World Bank shareholders back $13b capital hike

World Bank shareholders on Saturday endorsed a $13 billion paidin capital increase that will boost China’s shareholding but also bring lending reforms that will raise borrowing costs for some countries, including China.

The multilateral lender said the plan would allow it to lift the group’s overall lending to nearly $80 billion in fiscal 2019, which starts on July 1, from about $59 billion last year and to an average of about $100 billion annually through 2030.

“We have more than doubled the capacity of the World Bank Group,” President Jim Yong Kim told reporters during the IMF and World Bank spring meetings in Washington. “It’s a huge vote of confidence, but the expectations are enormous.”

The hard-fought capital hike, initially resisted by the Donald Trump administration, will add $7.5 billion paid-in capital for the World Bank’s main concessional lending arm, the International Bank for Reconstruction and Development (IBRD).

Its commercial-terms lender, the International Finance Corp, will get $5.5 billion paid-in capital, and IBRD will get a $52.6 billion increase in callable capital.

The bank agreed to change the IBRD’s lending rules to charge higher rates for developing countries with higher incomes, to discourage them from excessive borrowing.

The IBRD previously had charged similar rates for all borrowers, and US Treasury officials had complained that it was lending too much to China and other bigger emerging markets.

US Treasury Secretary Steven Mnuchin said on Saturday that he supported the capital hike due to the reforms that it included. The last World Bank capital increase came in 2010.

The current hike comes with cost controls and salary restrictions that will hold World Bank compensation to “a little below average” for the financial sector, Kim said.

He added that there was nothing specific in the agreement that targeted a reduction in lending to China, but he said lending to China was expected to decline.

In 2015, China founded the Asian Infrastructure Investment Bank, and it also lends heavily to developing countries through its government export banks.

The agreement will lift China’s shareholding in the IBRD to 6.01 percent from 4.68 percent, while the US share will dip slightly to 16.77 percent from 16.89 percent. Washington will retain veto power over IBRD and IFC decisions.

Kim said the increase was expected to become fully effective by the time the World Bank’s new fiscal year. Countries will have up to eight years to pay for the capital increase.

The US contribution is subject to approval by Congress.