Smart Money: The World Bank looks to a future of creative financing

WASHINGTON — Hanging from a wall in the conference room at Devex headquarters office is a poster-sized cover of a Devex publication from 2012 featuring then World Bank President Robert Zoellick. The headline reads “Big Shoes to Fill” and the photo zooms in on Zoellick’s scuffed black Oxfords. Preparing for our coverage of this week’s World Bank Annual Meetings, I went back to review stories like that one to see how this year’s proceedings might fit in with the historical context of the giant multilateral development bank.

What is most striking is the new flurry of activity at the bank around financial engineering for good. President Jim Kim — Zoellick’s successor, now in the first year of his second term — has pioneered the “billions to trillions” agenda, finding new ways to take funds that might previously have gone to discrete World Bank projects and instead connect them to broader thematic priorities that unlock private investment against development objectives.

Zoellick’s legacy, by contrast, focused on helping developing countries navigate the Great Recession (he took on the bank’s presidency in 2007) and shoring up the bank’s own capital and legitimacy through more voting power for developing countries. To be sure, the words “leverage” and “catalyst” were ubiquitous even during his administration, but there was nothing approaching the zealous pursuit of private capital for public ends that will dominate this year’s annual meetings as it did at the spring meetings six months ago.

At this year’s annual meetings, participants need to be acquainted with a kaleidoscope of newly promoted financial instruments, including the just-announced Blue Bonds, which aim to raise capital to support conservation-minded development of marine resources and seafood value chains. The very first Blue Bonds will be floated by the Seychelles, based on a package of loans and grants the World Bank board approved for the island nation just 10 days ago.

Then there’s the Pandemic Bond, which raises capital for the Pandemic Emergency Financing Facility that Kim announced this summer — a facility designed to ensure funds are immediately available after a disease outbreak such as Ebola, SARS, or pandemic influenza. Besides the bond, there’s also a swaps instrument that targets other investor types in order to raise more funds for the facility.

Another financial innovation created in the frenzied activity of the past year is the Global Concessional Financing Facility. The World Bank designed it to provide cheaper loans to countries including Lebanon and Jordan that are normally too wealthy to receive them, but are currently struggling to serve massive refugee populations. By April of this year, the facility had reached $1 billion of available concessional financing to help Syrian refugees and their host communities.

The Global Financing Facility, launched at the Addis Ababa financing for development summit in 2015, aims to use financial engineering to close the $33 billion gap in funding for health and is launching an appeal to replenish its own fund at this year’s annual meeting. It links relatively small GFF funds — the replenishment seeks $2 billion — with much larger pools of funding available from domestic resources, private capital, and World Bank lending. The goal, as the Gates Foundation’s Chris Elias, the chair of the investors group for the GFF, explained last month in a Devex op-ed, is to align funders and partners together against an investable plan that shows — based on real evidence — it can improve health outcomes in a particular country.

To top it all off, earlier this year the World Bank reached a milestone in its Green Bonds program — started in 2008 during Zoellick’s tenure — with total issuances to support renewable energy and other climate-related projects topping $10 billion.

If all this financial wizardry is enough to make a development professional’s head spin, get ready for more talk of “crowding in,” “unlocking,” and “cascading" private capital at this week’s annual meeting. And for good reason: the big risk for the World Bank a decade ago was fading into irrelevance as BRICS countries questioned why they needed to take the bank’s loans — with all their conditions — when they had their own money to lend.

The bank under Jim Kim has clearly put that narrative to rest. The World Bank can strategically engage on the world’s biggest issues (from climate change to pandemic response to refugees to universal health coverage to ocean conservation) in a way that no other institution is positioned to act. But it can only achieve that relevance by tapping into much larger private capital flows through the kind of financial innovation that will be on display this week.

Financial engineering does have its limits, though. The World Bank’s capital increase — once targeted for 2017 but now likely delayed until April 2018 — is key to ensuring it has the assets to match its creativity. Part of the show this week will be making the case to the skeptical inhabitants of the White House and the Treasury Department, literally three blocks down the road from where the annual meetings will take place, that increasing the bank’s capital is an investment even President Donald Trump’s “America First” administration can get behind.

For the broader development community, the aggressive transformation of the bank as part of Kim’s “billions to trillions” agenda raises a host of questions about how to align private capital flows to development objectives and not the other way around. These and many other issues are on our minds as we begin our in-depth coverage of the annual meetings; from the future of humanitarian financing to what increased private financing of health and education might look like, especially after last month’s World Development Report from the bank warned of a “learning crisis.”

You can follow our reporting and a round-up of all World Bank media coverage by subscribing to our special edition newsletter. And tune in for Facebook Live interviews Devex will be conducting on-site throughout the week. Let us know what big issues you’d like us to cover by following our reporting team on Facebook and Twitter and sharing tips and ideas with our editors.

We’ll do our best to unpack and enlighten the many new acronyms and buzzwords to understand how these new financial instruments really work and what they could mean for the World Bank and the world.

Devex reporters Michael Igoe and Sophie Edwards will be on the ground at the World Bank annual meetings. Sign up for our daily morning briefings and follow us on Facebook and Twitter for everything you need to know from the annual meetings.