World Bank reform is increasingly under pressure after a $100bn call for new capital to finance climate change and development ahead of the Paris summit, which will be hosted by Barbados and France.
In a consultation document, Barbados’ Prime Minister Mia Mottley outlined the proposal for $100bn of foreign exchange guarantees and extra capital as part of an update to last year’s Bridgetown Initiative, which aimed to revamp lending institutions.
Mottley led the charge in the last year for smaller and less wealthy countries to get more funding to combat climate change by reforming the World Bank, as well as the IMF. These institutions were created after the Second World War.
The “Bridgetown 2.1” consultation document proposes new funding proposals that will reduce the “excessive risk” that poorer nations have to take in order to borrow money to fund eco-friendly investments.
The World Bank’s biggest shareholders, led initially by the US government, rejected previous calls for more money. Inflation, the European energy crisis, and the coronavirus have all put pressure on government budgets. This has led to countries arguing that the World Bank should do more with its existing funds.
Svenja Schülze, the German Minister for Economic Co-operation and Development, stated on Friday that Germany was open to receiving more funding. She said, “I called for a better bank before I asked for a bigger one.” If reforms are substantial and tangible then “Germany will be willing to start a conversation about additional funding”.
An official from the US also stated that the Biden administration will examine whether additional paid-in capital is required as the broader reforms are carried out in the bank. Officials added that a full implementation of reform measures will make any paid-in Capital more effective.
Michael Jacobs is a visiting senior fellow and former UK government adviser at the ODI. He said that if the new World Bank President Ajay Bana, who was listed as a Paris attendee, outlined and implemented strong reforms, “that [question of an increase in paid in capital] would become much more open”.
Mottley, her advisers and other world leaders are consulting each other to gain support for an updated agenda for the initiative which aims to increase low-interest loans for climate-related project.
According to a summit participant, foreign exchange risk is one of the major inhibitors for investments in green infrastructure because of “the premium for foreign investment in currencies other than the major currencies”.
The G20 commissioned an independent review of the development banks. It found that by making “very manageable” changes to their risk tolerance, the World Bank and others could increase lending by “several hundred billions of dollars in the medium term”, while still maintaining its AAA credit rating which allows them to borrow on capital markets at favorable terms.
Paris is expected to be a focus for several other issues, such as debt relief for borrower nations, new financing sources to combat climate change (including selling carbon credits) and the involvement of the private sector. A French official confirmed that the French summit will also discuss mineral supply chains, efforts to preserve biodiversity and new sources of finance.
People involved with the preparations for the summit said that working groups, including some national representatives, NGOs and sovereign wealth funds, as well as philanthropists, included more than 100 participants. President Emmanuel Macron of France is also pushing for greater collaboration between the international development banks and other banks working at regional and national level to ensure projects go ahead.
Officials in the US have said that they are exploring new models of allocation for funds for climate change and pandemics, as well as new ways to determine which borrowers to prioritize for concessional finance.
An official stated that other US priorities include mobilizing private capital, and speeding debt restructuring for poorer countries.
France has promoted this gathering on June 22-23 as an opportunity to build consensus towards a more inclusive system of finance.
Claire Healy of the E3G Washington think-tank said that the gathering provided an opportunity for new climate policy suggestions to get “some heft” as well as a “political and leader-level push”.
Organisers have announced that at least 21 leaders will be attending, including German Chancellor Olaf Scholz and the presidents from Gabon, Mozambique and Congo, as well as Ursula von der Leyen, president of the European Commission. Narendra Modi is not expected, India’s Prime Minister and Chair of the G20.
The British Prime Minister Rishi Sunak did not confirm his attendance despite being asked to do so by non-profit organizations in a letter.