The spring meetings of the World Bank and the IMF, which began on April 10 in Washington, provide an opportunity to reflect on the bank’s ongoing evolution. As development confronts both longstanding and emerging challenges, the bank needs to reform itself in ways that enable it to provide more ambitious solutions.
Over the past half-century, the bank has worked with developing nations to help hundreds of millions of people rise out of poverty, but global progress ground to a halt in 2020, after five years of slowing gains, as the COVID-19 pandemic pushed 70 million people into extreme poverty. If left unchecked, climate change could do the same to 132 million more by 2030.
The bank estimates that the number of people living in extreme poverty (on less than US$2.15 per day) would increase to 600 million by 2030, and more than 3 billion people would live on less than US$6.85 per day.
The bank is uniquely equipped to mobilize the financing needed to address these global challenges, but it must ensure that its ambitions, strategies and financing mechanisms align with developing nations’ needs and realities.
While we are pleased with the bank’s progress on internal reforms, at least four areas require more work before its annual meetings in October.
First, the bank must reaffirm its commitment to promoting sustainable, inclusive and resilient economic growth. Boosting growth remains the best way to create quality jobs and opportunities, and achieve the bank’s twin goals of ending extreme poverty and fostering shared prosperity, but, as the bank’s own research finds, “nearly all the economic forces that powered progress and prosperity over the last three decades are fading.”
With global growth slowing, the bank now estimates that the international community is unlikely to meet the goal of ending extreme poverty by 2030.
Addressing the root causes of poverty and economic slowdown would require adopting new instruments and ways of working, increasing staff capacity, and setting targets that would enable the bank to play a greater role in fostering a healthy business environment and unleashing private investment. This would require a less risk-averse approach and improved coordination with the bank’s private-sector arms. It also means listening carefully to Global South members’ needs and concerns when defining and selecting criteria for the “global challenges” the bank would focus on over the next decade.
Second, the bank must ensure that low-income nations can exercise more agency in shaping the development agenda. A key principle underlying the bank’s operating model is nation-driven engagement — the borrowing government leads in coordinating and monitoring its own portfolio.
This client-centered model has helped ensure that the bank’s strategies for borrowing nations align with national priorities and have the political support they need to sustain investments over time.
One proposal currently being considered is to create stronger incentives for nations to invest in global public goods, such as reducing greenhouse gas emissions. While this is a positive step, the bank must refrain from compromising nations’ “ownership” of policies by imposing excessive or burdensome conditions on them. Moreover, the bank must ensure that concessional loans or grants aimed at encouraging such investment do not lead to higher borrowing costs or trade-offs between middle-income nations and low-income nations. Nor should they come at the expense of official development assistance (ODA).
If the goal is to promote investments that benefit the international community, then the international community — particularly advanced economies — should bear the costs.
Third, to achieve the UN Sustainable Development Goals, bank shareholders must do more to increase the bank’s financial capacity. To that end, shareholding governments and other partners must meet their existing commitments, such as developed nations’ pledge to provide US$100 billion per year for climate mitigation and adaptation efforts, private-sector commitments to mobilize US$1 trillion for climate action and the G7’s commitment to raising US$600 billion for global infrastructure investments.
However, more is needed.
For example, early estimates suggest that adjusting the bank’s capital adequacy framework could make available US$50 billion to US$200 billion over the next decade. While some financial innovations have shown promise, it is important to consider their full effects. For example, raising hybrid capital could increase the bank’s borrowing costs at a time when clients are facing historically high interest rates and unsustainable debt burdens.
A capital increase could be one way to leverage available resources and the clearest sign of strong shareholder support, but this must be accompanied by an overhaul of the bank’s cost pass-through model to enable it to make greater use of low-interest, long-term debt instruments, thereby ensuring that nations can tackle development challenges without incurring unsustainable debt. The need for more ambitious ODA replenishments over the coming years must be met.
Lastly, reducing poverty would be a daunting (perhaps even impossible) task without access to clean, affordable and reliable energy sources, as well as emissions-generating investments in manufacturing and transportation. Letting the climate effort overshadow the bank’s broader objectives would be a grave injustice — and might not be the most efficient strategy.
If, say, sub-Saharan Africa (excluding South Africa) were to triple its electricity consumption overnight by relying on natural gas to power the increased demand, it would add only 0.6 percent to global carbon emissions.
Attempting to tackle poverty and climate change simultaneously could lead some governments to make costly and counterproductive decisions. Instead, it would be more efficient — and fairer — for bank shareholders to find the right balance between focusing on reducing emissions in upper-middle and high-income nations and focusing on adaptation to help vulnerable communities and nations build climate resilience.
The Global North and Global South have a historic opportunity to reinvigorate the multilateral development-bank system. Building on the bank’s legacy of innovation and progress is the best way to advance the goal of a more sustainable, resilient and inclusive world.
Wempi Saputra is executive director of the World Bank Group of Southeast Asia. Erivaldo Alfredo Gomes is executive director of the World Bank Group representing Brazil, Colombia, the Dominican Republic, Ecuador, Haiti, Panama, the Philippines, Suriname, and Trinidad and Tobago. Abdoul Salam Bello is executive director of the Africa Group II on the World Bank Group board of directors representing 23 African nations. The authors’ views are their own and do not necessarily reflect those of the World Bank Group or its member nations.
Copyright: Project Syndicate
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