Today’s News
The World Bank has approved changes to its internal lending rules, unlocking an additional USD 30 billion in lending capacity over the next decade to support developing countries and emerging markets as they confront global challenges like climate change.
World Bank President Ajay Banga revealed the move, which lowers the equity-to-lending ratio of the bank’s International Bank for Reconstruction and Development (IBRD) arm by 1 percentage point to 18%. This step will allow the bank to take on more risk while implementing reforms requested by shareholders, including the United States.
Image Source: Business Standard
The decision, combined with adjustments in the bank’s pricing policies, will ultimately increase its lending capacity by USD 150 billion over the next seven to 10 years.
The changes come amid growing global pressures, including the war in Ukraine, escalating conflict in the Middle East, and increasing government debt. Banga pointed out that one of the most significant looming crises is an expected gap of nearly 800 million jobs for the 1.2 billion people set to enter the workforce over the next decade.
Experts estimate that developing countries will require at least USD 3 trillion in funding annually to address future challenges like pandemics and climate change. The IBRD last lowered its equity-to-lending ratio in 2023, reducing it from 20% to 19%. Banga expressed optimism about further measures to enhance the bank’s capacity, including exploring new instruments like hybrid capital.
The World Bank was able to reduce its ratio while safeguarding its triple-A credit rating by strengthening its credit monitoring system and implementing contingency measures in case of a “stress event.” Additionally, the board approved changes to the fee structure, making loans more affordable and accessible to borrowing countries, including discounted rates for short-term loans and more favorable pricing for vulnerable small states.
Image Source: Forbes India
Banga also emphasized the bank’s push to replenish its fund for the poorest countries, the International Development Association (IDA), aiming for more than USD 100 billion, with hopes of reaching USD 120 billion.
He acknowledged the challenge of increasing contributions from World Bank shareholders, but noted Denmark’s 40% increase in support and the potential for further commitments from countries like Britain and Spain.
Banga expressed optimism about U.S. support and plans to meet with U.S. Treasury Secretary Janet Yellen, who has been a key advocate for the World Bank’s efforts to adapt to current global needs.
He also highlighted ongoing efforts to speed up the approval process for new projects, which has already improved from an average of 19 months to 16 months, with a target of 12 months.
Additionally, Banga announced that a new job council, created to address the global jobs crisis, will meet for the first time during the upcoming annual meetings of the International Monetary Fund and the World Bank. The council will be co-chaired by Singapore’s President Tharman Shanmugaratnam and former Chilean president Michelle Bachelet.
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