G20 review calls for increased MDB lending as World Bank ignores urgent need for policy changes

4 October 2022

In July the G20 published an independent review of multilateral development banks (MDBs) capital adequacy frameworks (CAFs). The review follows a 2015 G20 Action Plan on Balance Sheet Optimization and, as summarised in a Devex article in July, proposed that MDBs undertake a concerted effort to boost their lending, including a decreased reliance on external credit rating assessments. The review stressed the proposed recommendations would result in increased lending capacity by MDBs during times of extreme resource constraints, thus improving global crisis response.

Also in July, the World Bank published a report titled Navigating Multiple Crises, Staying the Course on Long-term Development, broadly outlining the institution’s response to “the crises affecting developing countries.” The report follows the Bank’s ‘Proposed Roadmap’ launched in April in response to the war in Ukraine. It sets out four interlinked pillars, combining crisis response and long-term development: (i) Responding to food insecurity; (ii) protecting people and preserving jobs; (iii) strengthening resilience; and (iv) strengthening policies, institutions and investments.

The Bank’s report makes for sombre reading and identifies the crises as composed of the consequences of the “COVID-19 pandemic, the war in Ukraine, food and nutrition security, high energy prices, tightening financial conditions, risk of debt distress, and climate disruptions.” While increased inequality is referenced, it is not included in the elements comprising the current crises. Also notable by its absence is the austerity crisis and mention of the lack of progress on economic transformation (see Observer Winter 2017-2018), with many countries still dependent on commodity exports, and long-term decline of state capacity resulting in no small part from World Bank and IMF-supported policies such as privatisation of health, education and other essential public services (see Observer Summer 2022, Summer 2021, Winter 2020).

Each day that passes that the Bank leaves its development approach unchanged...the more we can understand why social movements are sceptical about its continued operations in the Global South.Rodolfo Lahoy, IBON International

Optimising MDB balance sheets: Whither the optimisation of development impact?

Rodolfo Lahoy of Filipino civil society organisation IBON International spoke for many communities and individuals negatively impacted by World Bank policies in stressing that, “the Bank talks of crisis response but remains silent on its own responsibility for crises. Each day that passes that the Bank leaves its development approach unchanged, even evading responsibility for policy failures, the more we can understand why social movements are sceptical about its continued operations in the Global South.”

The World Bank’s crisis response framework makes it clear that additional capital made available through changes to its CAF will not result in urgently needed increased development impact. It is telling that the report fails to consider any links between the crises it identifies and the Bank’s reliance on private sector-led and financialised approaches to development (see Observer Spring 2022; Dispatch Springs 2020). It is disappointing, for example, that references to the evolving food security crisis fail to engage with the well-documented impacts of the financialisation of food production and related financial speculation on food prices (see Observer Summer 2022, Spring 2020).

Likewise, while the report highlights that “delivering and administering vaccines remains an urgent need,” it refrains from commenting on the catastrophic consequences of the unwillingness of some of its principal shareholders to support – and World Bank President David Malpass’s opposition to – the temporary waiver of intellectual property rights (TRIPS) to facilitate urgently needed production of Covid-19 vaccines in middle- and low-income countries (see Observer Summer 2022, Spring 2021). It also fails to engage with the well-documented negative impact of Bank-supported privatisation of public services, including health services (see Observer Summer 2022). The implications of these shortcomings are heightened by the fact that pillar three of the proposed approach focuses precisely on crisis and pandemic preparedness and support for “adaptive social protection systems”, rather than on universal coverage.

Response anchored on GRID-enabling institutional reforms

Civil society concerns are further exacerbated by the proposed focus of the Bank’s Green, Resilient, Inclusive Development (GRID) approach, with the report emphasising that “WBG interventions under Pillar 4 will focus on long-term policies to advance the GRID agenda and help rebuild better.” This is despite long-term civil society and others’ criticisms of the Bank’s Maximising Finance for Development framework (see Observer Summer 2017), which has now been incorporated into GRID, as discussed during last April’s Spring Meetings Civil Society Policy Forum. Worryingly, the report emphasises throughout that the Bank’s responses will be heavily reliant on development policy financing (DPF), an instrument which requires conditions (i.e. ‘prior actions’) in return for budget support loans or grants, and falls outside the institution’s social and environmental safeguards (see Dispatch Springs 2021), as outlined in a civil society submission to December’s DPF retrospective. It is evident that DPF will continue to be actively used to imbed reforms the Bank considers necessary to create a business enabling environment, thus further contributing to long-term negative consequences of what Professor Daniela Gabor from the University of Bristol calls the Wall Street Consensus, i.e. the ‘derisking’ of private sector investments by MDBs and governments (see Observer Autumn 2022, Dispatch Annuals 2021).

The document highlights that the World Bank projects the disbursement of $170 billion (with $60 billion in ‘climate co-benefits’) in support of its crisis response during the next 15 months (April 2022 to June 2023). However, it stresses that the proposed 15-month financing plan “will stretch WBG finances and limit availability of World Bank financing in later years,” raising the prospect of a future capital increase on the horizon (see Observer Autumn 2018).

The Bank’s proposed crisis response framework makes it clear that the G20 proposal does nothing to address the fundamental need for MDB policy reforms required to ensure increased resources contribute to solutions to the multiple crises faced by humanity and the poorest in particular.