World Bank-IMF meetings: A start, but still a long way to go

Some progress but a very long way to go — that seemed to be the broad consensus after last week’s World Bank and International Monetary Fund annual meetings held in Africa for the first time in 50 years. Ministers, civil society groups, experts, the media, and others met in Marrakech, Morocco, for the annual talks, amid a backdrop of escalating conflict between Israel and Hamas, ongoing war in Ukraine, soaring food prices, increasing climate disasters, debt distress, slowing economic growth, and record inflation, according to the latest IMF outlook. Despite the gloomy prospect, the meetings saw some wins, with the World Bank's governing board endorsing a new vision statement — to "create a world free of poverty on a liveable planet" — which broadens the bank’s anti-poverty mission to include tackling climate change. The board also signed off on new financial measures that allow the bank to lend more with its existing resources by using debt-like hybrid capital and a new portfolio guarantee platform. Ajay Banga, the bank’s new president, has said this could unlock more than $150 billion in new lending over the next 10 years, although experts caution that this money hasn’t yet materialized. Meanwhile, the IMF may score a victory of sorts if a U.S.-backed plan to increase quota-based lending is agreed to, which appears likely. It would give member states, especially those in Africa, the ability to secure more lending, but because the increase would be equi-proportional, it doesn’t give them more of a say in actual decision-making. Zambia also agreed to a long-awaited debt restructuring deal with creditors. However, while the rhetoric of the meetings was full of urgency — “never has humanity stared down a set of problems so complex and severe, that our very existence is in question,” Banga said during his plenary speech — it was not matched by the necessary action — or promises of new cash — onlookers said. “We’ve seen a welcome shift in ambition over the past week but not enough concrete action where it’s needed most,” Amy Dodd, policy director of development economics at ONE Campaign, told Devex. “The clock starts ticking now — with accelerating global crises and a limited political window, governments must use the next six months to turn the momentum from these meetings into the game-changing solutions needed to tackle the generational challenges staring the whole world in the face,” she added. A bigger bank? While the IMF looks set to get its financial boost, discussions about recapitalizing its sister organization were noticeably absent during the meetings. While promising to reform the bank first — including introducing a suite of new financing products to stretch the bank’s existing balance sheet — Banga was clear during the meetings that the institution needs more and fresh money. “Get capital adequacy going, make the place work quicker, faster, better with other partners, but then I’m definitely going to go back to our shareholders to seek a bigger bank because I believe that is what the world needs for the next coming decades,” he told reporters during a press conference last week. However, if Banga was hoping shareholders would sign up to a capital increase for the International Bank for Reconstruction and Development, or IBRD, the bank’s lending arm for middle-income countries, he was disappointed. Some shareholders were on board — France, the United Kingdom, and the Group of 24, which represent low- and middle-income countries in international monetary debates, all made reference to a capital increase in official statements published during the meetings. Indeed, the latest report by the G20 Independent Expert Group on strengthening the MDBs, published Friday, was unequivocal that MDBs will need bigger balance sheets if they are to stand any chance of raising lending volumes to the level needed for transformational change. However, the United States was notably silent on the issue, leading Charles Kenny, a senior fellow at the Center for Global Development, to accuse America of shortchanging the bank, and, by association, the planet. “[P]rogress could be considerably faster — on climate, on pandemics, on the fight against poverty and insecurity — if rich countries met their obligations to the rest of the world. Led by the US, the skinflint G7 are displaying an utter lack of international leadership, to the detriment of the whole planet,” Kenny wrote. “So the World Bank needs to do more, but they should not do it at the expense of other priorities, like development and poverty.” --— Daouda Sembene, nonresident fellow, Center for Global Development The U.S. line is that it won’t recapitalize the bank until it sees major reform. But it’s not clear what concrete steps the bank needs to take in order to get all shareholders to move forward, according to Clemence Landers, also from CGD. “Banga was explicit he wants a bigger bank but it leaves me with the question: ‘If not now then when? What exactly needs to get better before the bank can get bigger and by when?’” Landers told Devex. Some say the bank could get even “better” by stretching existing resources further. “We think based on everything we've seen, there is a lot more potential to optimize balance sheet,” Eric Pelofsky of The Rockefeller Foundation told Devex, citing a study the foundation commissioned that found additional reforms could unlock nearly $190 billion in extra, urgently needed lending for low- and middle-income countries without jeopardizing the bank’s AAA credit rating. As for a capital increase, Pelofsky said, “That is a complicated negotiation and discussion that's going to take a while,” so “let's do this now.” And if the bank can show that it’s truly stretching the balance sheet, that could potentially better pave the way for a future capital increase. But Hans Peter Lankes, incoming deputy chief executive at ODI think tank, said the bank, and other MDBs, need firm financial commitments from shareholders now. “The G7 position seems to be ‘first do all this other stuff and then maybe we will see,’ … but they’re asking the MDBs to walk fairly far out on thin ice without the clarity that this is all going to be underpinned by capital further down the road,” he told Devex. A bumper IDA? Banga was outspoken about the need to fund the International Development Association, or IDA, the bank’s concessional lending arm for the world’s poorest countries. IDA