The World Bank (WB) wants to open a new era. Its president, Ajay Banga, wants the institution to also take on the goal of fighting climate change. “Today, the World Bank has a new vision and mission: to create a world without poverty on a livable planet,” Banga said in the plenary session of the annual meetings of the International Monetary Fund (IMF) and the World Bank in Marrakesh. The head of the organization accepts the challenge demanded by the majority of its shareholders, with the United States at the head, and which the former President David Malpass rejected. Banga has called for more funding to make the bank “bigger,” including from philanthropic organizations. And look for new ways to increase these resources. “We will still come up short. We need the size, resources and ingenuity of the private sector,” he stressed.
The arrival of Banga, Joe Biden’s candidate, to the institution founded at the Bretton Woods Conference in 1944 will make it possible to give a new twist to its mission. Created to support post-World War II reconstruction, it now has the dual mission of ending poverty and promoting shared prosperity. In recent years, however, more and more countries have seen the Washington-based organization as a necessary tool to move closer to the goals of the Paris Agreement. Low-income countries, now once again drowning in mountains of debt, are facing increasing disasters and extreme climate episodes. The richest countries believe that only the multilateral banking system has the necessary clout to provide these countries with resources, without forgetting the goal of fighting poverty.
To do this, however, Banga needs the institution to have more resources to fall back on. “Our Global Public Goods Fund is designed to incentivize cross-border collaboration and address common challenges. But in the past, financing came exclusively from the revenues of the International Bank for Reconstruction and Development, which limited its potential. Now we are opening the door to governments and philanthropic organizations that could generate concessional funds. With this greater ambition and the ability to deliver on our new mission, we believe this will be a real fund for a livable planet,” said Banga.
Malpass, who was nominated by Donald Trump, did not want to go that far. His reluctance to publicly acknowledge climate change also triggered an avalanche of criticism. According to the company, it will allocate 1.7 billion euros to climate change in 2022. The amount, according to analysts, is well below what would be expected from a high-performing institution with a triple-A rating. A study carried out by an independent group of experts on behalf of the G-20 also puts the amount needed to overcome the climate challenge at three billion euros per year. When she arrived in Marrakech, US Treasury Secretary Janet Yellen had already set the goal of having the World Bank take on this role. “There will be broader changes to integrate climate action into all World Bank operations,” Yellen announced in a press conference, who also argued that the institution should also be responsible for providing more support “to ensure resilience in the face of global warming.” to increase global health emergencies.”
In Marrakesh there was no lack of critical voices from some civil organizations about this step that the World Bank wants to take. But there is widespread belief among World Bank shareholders that climate change and geopolitical conflicts are behind poverty. Particularly in a world where, in the words of top IMF officials, “severe shocks will be the new normal.” And, for example, the institution’s reports indicate that during the pandemic and war in Ukraine, extreme poverty increased again, breaking the trend of recent decades.
This year, the World Bank deployed a range of tools that will allow it to increase its lending capacity by $157 billion over ten years. However, Banga estimates that this amount is still not enough. The G-20 group recommended mobilizing all possible resources from multilateral development banks and private capital. First, this Friday the World Bank concluded an agreement with nine regional banks – including the EBRD and the European Investment Bank – to coordinate and expand their financing capacities. According to these companies, the measures taken so far will generate an additional amount of between 300,000 and 400,000 million dollars in a decade. “We can do a lot together,” Banga said.
The United States has also committed to mobilizing around $25 billion, which could rise to $100 billion if other countries decide to join the initiative. However, Biden needs Republican approval to release about 2.25 billion euros, which could reach that amount with leverage. “Even when governments, multilateral institutions and philanthropic organizations work together, we fall short of expectations. We need the size, resources and ingenuity of the private sector,” adds Banga, pointing to the financial innovations – guarantees or hybrid capital – with which he aims to raise more resources. In short: increase the size of the company. “We need a bigger bank to increase our financing capacity and take more risks to encourage investments,” he stressed.
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