World Bank’s Banga faces pressure over resources, shareholder schisms

WORLD Bank president Ajay Banga will come under pressure this week to focus on climate change, but the former Mastercard chief executive first needs to get shareholders in line on how to grow the bank.

Banga, just 130 days into the job, has a mandate to broaden the multilateral development lender’s mission to tackle global crises including climate change, pandemics and fragile states.

But with annual climate-transition finance needs estimated at up to US$3 trillion for emerging-market and low-income economies by 2030, development advocates are calling on him to make tackling global warming the priority at his first World Bank and International Monetary Fund (IMF) annual meetings.

A G20-commissioned panel of experts recommended in July that the World Bank and other multilateral development banks (MDBs) increase annual lending by US$260 billion, more than three times their current pace, to help meet climate needs.

“We’d love to see shareholders come out with a strong endorsement of that target and a plan to push that forward,” said Amy Dodd, development policy director at ONE Campaign.

Banga, however, has said the major step at the meetings in Morocco will be the long-awaited shareholder endorsement of modifying the bank’s anti-poverty mission statement.

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The move to add “on a liveable planet” has been in process for a year, and the development community is eager for the next steps to maintain momentum and scale up financing quickly.

The World Bank in April lowered its equity-to-loan ratio to boost lending by US$50 billion over 10 years. But many further steps are more complicated and need countries to decide how much taxpayer funds they are willing to contribute or put at risk.

“I’m very sceptical that there’s going to be a big step forward on the size of the institution in Marrakesh,” said Clemence Landers, a former US Treasury official now with the Center for Global Development in Washington.

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IMF, World Bank to tackle climate goals among reforms at annual meetings

This group on Monday (Oct 9) published a new scorecard for MDB reforms, saying that broad changes are “firmly in play” but progress in implementing them has been limited.

Complex moves

For now, the US wants countries to back loan guarantees by the World Bank, with President Joe Biden pushing a request that Congress approve US$2.1 billion in new funding that could unlock US$25 billion in new concessional loans over a decade.

A World Bank report to be considered in Marrakesh estimates that US$10 billion in guarantee commitments could boost lending by US$60 billion over that period.

But no other major shareholders have joined the US move, which is viewed as a more palatable alternative for American lawmakers than a general capital increase as this would likely lead to a bigger Chinese shareholding at the bank.

British officials have expressed support for a capital increase, but Germany has favoured more issuance of hybrid capital, a debt-like instrument, that the World Bank estimates could add another US$40 billion in new lending over a decade.

A bigger move would boost lending against the World Bank’s “callable capital”, a cushion of emergency funds pledged by shareholders but not paid in, but this would require some countries to change laws.

Banga has said the move is complex and will take time to negotiate. But the payoff could be huge, with the Rockefeller Foundation estimating a lending increase of some US$900 billion over a decade if ratings agencies modified their evaluations.

A US Treasury official told Reuters that the department is working to develop rules for callable capital so that decisions could be made by April 2024.

But first, the plumbing

Banga has played down the lending increases and emphasised his efforts to make the 16,000-strong organisation more nimble and focused on projects with measurable impacts, saying he wants “to fix the plumbing”.

Other World Bank presidents, including Jim Yong Kim, were unable to meaningfully reform the bank, which Banga has called “dysfunctional”, despite a talented and dedicated staff.

“He is shaking things up,” said a senior official at the US Treasury, which nominated him for the job.

While the Indian-born American citizen’s approach has caused some internal friction, according to bank staff, Banga, 63, has received high marks for pushing the envelope.

“Banga had a good start,” said Michael Krake, who represents Germany on the World Bank’s executive board.

“Let Banga be Banga. Good leaders take thoughtful risks and also make some mistakes,” Krake added. REUTERS