WASHINGTON –聽The聽World聽Bank聽is seeking to vastly expand its lending capacity to聽address聽climate聽change聽and聽other聽global聽crises聽and will negotiate with shareholders ahead of April meetings on proposals that include a capital increase and new lending tools, according to an “evolution roadmap” seen by Reuters on Monday.
The roadmap聽document聽– sent to shareholder governments – marks the start of a negotiation process to alter the聽bank’s mission and financial resources and shift it away from a country- and project-specific lending model used since its creation at the end of聽World聽War Two.
The聽World聽Bank聽management aims to have specific proposals to聽change聽its mission, operating model and financial capacity ready for approval by the joint聽World聽Bank聽and International Monetary Fund Development Committee in October, according to the聽document.
A聽World聽Bank聽spokesman said that the聽document聽aimed to provide details on the scope, approach, and timetable for the evolution, with regular updates for shareholders and decisions later in the year.
AAA RATING TO STAY
The development lender will explore options like a potential new capital increase,聽changes to its capital structure to unlock聽more聽lending and new financing tools such as guarantees for private sector loans and聽other聽ways to mobilize聽more聽private capital, according to the聽document.
But the聽World聽Bank聽Group (WBG) is not ready to bow to demands from some non-profit organizations to abandon its longstanding top-tier credit rating to boost lending, stating: “Management will explore all options that increase the capacity of the WBG whilst maintaining the AAA rating of the WBG entities.”
US Treasury Secretary Janet Yellen has called for the聽World聽Bank聽and聽others to聽聽to boost lending and harness private capital to fund investments that聽more聽broadly benefit the聽world, such as helping middle-income countries transition away from coal power.
A US Treasury spokesperson declined comment on the聽World聽Bank聽document.
The聽bank聽said proposals under consideration include higher statutory lending limits, lower equity-to-loan requirements and the use of callable capital – money pledged but not paid in by member governments – for lending.
Development experts say this shift would greatly increase the amount of lending compared to the current capital structure, which only utilizes paid-in capital.
“The challenges the聽world聽is facing call for a massive step up in the international community’s support,” the聽bank聽said in the聽document. “For the WBG to continue to play a central role in development and聽climate聽finance, it will need a concerted effort by both shareholders and management to step up WBG financing capacity.”
INADEQUATE FUNDING
The roadmap聽document聽cautions that a build-up of lending for聽climate聽change, health care, food security and聽other聽needs may require a capital increase to boost the capacity of the聽World聽Bank’s middle-income lending arm, the International聽Bank聽for Reconstruction and Development (IBRD).
IBRD’s $13 billion capital increase in 2018 “was designed to be prepared for one mid-sized crisis a decade, and not multiple, overlapping聽crises” including the COVID-19 pandemic, the war in Ukraine and the effects of accelerating聽climate聽change, the聽document聽said. IBRD’s crisis buffers will likely be depleted by mid-2023, it said.
Another聽option, according to the roadmap, is for聽World聽Bank聽shareholder countries to step up periodic contributions to the lender’s fund for the聽world’s poorest countries, the International Development Association (IDA), which have declined in recent years despite increasing needs.
The roadmap also offers the option of creating a new concessional lending trust fund for middle-income countries that would focus on global public goods and be similar in structure to IDA, with regular funding replenishments that would be separate from the聽bank’s capital structure.
“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聽bank聽said.
The聽bank聽said that the evolution of its mission to increase聽climate聽lending while maintaining good development outcomes will require additional staff and budget resources, which have declined 3% in real terms over the past 15 years. – Reuters
