Donor countries face the prospect of a multi-billion dollar cash call by the World Bank and its regional development banks yesterday after a report co-authored by former Treasury Secretary Larry Summers called for a fourfold increase in funds.
The report, by the respected Center for Global Development (CGDev), calls for a quadrupling to $200bn of the $50bn in infrastructure investment funded by the World Bank and sister regional institutions such as the Asian Development Bank in order to underpin an acceleration in potential economic output.
It called for a focus on what it called a well defined set of global public goods where the multilateral development banks (MDBs) and particularly the World Bank should be contributing given their “sectoral and financial capabilities” — climate change, agriculture, health and development data.
Its recommendations also included $10bn for research and deployment of new energy and health technologies, to foster the nascent green bonds market, and to issue loans and guarantees on terms that encouraged borrowers to take on the upfront costs of climate mitigation.
It also called on the Bank to maintain its concessional lending — loans to the world’s poorest countries — at recent high levels of $25bn a year.
However, the current level of lending which hit $29bn in the latest financial year is prompting speculation that the Bank will need to come to shareholders for a capital increase.
‘OPENNESS’ TO EXTRA CASH
Bank president Jim Yong Kim yesterday added to speculation when he said that the Bank was “being asked to step up in many areas that we have not traditionally been involved in”.
“Climate change was not a traditional area of work for us. Forced displacement was not a traditional area of work for us,” he said. “If you expand the agenda like that and then, at the same time also have increasing demands for the traditional things that we’ve been doing, it’s hard to see how we’re going to meet all those demands without a capital increase.”
He said there was “much more openness” to a capital increase, in a sign that he has approached shareholders. “So we’ll make the case and then just as my election was up to the governors the capital increase will be up to the governors,” he said.
The move appeared to take Bank insiders by surprise. A year ago Kim told Emerging Markets that the lender would have enough resources to cope with a surge in demand for loans in the wake of the economic slowdown without going back to its shareholders.
The impact of the CGDev report was partially diluted by a dissenting opinion by panel member Ray Offenheiser, the president of Oxfam America, who criticised the report for tackling the impact of the widening inequality.
“I would continue to argue that the overarching mission and mandate of the World Bank (and other MDBs) must remain the fight to eliminate extreme poverty,” he said.
A World Bank spokesperson said: “The report rightly acknowledges the crucial role of multilateral development banks (MDBs) to development. In fact, the World Bank Group is already working in key areas referenced in the report, including stepping up its response to multiple global crises and shocks — including climate change — and leveraging the private sector in development.”