This month, Morocco hosted the Annual Meetings of the World Bank and International Monetary Fund, a global gathering of financial heavyweights featuring finance ministers and central bankers from all of the world’s major economies. Foremost on their agenda was charting a collaborative path for the world’s multilateral development banks (MDBs) to adequately fund our planet’s most urgent, global crises, namely climate change, extreme poverty, pandemics, and food insecurity.
MDBs, which are owned by multiple member states, provide financial resources and technical assistance to countries in need. These institutions are often referred to as the “lenders of last resort” because they provide financing to countries that have no other means of borrowing funds for their development needs. Given the MDBs’ crucial role in supporting vulnerable countries in times of crisis, there have been many calls for reforming these institutions in the last few tumultuous years of the global COVID pandemic, increased climate disasters, and growing economic instability. Recognizing that shared global challenges require shared solutions, leaders such as Prime Minister Mia Mottley of Barbados (and her Bridgetown Initiative) have successfully advocated to get MDB reform at the top of the global political agenda.
To her credit, United States Treasury Secretary Janet Yellen took up the mantle and officially kicked off the MDB “evolution” (aka reform) process exactly one year ago at last year’s Annual Meetings. Many incremental steps have since been taken to reform the World Bank and other MDBs, with the objective of making them more fit for purpose to tackle today’s global challenges. For example, the World Bank lowered its equity-to-loan ratio from 20% to 19%, which frees up an additional $5bn per year in new lending capacity, and first the Inter-American Development Bank (IDB), and now the World Bank and the European Investment Bank ( EIB) decided to introduce debt pause clauses in select new loan agreements.
These initiatives have moved the ball forward, but a lot of work remains to be done. To fully meet the needs of today’s world, MDBs still need two things: more money and more cooperation. It is essential that multilateral development banks not only catalyze additional funding to meet growing demand, but also work better together.
More Money
Ahead of the Annual Meetings in Marrakesh last week, momentum for boosting the lending capacity of MDBs was further built through two new reports. The Rockefeller Foundation released an analysis showing that the World Bank, with the right reforms, could lend an additional $190 billion by simply stretching its additional assets. While additive, $190B is insufficient to meet the needs and ultimately new financial contributions from the Bank’s shareholders will be needed, including new paid in capital and more highly concessional, including grant financing for low-income countries that are already in debt distress. On this point, the Open Society Barometer recently released polling showing that particularly in global south countries, support is high for high-income wealthy countries to contribute more to institutions like the World Bank.
According to the United Nations, the world needs trillions, not billions, of new dollars to truly tackle extreme poverty and put countries on the path to achieving sustainable development. MDB shareholders must accept that reforms will have to be combined with increased capital if global financial institutions are to meet the recommended target of tripling their investments in order to contribute their estimated $390B/year share of financing needs.