IFI governance


World Bank general capital increase to be formalised in October

27 July 2018

The World Bank announced during its Spring Meetings in April that shareholders had agreed a substantial $13 billion capital increase for the institution. The increase, agreed after what news site Devex described as “tense negotiations” is comprised of a $7.5 billion injection for the International Bank for Reconstruction and Development (IBRD, the World Bank’s middle-income lending arm); and $5.5 billion for the International Finance Corporation (IFC, the Bank’s private sector arm).

As news agency Reuters reported, “the agreement will lift China’s shareholding in IBRD to 6.01 percent from 4.68 percent, while the U.S. share would dip slightly to 16.77 percent from 16.89 percent. Washington will still keep its veto power over IBRD and IFC decisions.” Giving in to a key US demand aimed at decreasing lending to China, shareholders agreed to change IBRD’s lending rules to charge higher rates for developing countries with higher incomes, to discourage them from excessive borrowing. As noted in April by the UK’s secretary of state for international development, the increase is also premised on a greater focus on fragile states and increased climate-related investments.

Throughout the negotiation process, in order to gain support from civil society, management and the board stressed that the capital increase and other reforms, as outlined in its Report to Governors, would result in a ‘bigger and better’ Bank in line with civil society demands.

European civil society organisations (CSOs) have, however, on several occasions stressed that challenges to the Bank’s ability to meet its development objectives are not primarily a question of resources. They instead underlined the need for substantial reforms to the Bank’s governance structure, the development and implementation of a human rights policy, a focus on developmental additionality and transformational impact of Bank activities, and a realignment of staff incentives (see Dispatch, Spring 2018). CSOs feared that in the absence of these and other changes, the capital increase could work against the Bank’s support for and adherence to international human rights standards.