February 6, 2023

Building on a roadmap requested by its shareholders, the World Bank’s board and management are discussing updates this week to its mission to respond to the global transboundary challenges threatening human prosperity. It is more evident than ever that climate change, biodiversity loss, pandemic risks, and conflict matter profoundly for development—which would make it devastating if shareholders miss this chance to transform the Bank by thinking too small.

The largest Bank shareholders have embraced calls for truly ambitious action to meet this once-in-a-generation opportunity. In October 2022, the G7 with Australia, Netherlands, and Switzerland asked the World Bank to “incorporate tackling global challenges as a core strategic priority alongside country anchored work,” in a paper which was widely distributed but not formally published. Germany’s development minister said that the Bank should “make it more attractive for developing countries to use World Bank loans for climate action and biodiversity conservation.” Last month, US Treasury Secretary Janet Yellen said: “the United States wants to see quicker progress on the World Bank’s plans to expand its lending capacity to address climate change and other global crises.”

Yet it is also evident that the need for external finance for emissions reductions is concentrated in upper middle-income countries^[i] that face intensely competing demands for development investment and a tendency to forego climate-friendly spending given tight budgets.^[ii] These and other middle-income client countries have clearly signaled the importance of sustained attention to development and poverty reduction amidst any greater focus on global challenges. Low-income countries are similarly concerned—IDA has experienced declining donor contributions since its 17^th replenishment and currently faces shrinking outlays starting in 2024 as the result of high country demand related to high inflation, food insecurity, and other shocks.  

In response, the Bank’s high-income shareholders have underscored that “global challenges and traditional development are interlinked and mutually dependent” while at the same time committing to “continued strong support for low-income countries.” The October G7 nonpaper was clear: “this process [of World Bank evolution] must deliver benefits for all shareholders.”

But now the rubber meets the road. The Bank’s management looks likely to live up to these requests and propose an expansion of the current corporate targets of “ending extreme poverty and boosting shared prosperity”—the “twin goals”—for greater ambition on global challenges. Management will likely also make efforts to respond to the G20 Capital Adequacy Framework (CAF) recommendations to stretch existing capital further—which will be necessary if the Bank is to help meet the $180 billion per year in financing that the Stern-Songwe report estimates is needed for climate action (in 2022, the World Bank Group lent $33 billion in IBRD countries and provided $38 billion in IDA countries).^[iii]

It is right to start the evolution process with an update of the mission and metrics. This will need to include a “rules-based and targeted approach to assessing cost and benefits” to provide incentives for investments and reform with cross-border spillovers, as laid out in the roadmap. Greater effectiveness and efficiency in lending and granting is also crucial, and there is a similar need for clear policy commitments from the borrowing member countries to make faster progress on all goals, with more skin in the game for global public goods like climate mitigation where relevant and pandemic preparedness, among others.

But shareholders can’t simply give the Bank a new mission statement and call it a day. They need to signal now that a “better” bank requires a “bigger” bank. Only if shareholders live up to the ambitions they themselves have set can we expect fundamental operational and financial reform to result.  We need a concrete financial target that can deliver on the evolved role—with no trade-offs for the poorest.

The G7 nonpaper fudges this point in its section on financial capacity, restricting its coverage to the CAF. Yet the CAF on its own likely won’t cover needs. To fill the gap, there are multiple options available including a general or specific capital increase as well as other proposals circulating—the Bridgetown Agenda, all things special drawing rights (SDRs), new international taxes on the super-wealthy, etc. All are possibilities but the key is to spend future political and advocacy capital on the big picture reform and financing package rather than the details of each specific financing source. 

This year could be decisive for a new international financial architecture—one that could move the needle to deliver on both development and transboundary prosperity. There are many high-level opportunities in the coming months: the Macron-Mottley Summit in June, the SDG Summit in September, the World Bank Group/IMF Annual Meeting in Marrakech in October, and COP28 at the end of November. But the longer the Bank’s biggest shareholders stay mum on the overall package of support, the higher the likelihood that we get more business as usual and/or unacceptable tradeoffs, and more unconvincing fodder for summits and high-level meetings even while the Earth literally burns.

More financial capacity at the World Bank is not a blank check—it is an incentive for all to do what it takes.

To learn more about CGD’s work on MDB reform, visit our project page.

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^[i] Of course, high-income countries and the largest consumers within those countries are most on the line for emissions reduction but they do not require external finance to move ahead.

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