Developing countries call for new government funds for World Bank

Developing nations have called for a capital increase for the World Bank, while rich nations want to stick to accounting tweaks.

A broad group of low and middle-income countries has called for governments to give more money to the World Bank, in an effort to ramp up climate finance.

As governments and bank staff discussed green reforms this week, China, India and others welcomed accounting tweaks which would allow the bank to take more risk and invest more of its money.

But they said these tweaks did not go far enough and the bank needs more money in its coffers, not just to make better use of what’s already there.

Rich nations, who are expected to provide most of the money, either rejected these calls, ignored them or said that the private sector should do more, not governments.

A coalition of wealthy and climate vulnerable nations, led by Barbados’s prime minister Mia Mottley, has called on the bank to do more to tackle climate change.

Accounting tweaks

The World Bank gets its money from governments and from borrowing on the international markets. It claims it invests about a third of its money, roughly $30 billion a year, in climate programmes.

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Among Barbados’s proposals, the one that has picked up the most support is lowering the equity-to-loan ratio of the bank’s biggest subsidiary, the IBRD, from 20% to 19%. The bank says this would allow it to lend $4 billion more a year.

The governments most enthusiastically pushing the idea – like Barbados and Germany – have said this should be just a first step and the ratio should go lower, although not so low as to risk the bank’s credit rating and therefore its ability to borrow and lend cheaply.

But, at this week’s spring meeting of the World Bank, a host of developing countries called for governments provide more money to the bank, boosting its lending power without risking its credit rating.

More money

In a written submission, China’s vice finance minister Dongwei Wang said it supported “balance sheet optimisation”, an umbrella term for measures like the changes to the equity-to-loan ratio.

But, Wang said, “capital increase is a most efficient way to address the [World Bank’s] resource shortage”.

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Brazil’s finance minister Fernando Haddad said that “balance sheet optimisation has limited capacity, and other options, including new contributions from donors and a capital increase, should be considered later on [in] this process”.

The broad thrust of these calls was echoed by submissions from India, Thailand, Sudan and the Democratic Republic of Congo.

The bank’s last capital increase was in 2018, when governments paid in $13 billion.

But, at the bank’s spring meeting in Washington DC, most wealthy nations either failed to mention a capital increase or rejected it outright.

Not on the table

Japan’s finance minister Shunichi Suzuki was most explicit. He said that “a future capital increase is not eligible for discussion”.

The US finance minister Janet Yellen did not mention capital increases in her submission but recently told the US Congress she wanted “better mobilisation of private resources alongside World Bank investments” but added “we’re not requesting a capital increase at this time”.

As the bank’s two biggest shareholders, the US and Japan would need to contribute most to a capital increase, if they are to avoid their percentage ownership of the bank being watered down, perhaps as the share of geopolitical rival China rises.

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European nations like Germany did not directly address a capital increase but placed their emphasis on the private sector and on balance sheet optimisation.

The foreign minister of Switzerland, the sixth richest country in the world, said that “in light of scarce public resources”, the bank should “make the most of” its existing capital.

Political issues

Avinash Persaud advises Barbados’s leader Mia Mottley on World Bank reform. He told Climate Home that the World Bank needs to lend $100 billion a year.

“We think we can get part of the way by better leveraging existing capital,” he said, “but to get all the way we will need more capital”.

“We don’t want perfection to be the enemy of the good and there are political issues that make progress on this more difficult and perhaps near term,” he said.

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“But we must also do this and there are ways to get round the politics such as using non-voting shares so there really are no excuses for those who truly want to respond to the real and present dangers facing the planet,” he concluded.

Non-voting shares would allow governments to contribute to the World Bank’s capital without changing the balance of power at the bank. The US and its allies have historically dominated the bank, with the US picking its latest president Ajay Banga. They don’t want to cede control to China, which is currently the bank’s third-biggest shareholder.

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