The World Bank Group (WBG), a long-standing development lender, is facing criticism for not being broad enough in its mandate to address global challenges, its governance weaknesses, and its complex operational and financial models. Important changes would have to take place soon enough to help the institution keep a significant role in global finance and development concerns.
The paper aims to generate interest among WBG staff, retirees, and friends regarding how the WBG can become more effective, increase its lending capacity, and enhance its position in the battle against environmental destruction. The author, an independent observer, presents reflections rather than an academic research paper.
WBG’s Preparedness – How well is the WBG prepared for changes? WBG’s financial position has remained strong, with steady growth in loan commitments and disbursements at over 8 percent annual growth rate during FY2016-22. IBRD’s liquidity risk was maintained, and its net income increased to close to $4 billion in FY22. The WBG has also been at the forefront of climate investments in developing countries with $26 billion in climate finance in 2021. The institution is committed to increase climate finance to 35 percent of total commitments over the next five years.
However, despite these positive results and commitments, the institution is not sufficiently equipped to address global challenges such as climate change, natural disasters, pandemics, and public health crises. In 2022, the WBG’s disbursements accounted for only 5% of global foreign direct investment flows.
The appointment of Ajay Banga as the new WBG President presents an opportunity to make the WBG move in the right direction. The task is enormous. The WBG is an international big organization (MDB) that is difficult to move. Over the past twenty-five years, it has gone through four reorganizations each aiming at improving it efficiency, unfortunately with mitigated results. Meanwhile, the institution, confronted with new global issues, such as pandemics and natural catastrophes, overexpanded its activities and organization, adding to the complexity of its governance and resource mobilization.
Proposed Reforms –
The new president will have to conduct a new institutional drive that would govern the implementation of change, with emphasis given to the development of new technologies, the incorporation of AI in project management, the engagement of the private sector, and the coordination with other development institutions. The paper suggests several key reforms.
Institutional Governance – WBG’s objectives of poverty reduction, shared prosperity, and addressing global challenges should be evaluated to ensure they are being met effectively. The voice and power-sharing of influential countries should be reviewed, and the transparency and accountability of lending operations and staff should be enhanced. These evaluations would identify necessary reforms to streamline and improve the institution’s effectiveness.
Raising the Institution Lending Capacity – Three actions are proposed. First, to transfer the assets of the International Development Association (IDA) to the IBRD’s ordinary capital and non-concessional lending activities. IBRD would have to guarantee the annual flow of soft lending for IDA countries is maintained, if not increased.
Second, to unlock additional funds with shareholders’ authorization for a large paid-in capital increase. These flows of new funds would be earmarked for the financing of climate change projects.
Third, to lower lowering IBRD’s minimum equity-to-loan ratio below the present 20 percent to enable more flexible and larger lending.
The paper also suggests revising the IBRD’s by-laws to allow financing for complex multi-country projects. It is in such operations that collaboration between the IBRD, MIGA (Multilateral Investment Guarantee Agency), and the private sector becomes more effective.
Affirming the Intuition’s engagement in Environmental and Global Issues – The paper proposes in a first step to create a new Managing Director/Vice Presidency for Environment and Natural Disasters (VPEND) to consolidate all WBG activities related to climate change, natural disasters, and pandemics.
After such a consolidation, a natural second step would be establishing a new institution, the International Association for Environmental Disasters (IAED), which would have its own board and management structure. The VPEND and staff would transfer to the IAED, which would raise funds through capital markets and government contributions to lend at interest rates based on the country’s income level. IAED would be subject to the same borrowing criteria as conventional IBRD projects.
Promoting the Global Approach – Implementing these reforms would ensure the WBG a strong position to address global challenges. Unfortunately, together with other MDBs financing, total available financing will continue to fall short of global needs. The sad story is that international discussions of the G-7, G-20 and COP-27 on global concerns have not come up with imaginative approaches. This unfortunate situation should give the WBG an opportunity to take the lead in the promotion of global solutions to global challenges.
Rene L Costa
KEYWORDS challenges, global, institution, reforms, WBG