is approaching a financing “cliff,” the World Bank president said, exhausted by payments made to counter the negative impacts of COVID-19. IDA’s current funding cycle is due to end in June 2025, with replenishment talks kicking off in December. Banga wants shareholders to make this next replenishment “the largest of all time,” he said during the meeting “We are pushing the limits of this important concessional resource and no amount of creative financial engineering will compensate for the fact that we need more funding,” he added. Landers said it was encouraging to see Banga set such high expectations for IDA and that she hopes the “capital drum banging” for IBRD will “mutate” to focus on more funds for IDA. Poverty alleviation and a livable planet? While Banga may have gotten his “livable planet” vision and mission across the finish line, the thorny question of whether the bank can successfully tackle climate change without compromising its poverty alleviation mission remains on many people’s minds. “So the World Bank needs to do more, but they should not do it at the expense of other priorities, like development and poverty. And that's the issue right there,” Daouda Sembene, a non-resident fellow at CGD, told Devex. Banga was keen to reassure that the bank could indeed do both, repeatedly presenting the two challenges as inextricably “intertwined.” However, he was light on the details. “And of course, we are receiving assurances from the World Bank that yes, they would do both. But it's not clear yet how they will do it,” Sembene added. On that note, a major concern among lower-income countries is that the type of concessional financing typically reserved for IDA countries will also be offered to IBRD countries as part of the World Bank’s efforts to get middle-income countries to invest in so-called global common goods — such as climate change, pandemics, and fragility. That has led to worries that the bank will direct its limited concessional resources to help middle-income countries rein in their greenhouse gas emissions meaning that poorer countries, which barely contribute to emissions, will get shortchanged. “If you are giving a new and expanded mandate to the World Bank for them to be doing more on climate, it also means the cheap resources … would also benefit the middle-income countries and not just low-income countries,” Sembene said, noting that if you add resources to both, there would be no issue, “but there is no assurance that that’s how it’s going to work.” Climate criticism Furthermore, some civil society groups were unhappy with the IMF and bank’s language around climate change solutions during the meetings. Banga talked about voluntary carbon markets, for example. “[B]y prioritising lending instruments and market-based solutions for climate action, the IMF and World Bank fail to acknowledge the responsibility of the global north to tackle climate change and fulfill their climate finance commitments to the global south,” Jean Saldanha, director of the European Network on Debt and Development, or Eurodad, said in a press release. Climate campaigners also criticized Banga for not taking a stronger stance on fossil fuels. The bank’s investment in fossil fuels has come down dramatically in recent years, but it still has a big exposure to natural gas. Speaking during a town hall meeting with civil society groups last week, Banga said these investments were instrumental in helping countries transition to renewables. However, not everyone was convinced. “Throughout the Annuals we have heard a lot about Ajay Banga’s vision of reducing poverty on a liveable planet. However, this vision cannot become reality without tackling the cause of climate change - fossil fuels. And gas is a fossil fuel,” Sophie Richmond, Big Shift Global coordinator, said in a press release. “The future is clean, affordable, sustainable renewable energy. The Bank needs to move away from the dirty energies of the past and support the shift to a healthier, sustainable, liveable planet,” she added. Speed and impact, but at what cost? Some of the most compelling reforms signed off during the meetings are to the bank’s processes. Speaking during his plenary speech, Banga went into detail about how the bank plans to slash the time it takes to get a bank project off the ground — currently 27 months on average — by a third. “Our plan calls for simplifying approvals, proportionately adjusting reviews, and combining intelligent technology with shorter timelines to drive speed,” he said. But speed does not mean compromising on safety, the president was quick to reassure. “And we will do it without making a single change to our environmental and social standards that protect the communities we work for,” he said, before going on to add, “We do not believe quality conflicts with speed.” Banga also said he would overhaul the bank’s corporate scorecards — the way it measures performance — by cutting the number of indicators from 153 to around 20 and reorienting the focus toward impact and outputs rather than inputs. ODI’s Lankes called this a “big step forward” and said it shows Banga is “serious about impact.” However, while civil society groups were relieved to hear Banga has no intention of rolling back the bank’s environmental and social standards, they want to see more focus on accountability, which they say is barely mentioned in the bank’s evolution road map. They fear that in the sprint toward tackling global challenges and tripling financing, communities and E&S standards will be left behind. “If the World Bank Group wants to do more, quickly, and have a larger mandate then now is the time to strengthen its accountability mechanisms,” Margaux Day, Accountability Counsel’s policy director, told Devex. “We know that, however well intended, this additional financing will cause harm to communities and the environment,” she added. One obvious step would be for the bank to offer “remedy” to harmed communities, Day said. This is something that the bank’s private sector arm, the International Finance Corporation, has been considering but campaigners say the effort falls short of what’s needed. “A minimum commitment the World Bank Group can make is to remediate environmental and social harm linked to its financing and verified by its own independent accountability mechanisms. “Remediating environmental and social harm would make its lending more aligned with its new mission to pursue a 'liveable planet,'" Day told Devex.