World Bank president Ajay Banga unveiled “a new playbook” for the almost 80-year-old multilateral development bank at the opening plenary of the 2023 annual meetings in Marrakech, designed to boost its lending capacity, quicken its pace, increase efficiency and deliver on what is being demanded.
It takes 27 months on average before a single dollar gets out the bank’s door, said Mr Banga, followed by a lengthy implementation process. “Sometimes it’s 10 years before the first benefits are felt. That is a lifetime. We have to do better.”
Mr Banga said the World Bank is working to reduce project review and approval times by one-third. “I believe we can deliver quality and speed,” he told the opening plenary.
Mr Banga said the bank must find a way to finance a different world where the climate is protected, pandemics are manageable — if not preventable — food is abundant, and fragility and poverty are defeated.
“We just need more funding,” said Mr Banga, adding that a “bigger, better” World Bank needed trillions annually — far more than what the existing Capital Adequacy Framework would produce by itself.
He outlined a raft of new financing measures: squeezing $40bn over 10 years from its balance sheet by adjusting its loan-to-equity ratio, creating a portfolio guarantee mechanism, and launching a hybrid capital instrument.
“These new tools enable us to take more risks and boost our lending capacity further — all while preserving our AAA rating. Taken together, we could provide $157bn more in lending capacity over a decade,” said Mr Banga.
Germany was one of the first countries to support the bank’s hybrid capital, committing to providing the World Bank with €2.4bn in additional International Bank for Reconstruction and Development (IBRD) lending over the next 10 years. Early support for portfolio guarantees from the US is expected to unlock roughly $25bn in new IBRD lending — other countries are expected to follow suit.
The multilateral development bank is also exploring ways to better utilise ‘callable capital’ and Special Drawing Rights, which the president described as complicated, but achievable. “Unlocking their potential will take time and requires action from shareholders and central banks,” he said.
As part of its new playbook, the World Bank also plans to bolster collaboration with nine multilateral development banks: the African Development Bank, the Asian Development Bank, the Asian Infrastructure Investment Bank, the Council of Europe Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank, the Islamic Development Bank, and the New Development Bank. This will yield $300–400bn of additional lending capacity over the next decade.
But even with these new funding initiatives, Mr Banga said, it would still fall short of the capital needed. “We still need the ingenuity of the private sector,” he said, talking about the World Bank’s new private sector investment lab, staffed by CEOs, asset managers and banks, to drive policy action and mitigate risk to entice new entrants and ensure products become ‘bankable’.
The lab will initially focus on renewable energy and energy infrastructure to “bend the curve on emissions-heavy growth”.
Funding for the World Bank’s Global Public Goods Fund, which facilitates co-operation across borders to tackle shared challenges, will be expanded to include not only IBRD income, but also governments and philanthropies, which could grow concessional resources.
“With this bigger ambition and ability to deliver on our new mission, we believe this will be a true Liveable Planet Fund,” said Mr Banga, citing the example of Uruguay, the first country to take advantage of reduced interest rates as a direct result of meeting climate performance targets — an approach the World Bank aims to scale.
Mr Banga said the bank plans to introduce reduced interest rates to incentivise exiting from coal as part of countries’ energy transitions. It also plans to use “concessional finance” to encourage the shift to renewable forms of energy.
However, the new playbook made no commitments to reducing the bank’s financing of fossil fuels, which will disappoint climate activists who protested outside the entrance to the annual meetings in Marrakech, calling on the bank to end its financing of fossil fuels. Since the Paris Climate Agreement was signed in 2015, climate NGOs claim the World Bank has provided at least $14.8bn to fossil fuel projects.
Mr Banga said the World Bank is developing a new approach to track climate outcomes based on impact and that it would share its progress at COP28 in Dubai. He also mentioned that the $1.25tn in annual subsidies for fossil fuels, agriculture and fisheries could be repurposed to incentivise sustainable practices — protecting, air, water, and forests — while continuing to support those most in need.
The World Bank is also in the final stages of what it called a 20-year effort to build sound, transparent voluntary carbon markets. “If successful, voluntary carbon markets could become more liquid, transparent and a better deal for developing countries,” said Mr Banga, adding that its ambition is to grow this platform to finance emissions reductions in developing countries and benefit local communities.
At the opening plenary, the IMF’s managing director, Kristalina Georgieva, spoke about the bank’s newest instrument, the Resilience and Sustainability Trust (RST), which is designed to provide “affordable” financing (20-year maturity and a 10.5-year grace period, during which no principal is repaid) to low and middle-income countries. Ms Georgieva says 11 countries are benefiting from RST support to help build resilience and adapt to climate change.
She also called for the IMF to be urgently strengthened on two fronts: first by boosting permanent quota resources to support members with lower financial buffers, and second by replenishing subsidies that would enable zero-interest loans to be extended to the fund’s poorest members.
Calls are also growing for the IMF to change its governance structure with NGOs such as ActionAid, saying that African countries had less than a 10% voting share on the IMF board. According to ActionAid, the 46 sub-Saharan countries on the IMF’s board are represented by only two executive directors.
“But the power [that] international financial institutions hold over African governments significantly undermines their policy autonomy. Decisions affecting the life and welfare of hundreds of millions of people are taken behind closed doors with ministries of finance, who have little scope to resist the conditions imposed and the coercive policy advice offered,” said ActionAid in a document it distributed at the meetings in Marrakech.
Ms Georgieva said the IMF must continue to work towards adapting its governance structure to better represent its membership and mentioned the possibility of adding a third chair for Africa to its executive board.
