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Policymakers from across the world will gather in Washington next week at the Spring Meetings of the World Bank and International Monetary Fund. These meetings come at a critical moment for the World Bank, with major discussions underway around how to evolve the organization to better meet today and tomorrow’s global challenges. And while there is broad consensus on the need for reform, this week is an opportunity for shareholders to articulate more precisely what this means in practice.
Here’s what global development experts from three continents are watching as global policymakers meet in DC next week:
Ensure Africa’s voice is heard at the 2023 World Bank Group Spring Meetings
In 2022, 667 million Africans—39 percent of the continent’s population—lived in extreme poverty, with the COVID-19 pandemic pushing an additional 55 million Africans below the poverty line. As the paradigm for international development shifts to prioritize global public goods, and with the range of financing options broadening, development partners must continue to prioritize achieving the Sustainable Development Goals (SDGs) and reducing poverty. In particular, multilateral development banks (MDBs) have a crucial role in maintaining a laser focus on these goals in the coming decades.
Structural changes to the global financial architecture, including MDB reforms, need to be informed by African perspectives and policy priorities. Africa’s leaders are slowly starting to coalesce around some coordinated positions concerning debt, concessional flows, MDB reforms, and climate finance. Led by President Macky Sall of Senegal, more African countries are now preparing for the Summit for a New Global Financial Pact in France in June. President William Ruto of Kenya has announced a Climate Action Summit for September 2023, and some African governments are now engaging on the Bridgetown Agenda, although it remains focused largely on the priorities of middle-income countries. The Spring Meetings provide a unique opportunity for finance ministers to advocate for key MDB reforms and adaptations to development finance. These should include redirecting Special Drawing Rights and on-lending to regional development banks, overhauling the Common Framework, mobilizing an annual SDG stimulus of $500 billion, and urging developed countries to deliver compensation for climate change-related loss and damage.
Providing key platforms for African voices, including civil society, policy institutes, and governments, is critical. These can be official avenues, such as during the G20 deliberations or the Spring Meetings, but they can also include informal or new platforms. For example, the African Center for Economic Transformation (ACET) and Finance for Development Labs (FDL) are convening African policy institutes through the Amplifying Africa’s Voice initiative to highlight ongoing research and undertake collaborative analysis to inform African leaders.
To ensure that global policy decisions are truly representative of the diverse and nuanced African perspectives, it is crucial to have a strong African voice. The continent’s varied economies, debt situations, and ongoing crises necessitate a tailored approach to policymaking. Without sufficient African participation, global policies may not accurately reflect the best interests of the continent.
The emergence of several informal forums is a positive development, but official events such as the Development Committee and the International Monetary and Financial Committee must also reflect African perspectives. This will enable us to build upon these perspectives over the next six months and ensure that reforms in MDBs achieve a balance between SDGs and global public goods, increase concessional flows, support climate adaptation financing, and facilitate a just transition towards sustainable energy.
Building trust on multilateralism through balanced World Bank reforms
While the World Trade Organization has been weakened and marginalized with its Dispute Settlement Mechanism at an impasse, the World Bank is being pursued by its shareholders to play a much larger role in dealing with global challenges and providing global public goods (GPGs). The revival of the Bretton Woods Institutions after the global financial crisis is worth celebrating and provides new hope for multilateralism.
To ensure trust in the effectiveness of multilateralism in the context of the current World Bank reform agenda, several major concerns need to be addressed. A fundamental issue is how to overcome political constraints on the supply side and ensure that meaningfully additional resources are mobilized. By far, most attention has focused on tapping the potential of existing MDB resources, which incurs the least costs for shareholders. Considering the extremely conservative financial disciplines of MDBs in general, this is an important and necessary step. However, when international monetary conditions and regulatory disciplines are tightening, it is likely that only several billions of dollars can be added annually for the World Bank—far from the hundreds of billions expected by the G20’s Expert Panel on the MDBs’ Capital Adequacy Frameworks (CAF). Shareholders need to invest more cash in both the IBRD and IDA for them to mobilize the private sector. More open discussions should be held on the World Bank’s capital increase options. As this involves reshuffling the World Bank’s governance structure, it will be a key issue in testing the relations between traditional and emerging shareholders.
Understandably, before substantially additional resources can be promised, concerns about resource reallocation are intensifying on the demand side. First is a concern about the trade-off between recipient countries’ national agenda priorities and GPGs, subject to more accurate definition. Developing countries are more interested in seeking growth and jobs rather than GPGs when they are facing slower world demand and higher financing costs. There is also concern that the current reform initiative could lead to more resource transfer to middle-income countries for the purpose of GPGs when the World Bank is warning about low-income countries’ debt difficulties and 100 million people returning to extreme poverty due to the impacts of the pandemic. The increasing inadequacy of the IMF-centered global financial safety net further squeezes the World Bank’s development resources as the bank needs to rush in to fill in the liquidity gap facing the developing world.
In addition, the current reform agenda may lead to increasing fragmentation of the international development financing architecture, and hence incremental management costs for borrowing countries. Although international institutions, including the United Nations and the World Bank, are working hard to consolidate the trust funds, major shareholders are pushing for new earmarking options within the IBRD and IDA, not to mention the broader competition between the UN and World Bank on climate financing. The donors that are driving the World Bank reform agenda need to be more sensitive to the concerns of the demand side.
While the CAF measures can be implemented immediately, a longer-term integrated negotiation approach is warranted for a more balanced multilateral agreement that accommodates the diverging interests of major parties. The successful conclusion of the World Bank Group reform package on sustainable financing in 2018 exhibited the value of a holistic negotiation approach.
Banking sustainable development: Beyond the World Bank
To accelerate the transition towards sustainability, trillions of dollars in investments in more sustainable infrastructure, technologies, and businesses are needed. Developing nations require more fiscal space to increase public investment, and more private and philanthropic patient capital, especially in a moment of debt overhang. The IMF has been asked to find innovative ways to overcome binding fiscal constraints, while MDBs have been urged to expand their balance sheets and attract patient private capital to finance their projects, beyond the twin goals of ending extreme poverty and promoting shared prosperity.
However, to successfully originate quality sustainable projects and provide appropriate funding, MDBs may need to find innovative business models. One proposed solution is to develop a cooperative “constellation” of development banks, including multilateral, regional, national, and subnational institutions. These institutions can jointly foster and rapidly augment project development capacity and manage different risks using joint financial instruments. Blended finance can help reduce the cost of capital in national currencies and expand access to sustainable, socially and environmentally responsible patient capital for developing countries.
As the shareholders of the Bretton Woods institutions are also principals of their local development financial institutions, IMF and World Bank governors could immediately direct these institutions to expand cooperation and present success metrics based on the expansion and scaling of sustainable projects in developing economies. In conclusion, one effective way to change the focus and level of support of the multilateral financial system is to use the Spring Meetings to think about a new development support system beyond the World Bank.