World Bank President Malpass, who has been in his role for six months, previewed his priorities last week with a call for better development coordination at country-level, something he sees as a key role for the World Bank. IMF Managing Director Georgieva, in her own curtain-raiser speech, raised alarms about the cost of trade disputes for the global economy, and brought some of her focus on fragile states from her recent experience as World Bank CEO to the Bretton Woods sibling institution across the street.
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Near the top of the World Bank’s agenda will be the ongoing push to replenish the institution’s fund for low-income countries, the International Development Association. IDA is eyeing roughly $80 billion for its 19th replenishment round, and donors are pressing for a sharp focus on debt, climate change, human capital, jobs, and a range of other high priorities.
With both institutions under new leadership — and facing challenges that range from fragile states to debt traps and transparent financing — here are five questions Devex will be asking as the annual meetings kick off in Washington, D.C.
Can IDA replenishment ease debt anxiety?
With former U.S. Treasury official Malpass at the helm, the World Bank is turning a sharper eye to the issue of debt sustainability in low- and middle-income countries. The U.S. government has frequently criticized China’s development lending practices, in particular, claiming that deals lack transparency, have poor social and environmental standards, and leave countries vulnerable to “debt-trap diplomacy.”
Akihiko Nishio, vice president of development finance at the World Bank, discusses the current state of the International Development Association's 19th replenishment, the various issues IDA has been asked to tackle, and the need for development coordination.
Malpass raised the issue of rising debt levels in a speech previewing the annual meetings in Montreal earlier this month. “Public debt in emerging markets and low-income countries has risen to levels not seen since the 1980s, and too much of that debt isn’t transparent,” he said.
Largely at the behest of the U.S., the bank is looking for ways it can use its own financing tools to compel countries to be more transparent about the debt they have taken on. As IDA looks to secure its replenishment, it will also seek to incorporate new debt sustainability policies in its operating model, Akihiko Nishio, the bank’s vice president of development finance, told Devex.
“The current proposal is that if, in a reasonable period of time — and we're essentially looking at two years — there is no measurable progress in the policy actions to be taken for debt sustainability, then we could reduce the allocation for the third year,” Nishio said.
Will the bank rise to the climate occasion?
While Malpass has proven willing to break with the White House and acknowledge that the institution must play a role in tackling climate change, some civil society groups say he is quicker to support adaptation and disaster risk reduction than he is to demonstrate leadership on reducing carbon emissions. At noon on Friday, climate activists will take their fight to the World Bank, where they plan to demand the bank stop supporting fossil fuel projects, and act more urgently to help reduce carbon emissions around the world.
Civil society groups have fought a long battle to prevent the World Bank’s private sector arm, the International Finance Corp., from lending to financial intermediaries that invest in coal and fossil fuel projects. Last year IFC announced it would work to transition the institutions it supports out of coal financing, a move that was both welcomed and criticized as insufficient. The bank also unveiled new climate finance targets in 2018, pledging that $200 billion would go to climate-related projects between 2021 and 2025, $50 billion of which would support climate change adaptation.
Amid IDA’s 19th replenishment, some donors, especially from the European Union, are pushing for ambitious targets around climate “co-benefits” to be established for the use of IDA’s resources. IDA’s members are still negotiating what exactly that ambition should look like in setting those benchmarks.
Will transparent deal making become the norm?
Transparency and accountability at IFC looks set to be a hot topic at this year’s meetings. The development finance institution has faced criticism over its blended finance deals — through the “private sector window” — in low-income countries, including concerns that its financing terms are too generous and not transparent.
In response, IFC boss Philippe Le Houérou published an op-ed for Devex last week announcing it will now publish the subsidy level per project. Experts welcomed the move but said IFC needs to disclose more specific information, such as its estimate of what financing terms would be without the subsidy.
The DFI is also still reeling from a U.S. Supreme Court decision that IFC — which has traditionally enjoyed immunity from prosecution — can be sued by Indian farmers who claim they were harmed by an IFC-backed coal project. IFC has since vowed to strengthen its environment and social team to better prevent and manage complaints from communities.
But while advocacy groups are pleased to see E&S being taken more seriously by the DFI, they are concerned that the bank’s two main independent accountability mechanisms — the Office of the Compliance Advisor and Ombudsman, or CAO, and the Inspection Panel — could be headed in the opposite direction. The panel has been under review by the bank’s board for nearly two years — with members unable to agree on reforms, especially proposed monitoring and dispute resolution powers. A review of the CAO was officially launched this month.
Can the bank combine growth and human capital?
With so much focus on boosting economic growth, warding off debt crises, and Malpass’ call for less talk and more action, it will be interesting to see how much air time the bank’s human capital project — which was launched to much fanfare during last year’s meetings in Bali — gets this week. The project, which encourages borrower countries to spend more on human development by publicly ranking them on their education and health outcomes, was the brainchild of Malpass’ predecessor Jim Kim and may come across as the kind of high-level talking shop that the new president is keen to move the bank away from.
On Thursday, the bank will unveil a new approach to measuring learning at country level — a “learning poverty” indicator that looks at the percentage of children who can read and understand a simple sentence by the age of 10. This marks a departure from the current metric used to rank countries in last year’s human capital index — “learning adjusted years of schooling,” or LAYS.
Will PEF 2.0 avoid ‘financial goofiness’?
When the World Bank created the Pandemic Emergency Financing Facility it was supposed to serve as an important contribution to solving the problem of financing emergency disease outbreaks without having to wait for donors to come up with the money. Three years later, the effort to create a risk insurance market for pandemic response funds has been widely criticized for a financial structure that appears to require large investment of resources for little guaranteed payout.
Critics say that, because of the PEF’s rigid definition of what counts as a “pandemic” eligible for its financing, the facility has been slow to release funding — so far only disbursing $60 million for the current Ebola virus outbreak in the Democratic Republic of the Congo.
The bank has won accolades for its willingness to get involved in humanitarian crises and displacement, but will have to convince critics that creative financial solutions can still play a constructive role in pandemic response. Lawrence Summers, the World Bank’s former chief economist, described the PEF as, "an embarrassing mistake," and as the bank looks to design the next version of that funding mechanism, it will face a lot of pressure to avoid what he described as, "financial goofiness."