Where things stand with World Bank reform

World Bank reforms are urgent but thus far, the process has been too focused on the demands of wealthy shareholders rather than borrowing countries, and that has led to “political fragmentation,” according to a pair of development experts. Efforts to reform the World Bank — largely driven by major shareholder priorities to push the bank to lend more and focus more on climate — have received considerable attention. But there wasn’t much concrete progress at the recent Spring Meetings. The reforms “cannot be seen as the new Washington consensus imposed from the global north,” said Claire Healy, a senior associate at E3G, a think tank focused on climate change. More work needs to be done to get all countries on board, she added during a Devex event. The current reform proposals, including a plan to boost World Bank lending by $50 billion over 10 years, are “a baby step in the right direction,” said Kevin P. Gallagher, a professor of global development policy and director of the Global Development Policy Center at Boston University. “We definitely need to be financing clean energy, climate resilience ... But, boy, in the developing world, after what they've gone through over the past three years, we can't forget hospitals. We can't forget education. We can't forget women's empowerment,” he said. All the challenges in the past few years, including the COVID-19 pandemic and Russia’s war in Ukraine, have only made it harder for countries to borrow and increased their debt burdens. “We need a lot more capital. It’s got to be a lot cheaper than what the current market environment is showing us right now,” Gallagher said at the online event. Rising interest rates, which are expected to remain higher for the foreseeable future, are contributing to excessively high costs of capital for lower-income nations, and even some middle-income countries. Both panelists agreed that donors need to inject more money into the institution, particularly its fund for the low-income countries. That, however, seems to be off the table for some of the bank’s biggest shareholders, especially the United States. U.S. Treasury Secretary Janet Yellen has spearheaded many of the reforms, but in a recent hearing on Capitol Hill, she ruled out a capital increase for the time being. Negotiating an increase in resources so the bank can lend more without hurting its AAA credit rating, managing the reform process, and working to improve the World Bank’s relationship with other development banks will all soon be the task of Ajay Banga, who is expected to be confirmed as the next World Bank president next week. Healy joked that she felt sorry for Banga and the job he’s taking on, but she revealed a list of suggestions for what he needs to do. Among them: the contentious capital increase, thinking bigger and more inclusively, as well as addressing the crisis fund for the world’s lowest-income countries. The fund, known as the International Development Association, or IDA, has a severe funding shortfall — what has become known as the “IDA cliff” — that can only be made up by donors at a time of flat or falling foreign aid. Banga should help define the development bank’s role in the 21st century, which is not just about raising incomes, alleviating poverty, or mitigating carbon dioxide emissions, Gallagher said. He needs to raise more money and reduce the cost of capital for lower-income countries, as well as “be more attentive to the voices of the poor and climate vulnerable.”