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Exclusive-World Bank seeks more funds to tackle climate change, other document crises

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By David Lawder

WASHINGTON (RockedBuzz via Reuters) – The World Bank is seeking to dramatically expand its lending capacity to address climate change and other global crises and will negotiate with shareholders ahead of its April meetings on proposals that include a capital raise and new lending facilities. , according to an “evolution roadmap” seen by RockedBuzz via Reuters on Monday.

The roadmap document – sent to shareholder governments – marks the beginning of a negotiation process to change the bank’s mission and financial resources away from a country- and project-specific lending model used since its inception at the end of the second World War.

World Bank management aims to have specific proposals to change its mission, operating model and financial capacity ready for approval by the Joint Development Committee of the World Bank and the International Monetary Fund in October, according to the document .

A World Bank spokesman said the document aims to provide details on the scope, approach and timetable of the evolution, with regular updates for shareholders and decisions throughout the year.

Reform of multilateral development banks has been hotly debated in recent months as developing countries grappled with mounting pressure from inflation, energy and food shortages fueled by Russia’s war in Ukraine, slowing of growth, rising debt and growing vulnerability to climate shocks.

The pressures exposed the inadequacy of the World Bank and International Monetary Fund (IMF) structures – designed at the end of World War II to focus on rebuilding peacetime economies – to deal with the current global calamities.

AAA RATING FOR STAY

The development lender will explore options such as a potential new capital raise, changes to its capital structure to unlock more loans and new funding instruments such as guarantees for private sector loans and other ways to mobilize more private capital, according to the document.

But the World Bank Group (WBG) is not ready to bow to calls by some non-profit organizations to drop its long-standing top-ranking credit rating to ramp up lending, saying: ‘Management will explore all options that enhance the capacity of the WBG while maintaining the AAA rating of the WBG entities.”

US Treasury Secretary Janet Yellen has called on the World Bank and others to revamp their business models to increase lending and leverage private capital to finance investments that benefit the world more broadly, such as helping middle-income countries to switch from coal power.

A US Treasury spokesman declined to comment on the World Bank document.

A UK Foreign Office spokesman said the UK “strongly supports” World Bank proposals to explore all options to further increase support to developing and emerging economies.

The bank said the proposals under consideration include higher statutory lending limits, lower equity requirements per loan and the use of callable capital — money pledged but not paid by member governments — for lending.

Development experts say this shift would significantly increase the loan amount compared to the current capital structure, which uses only paid-in capital.

“The challenges the world is facing require a massive increase in support from the international community,” the bank said in the filing. “For the WBG to continue to play a central role in development and climate finance, a concerted effort by both shareholders and management will be required to increase the WBG’s financing capacity.”

INADEQUATE FINANCING

The roadmap document warns that a buildup of loans for climate change, health care, food security and other needs could require a capital raise to increase the capacity of the World Bank’s middle-income lending arm, the International Bank for Reconstruction and Development ( IBRD).

IBRD’s $13 billion capital raise in 2018 “was designed to be prepared for one medium-sized crisis in a decade, not multiple, overlapping crises,” including the COVID-19 pandemic, war in Ukraine and the effects of accelerating climate change, the paper said. The IBRD’s crisis reserves will likely be exhausted by mid-2023, he said.

Another option, according to the roadmap, is for World Bank shareholder countries to increase periodic contributions to the lender’s fund for the world’s poorest countries, the International Development Association (IDA), which have declined in recent years despite increasing demands.

The roadmap also offers the possibility of creating a new Easy Loan Trust Fund for middle-income countries that would focus on global public goods and be similar in structure to the IDA, with regular replenishments of funding that would be separate from the structure of the bank capital.

“Such a fund can attract bilateral donor assets separate from shareholder budget lines supporting WBG and potentially include donors in addition to shareholders,” such as private foundations, the bank said.

But environmental campaign group Friends of the Earth said the proposal didn’t go far enough and World Bank shareholders needed to make sure the lender was not “part of the problem”.

“A true evolutionary roadmap must commit to ending funding for fossil fuels, industrial animal agriculture, petrochemical infrastructure, business-friendly false solutions and harmful activities in biodiversity areas,” said Luisa Abbott Galvao , Senior International Policy Campaigner for Friends of the Earth. in a statement sent by email.

The World Bank also said evolving its mission to scale up climate lending while maintaining good development outcomes will require additional staffing and budgetary resources, which have declined by 3% in real terms over the past 15 years.

(Reporting by David Lawder; additional reporting by David Milliken in London, additional writing by Karin Strohecker, editing by Grant McCool)