Devex Invested: Alarm bells and déjà vu at World Bank-IMF meetings

We’re feeling a bit of déjà vu with the start of the World Bank and the International Monetary Fund Annual Meetings on Monday. Similar to last year, they’re taking place beneath a cloud of controversy — this time due to bank President David Malpass’ recent gaffe on whether he believes in human-made climate change.

Last year it was IMF Managing Director Kristalina Georgieva who was under fire for the Doing Business report scandal, in which she was found to have applied “pressure” to have China ranked more favorably — leading to questions about whether she would keep her job.  

She did, and it looks like despite calls for his ouster, Malpass will stay put as well. It seems the Biden administration doesn’t want to expend the political capital necessary to oust him before his term is up in April 2024, my colleague Shabtai Gold reports in this profile of Malpass and his climate record.

This year, finance ministers and global leaders are gathering at a critical moment. As economic alarm bells sound, experts say what happens now will have lasting repercussions, particularly if action comes too slow or too late. Here’s what you need to know:

• The economy: IMF’s latest World Economic Outlook, out today, focuses on the cost-of-living crisis, which is driven by inflation, and indicates that global economic growth will slow next year. “In short, the worst is yet to come, and for many people 2023 will feel like a recession,” the report says. A lingering concern is central banks acting on their own, rather than in coordination, resulting in over-tightening as they seek to bring inflation under control.

For many countries, the tightening cycle contributes to a strong U.S. dollar, which is pushing up inflation — creating further challenges for governments with debt denominated in the greenback.

• MDB reform: Last week U.S. Treasury Secretary Janet Yellen called for multilateral development banks to “evolve” away from country lending and instead take on more global challenges. She gave the World Bank a December deadline for a road map.

• Climate: Malpass probably wishes he hadn’t “put his foot in it” on climate, as Shabtai writes. The result was the loudest call yet for his removal by activists who have long criticized him for not taking bigger steps, namely ending the bank’s financing for fossil fuels. The bank counters that it spent a record $31.7 billion on climate-related projects in fiscal year 2022, exceeding its 35% financing target.

And low-income countries have pushed back on efforts to cut off development funding for gas projects, which some see as overly aggressive.

African Development Bank President Akinwumi Adesina recently told my colleague Omar Mohammed that calls for African countries to stop developing natural gas offer a false choice: “We have got to be practical. Renewable energy alone cannot power Africa. We have to have an energy mix, and gas is fundamental to that.”

• Debt: All those economic woes are putting even more pressure on debt-distressed countries. A new report from the United Nations Development Programme about the 54 countries with severe debt problems is rather stark — 19 are now effectively shut out of the financial market due to the cost of borrowing. “Too little has happened so far, and the risks have grown,” UNDP chief Achim Steiner told reporters Monday.

The report proposes a revamp of the Common Framework on debt to focus on restructuring that will allow countries to get back on a path to growth more quickly. With emerging market bonds trading at 40 cents below the U.S. dollar, private lenders may also be more willing to make a deal, even if it means taking a loss, UNDP says. A key element in making these debt forgiveness deals work will be financial assurances from creditor governments — a model that has worked in the past in the form of Brady bonds.

What we’re watching: World Bank-IMF meetings amid ‘acute’ crises

Plus: David Malpass fumbled on climate. Will the World Bank get a rethink?

‘Welcome and worrying’

All eyes might be on Washington, D.C. this week, but I’m in The Hague for the Global Impact Investing Network’s Investor Forum. The impact investing landscape has changed significantly in recent years, which is both “welcome and worrying,” GIIN’s Research Director Dean Hand tells me. There are now bigger and different pools of capital interested in impact investing. The announcement of an initiative around corporate impact investing just ahead of the forum is one effort to bring more money on board — stay tuned for more.

GIIN also announced that it will host the Operating Principles for Impact Management, a critical standard in impact measurement that until now was managed by IFC.

Are you in The Hague and want to meet? Have a burning question about impact investing, climate finance, or impact management? Let me know via adva.saldinger@devex.com.

One big number

That’s the amount USAID plans to spend on more than 200 business opportunities in the coming months.

Read more: USAID’s business forecast for Q4 2022 (Pro)

+ With a Devex Pro Funding membership, track over 600,000 sources of global development funding news and access all our analysis of USAID’s business forecasts and funding trends. Start your five-day free trial now.

What we’re reading

Saudi Arabia’s public investment fund raises $3 billion via inaugural green bond. [Gulf Business]

Aid campaigners are unimpressed with the European Union’s latest funding increase. [Devex]

Malawi’s second Millennium Challenge Corporation compact launches amid mixed results after first. [Devex]