The World Bank Evolution Roadmap is being developed at a critical moment in time. Developing countries have been hit by the unprecedented impact of the COVID-19 pandemic and the Ukraine war, with loss of fiscal buffers, increased indebtedness, and erosion of creditworthiness, leading to a decline in growth prospects and leaving them exposed to further crises. Progress on poverty reduction has been arrested and most developing countries are offtrack on most of the sustainable development goals (SDGs). There is also growing recognition of the need to respond more effectively to pressing global challenges including climate, fragility, and pandemics. Developing countries will be the most adversely hit and have much more limited capacity to respond to the impacts of climate change. Excluding China, they could account for more than 50 percent of global greenhouse gas emissions (GHGs) by 2030. They are home to the greatest biodiversity and forest coverage in the world. The lives of all 8.5 billion people living on the planet in 2030 will depend significantly on what happens in developing countries. Sustainable development is today an imperative for all.
Against this backdrop there has been an ongoing and vigorous reflection on an appropriate global response and implications for the multilateral development bank system with a focus on the World Bank. The paper prepared by World Bank Management for the Development Committee sets out this context and makes proposals on a way forward for the World Bank based on discussions in the Board.
The World Bank Board has proposed an enhanced formulation of the World Bank mission: “To end extreme poverty and boost shared prosperity by fostering sustainable, inclusive and resilient development.” The roadmap proposes that the World Bank Group will “continue its support to countries’ efforts to achieve the SDG goals while deepening longstanding support for three global challenges that have become increasingly prominent in the last decade: climate change, pandemics and health security, and fragility and conflict.” It proposes a major push in three directions: (a) scaling up impact for good development outcomes and countries; (b) tackling cross-border challenges; and (c) preventing, preparing and responding to crises.
This is a fundamental and timely shift but the scale and urgency of the response that is now needed must be clearly recognized and acted upon. As the latest IPCC assessment makes clear, the pace of climate change is faster than we had anticipated and delay on climate action will be deeply dangerous. We not only risk irreversible damage to climate and nature but setting back progress hugely on development and poverty reduction. On the other hand, strong climate action can unlock the growth story of the 21st century, one that is more sustainable, inclusive, and resilient than the harmful and wasteful growth model of the last century. Developing countries are well poised to exploit these new opportunities given that so much of their infrastructure has yet to be built.
We have made the case through a body of analytical work, together with colleagues, that what is now needed is a big and sustained investment push on sustainable development in developing countries—to drive a strong recovery from the present crisis, to restore momentum to the SDGs, and to ensure that we can keep climate and nature goals within reach. These investments should rise to $5.9 trillion by 2030, compared to $2.4 trillion in 2019. About one-half the incremental investments will be needed for climate action, and the remainder for the rest of the SDGs. Most incremental finance will need to come from domestic sources, but at least $1 trillion in annual incremental external financing will be needed.
The World Bank Group, together with the rest of the MDB system, has a central role to play in supporting countries both in the realization of the necessary investments and in mobilizing the required scale and right kinds of finance. Within the World Bank Group, the role of IDA remains vital given the extremely difficult circumstances and the pressing needs of low-income and fragile countries. The role of the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) will also be crucial for harnessing the potential of private sector investment and finance. But it is IBRD that has to play the anchor role in the scaling up effort given the very large prospective needs across developing countries and its outsized ability to lead a major charge on sustainable development.
Given the major and urgent ramp-up that is needed on external financing, the International Bank for Reconstruction and Development (IBRD) should triple its sustainable annual lending to around $100 billion per year, with a total loan exposure of $1 trillion by 2030, as its contribution to the $1 trillion in needed annual financing.
How can this be done?
First, the World Bank needs shareholder support to expand its mission and vision to embrace an ambitious agenda of a big investment push as a crisis response, and for SDG attainment and climate action. Shareholders must assess the scale and pace of any proposed response against the scale and urgency of what needs to be done.
Second, IBRD must be able to meet the needs of all clients—low income, lower middle income, and upper middle income. The relative scale of support for SDGs and climate action will be larger for low-income countries, much of which will continue to come from IDA. But the Bank must act to reverse the diminishing relevance of IBRD in upper middle-income countries, and anticipate future needs of low-income countries.
Third, the World Bank needs to put scaling up of investment for transformational change at the center of its country-based model. It must foster scalable approaches through advisory work on the enabling environment (domestic resource mobilization, subsidy reform, public investment management capabilities, debt management, regulatory frameworks) and through a shift from project-by-project activities to results-based programmatic support. In particular, it must seek to support countries with their key transformations including energy, transport, cities, water, digital, agriculture, and nature within an overarching strategy of sustainable, inclusive, and resilient development.
Fourth, the scaling-up imperative warrants stronger partnerships with other stakeholders, in countries as well as regionally and globally. The Bank should encourage and proactively support country-led platforms on priority goals such as the just energy transition partnerships. It must foster and support enhanced partnership at the global and regional levels to both give impetus to country-level action and to strengthen the global development finance system.
Fifth, the Bank should play a leading role in working with the private sector and other stakeholders in constructing a new highway for private finance. This is much more than mobilization ratios. It will entail the co-creation of investment opportunities, tackling impediments in the investment climate, development of investment pipelines, supporting local market development, effective risk mitigation instruments deployed at scale, and blended finance to reduce cost of capital. This will also mean developing and utilizing the strengths of all parts of the World Bank Group including IFC and MIGA as well as of the Global Infrastructure Facility.
Sixth, IBRD will need to strengthen its finances to respond at the suggested scale. The ultimate litmus test of the seriousness of any evolution roadmap will be shareholders’ willingness to provide fresh capital. Of course, more can and should be done to optimize balance sheets, following the recommendations in the G-20 Capital Adequacy Frameworks report. Hybrid capital options also offer potential, but shareholders must be willing to signal to markets and credit rating agencies that they stand fully behind the IBRD. Guarantees on various tail risks can be provided in specific ways but paid-in capital provides the overall umbrella to safeguard the institution.
Concessional finance can provide a powerful catalyst for action in low income and middle-income countries alike. It should expand along with non-concessional lending in order to incentivize investments with global benefits and in solidarity with low-income and vulnerable countries.
Many of the ideas discussed in this working paper are included in the draft Evolution Roadmap issued by the World Bank for discussion during the Spring Meetings. This paper is sharper in identifying an investment push as the core strategy to reach the SDGs and climate goals. It also advocates for a stronger results-based framework, starting from identifying the advisory and financial inputs required to achieve quantifiable targets, at global and individual country levels, and then using financial instruments to support those results. This is how we develop a sense of the scale of the evolution required—an IBRD of $1 trillion by 2030.
We bring into sharper focus the need to make IBRD more relevant in upper middle-income countries if global challenges are to be addressed.
We are also clear that while some things can be done to improve the World Bank’s financial situation in the short term, the decades-long program of investment that is anticipated will require a far stronger source of sustainable financing. Without agreement on initiating a new round of capital increases, the evolution roadmap will have limited impact.
Our analysis and recommendations are summarized as a 10-point action plan for the incoming World Bank president.