Poverty, hunger and war
Bold financial initiative to tackle global crises
AS the global “polycrisis” continues apace — deepening poverty, hunger and misery in its wake — efforts to scale up global development finance in response have, sadly but unsurprisingly, taken a much slower course.
One of the more ambitious blueprints, put forward by Barbados’ Prime Minister Mia Mottley in mid-2022 — dubbed the “Bridgetown Initiative” — encompasses changes including: restructuring the sovereign debt architecture to enhance liquidity and prevent fiscal crises in low- and middleincome countries; greater redistribution of rich countries’ financial reserves and the mobilisation of private finance to mitigate vulnerability to shocks like climate change; and reform of the two principal institutions associated with the postwar “Bretton Woods” arrangements, the International Monetary Fund (IMF) and the World Bank.
Several G7 nations, including the US, Germany and France, have broadly backed the proposals. And they are expected to form the centrepiece of a development finance summit to be co-hosted by Mottley and French President Emmanuel Macron in Paris in June. This blog focuses on World Bank reform.
In 2022, the G20 commissioned an independent review of multilateral development banks’ (MDBs) capital adequacy frameworks (CAF). The “CAF review” recommended that the MDBs, of which the World Bank is the largest, revise their risk frameworks and better leverage their callable capital — funds pledged but not paid by shareholding governments — to support a scale-up in lending. In response to this review and a request from 10 shareholders, including Australia, the bank’s management published a proposed “evolution roadmap” in January. The document had leaked to the press weeks earlier.
The roadmap canvasses how the bank’s dual mission of eradicating extreme poverty and increasing shared prosperity might be expanded to better support energy transitions in middle-income countries, address growing inequality between countries, and combat the cross-border dimensions of challenges such as climate change, state fragility and pandemics. In terms of operations, the document contemplates how the bank’s current country-based programming and performance model, its concessionality and allocation criteria, and its private sector instruments could be reformed to support greater investment in global public goods.
On financing, the roadmap argues for a capital increase from shareholders to support greater non-concessional lending, increased concessional financing capacity, and the exploration of new concessional and blended financing options to incentivise investment in global public goods. It notes ongoing technical work for shareholders in relation to risk transfer, callable capital and other financing issues, but does not elaborate.
As to next steps, the roadmap envisions that the process for consulting with shareholders, clients and stakeholders on a final reform package will roll out over the next nine months, culminating at the Bank’s annual meetings in October.
Reviews of the roadmap have been mixed. Some experts have highlighted the document’s overall lack of ambition (despite the bank calling for more resources), as well as the absence of detailed analysis of the trade-offs involved in weighing increased investment in global public goods against country-based poverty reduction efforts. Given the scale of financing gaps, reform proponents have also argued for a quicker and clearer path on the CAF review’s recommendations.
Speaking on behalf of the bank’s largest shareholder, US Treasury Secretary Janet Yellen has stated: “We would like to see some progress on a quicker timeline. And [we] think there are some things that could be done to expand lending given the current capital release.”
Some developing country members are, however, reportedly concerned that the changes could undermine the bank’s AAA credit rating and thereby increase its borrowing and lending costs.
Climate experts and advocates have questioned the adequacy of the bank’s 35 per cent by 2025 target for climate investments, noting that other MDBs such as the European Bank for Reconstruction and Development and the Asian Infrastructure Investment Bank have 50 per cent targets. They have also highlighted the need for the bank to be more transparent about how it counts climate investments, and to ensure that its project financing is consistent with the Paris Climate Agreement.
Australia appears to be backing the push for major reform. On making better use of the bank’s capital, Treasurer Jim Chalmers has called for “an expeditious and ambitious response” to the CAF review, noting that “the prospects for sustainable development for many developing countries appear under grave threat”.
If the Australian Government wants the World Bank to do more to respond to multiple crises, it will require more than just encouraging the bank to leverage its existing capital and hope that the private sector will fill the gaps. Australia, working with other shareholders, should continue to argue for a more ambitious and comprehensive reform package, including on climate change, than that offered by the current roadmap. In return, and commensurate with Australia’s size and its interests, the government should increase both its capital and concessional contributions to the World Bank.
■ Cameron Hill is senior research officer at the Development Policy Centre. He has previously worked with DFAT, the Parliamentary Library and ACFID. The views are those of the author only.
This research was undertaken with the support of the Bill & Melinda Gates Foundation.
This article appeared first on Devpolicy Blog (devpolicy.org), from the Development Policy Centre at The Australian National University.