This blog is one in a series by experts across the Center for Global Development ahead of the IMF/World Bank Spring Meetings. Each post in the series will put forward a tangible policy “win” for the World Bank or the broader MDB system that the author would like to see emerge from the Spring Meetings. Read the other posts in the series, and stay tuned for more.
Reform of the World Bank is in the eye of the beholder—not just how it’s going, but even what it is. US Treasury Secretary Janet Yellen has arguably devoted more time than any of her counterparts to defining the need for change and the goals of a reform agenda, engaging in an impressive series of public speeches (see here and here), meeting with MDB heads and stakeholders, and pressing the issues with officials in other governments. Yellen’s visibility comes with the role of being the bank’s largest shareholder, a position the United States has used many times over the years to pursue reforms at the institution. I am reminded of a comment by an MDB official a long time ago as he listened to the details of the latest US reform agenda. “You Americans are always talking about MDB reform,” he said. “Reform this, reform that. When we will finally be able to declare ourselves ‘reformed’?” Indeed.
So just how pivotal is this particular reform moment? Defined around the monumental tasks of restoring development progress, mitigating and adapting to climate change, avoiding the next pandemic, and taking on various other global challenges, it certainly feels like an important moment, overwhelmingly so. But when it comes to the World Bank, it can help get one’s mind around things by focusing on the “bank” part. If much of the reform agenda is about financing, then what can we say about the goals and progress toward those goals? Here the picture becomes a lot clearer, and it’s not hugely encouraging so far.
Financing the vision articulated by Secretary Yellen and others really boils down to two things: bigger financing volumes and easier terms. In the eyes of the reformers, the World Bank must deliver much higher volumes of finance for development, climate, pandemics, and so on. And that financing must be on more attractive terms to properly incentivize the borrowers, on which all of this depends.
When it comes to making World Bank lending terms more attractive, there is nothing concrete to point to in terms of progress to date. Bank management’s roadmap paper last year proposed a new concessional lending window and replenishment process for the IBRD, but that idea does not seem to have been embraced by anyone, including the United States.
That leaves the question of financing volumes. Outgoing president David Malpass shared publicly last week that decisions taken during the Spring meetings would increase the World Bank’s financing capacity by up to $50 billion over the next decade, or $5 billion a year. These comments appear to refer specifically to IBRD lending to the bank’s middle-income client countries. IBRD lending commitments last year totaled $33 billion, so these measures would increase annual lending capacity by about 15 percent, or “up to” 15 percent per Malpass’s comments.
Here is where historical comparisons can be helpful. Financial reforms led by bank management in 2014 nearly doubled the IBRD’s annual lending capacity, and a capital increase in 2018 boosted lending by another third. The former was done with relatively little input from shareholders and even less fanfare, and the latter was done with the unlikely support of the Trump administration. So, despite the ambitious rhetoric and intensive shareholder discussions over the past year, the near-term outcomes are underwhelming by the experiences of recent history.
This is particularly so when we consider what’s been missing from the IBRD-focused discussions to date. Alongside IBRD lending of $33 billion last year, IDA provided $37 billion to low-income country governments. With the bank now providing $70 billion in annual commitments, that $5 billion increase in lending capacity seems even less significant. The disappointing headlines for the Spring Meetings are beginning to write themselves: World Bank commits to a possible 7 percent increase in support for its clients, with nothing on offer to its poorest members.
This characterization could turn out to be grossly unfair, particularly if we look beyond the April meetings. Recent months have seen the major shareholders acknowledge the need to support low income governments through IDA, while scaling up ambition on climate. The April outcomes will not deliver on those goals, but perhaps that disappointing fact will spur much more ambition going into the Fall. By that time, a new World Bank president will be in place and almost certainly wanting to lead an agenda that is ambitious rather than anemic.