bank President, Ajay Banga. Under his leadership, the World Bank has introduced a bold new mission to “create a world free of poverty on a liveable planet,” emphasising the fact that addressing climate change goes hand-in-hand with poverty reduction.
Coming into these meetings, the World Bank was eager to show its readiness to reform itself for the modern era. With that in mind, policymakers and representatives from the private sector and civil society alike went to Marrakech with great expectations for what would be delivered.
The importance of World Bank reform
Amid a backdrop of escalating conflict, soaring food prices, increasing climate disasters, debt distress, slowing economic growth, and record inflation, reforming the World Bank is needed now, more than ever. At the moment, countries in the Global South face significantly higher interest rates than their counterparts in the Global North. While the Global South borrows at rates as high as 14%, the Global North benefits from interest rates of 1-4%. This discrepancy not only strains the finances of the Global South but could potentially lead to a debt crisis, with 20% of low-income countries currently in debt distress. That means that they are no longer able to repay their loans and are spending more on debt repayment than on development issues like education or healthcare.
Resolving the issue of debt is absolutely critical at halftime on the Global Goals. We’re halfway to 2030 and only 15% of the Goals are on track. The polycrisis has not only hindered their progress but also increased the cost of achieving them to a staggering $4.2 trillion. We need to take urgent action to turn this around and make sure that the world’s poorest countries do not fall further behind on the Goals.
Upgrading the World Bank is a critical part of this. It already plays a pivotal role in addressing the Goals by providing billions of dollars annually through loans and grants. It is a particularly effective way of distributing capital to countries for their development needs, as every $1 contributed is turned into $4 or more by leveraging additional funding from the private sector. It is by far the biggest provider of cheap loans and grants in the world.
A Better, Bigger,World Bank
On the eve of the annual meetings, the World Bank published a new “playbook” which outlines how it can become a ‘Better, Bigger Bank’. Ajay Banga has emphasised that the Bank needs to first and foremost become Better by initiating a process of reforms. Once it has become more effective, the Bank will need to be Bigger which requires donor countries to increase the funding they provide to the institution.
Banga broke down how these changes would happen in Marrakech, vowing to reduce project review and approval time by one-third, and reorienting the focus toward impact and outputs rather than inputs. The Bank will also seek to leverage more funding from the private sector and will leverage new tools to unlock an additional $157billion over the next decade. While it’s clear that progress has been made, the consensus coming out of the annual meetings is that a lot of work still needs to be done.
Tackling debt should be a top priority for the Bank and many civil society representatives are calling for debt to be canceled in low-income countries. A lack of action on this issue could have dire consequences for the Goals. An Oxfam analysis shows that on current terms, low- and lower-middle-income countries will be forced to pay nearly half a billion dollars every day in interest and debt repayments between now and 2029.
There is concern that the Bank is trying to rely too heavily on sourcing money through the private sector rather than pushing for new money from donors. The Bank’s focus on raising capital through the private sector has raised concerns, as it may prioritize profit over development outcomes. Instead, attention should be focused on donor countries. Without targeted pressure they may be unwilling to increase their contributions to the Bank, especially in the wake of domestic economic challenges and upcoming elections.
While the World Bank is expanding its mission to climate change, defining what this means in terms of impact remains a challenge. There is a long road ahead to setting out a clear environmental approach, especially considering that the Bank still invests in fossil fuels and some of its new donors have very different climate goals from those of Western countries.
Free the funds
For the bank to truly become Better it needs to triple the amount of financing it provides, halve the amount of time it takes to approve and distribute funds, stop investing in fossil fuels and increase poorer countries’ voice and power within the Bank. Ajay Banga should be congratulated for kicking off some of these reforms. But more needs to be done and faster, particularly if he expects support from donor countries for a Bigger bank.
For the bank to be Bigger, donor countries need to commit to funding the bank properly, in particular the bit of the bank that provides grant funding that doesn’t need to be repaid, as well as very cheap loans to the poorest and most vulnerable countries.
In the coming months, we will be pushing for the Bank to become Better and Bigger, and hold it accountable for its promises. We need to #FreeTheFunds for a more sustainable and prosperous future for all.