With geopolitical fragmentation further deepening, the Development Committee failed yet again to agree on a joint ministerial communique from the Development Committee – the last one being released before Russia’s invasion of Ukraine. Instead, the chair’s statement was released, reflecting the position of majority shareholders on the measures needed to tackle the development challenges that “have upended decades of hard-won development progress, and the development.”
After a year-long process, the Committee welcomed the substantial progress on the World Bank’s Evolution Roadmap to strengthen the Bank’s operational and financial model. Despite rhetoric from the leadership of needing a “bigger, better, and faster Bank”, the roadmap has failed to achieve significant capital mobilisation to meet the Sustainable Development Goals (SGDs), and has had to resort to tactics of financial engineering to unlock an additional lending capacity of $50 billion over the next ten years (see Observer Autumn 2022). The Committee welcomed “the reduction of the policy minimum Equity-to-Loan ratio to 19 per cent, the removal of the Statutory Lending Limit from the IBRD Articles; and the increase in limits on bilateral shareholder guarantees” as ways to make more financing available in the next decade.
The focus on private capital mobilisation in the Roadmap remains as “members welcomed additional proposals to increase private capital mobilization, including by IFC and MIGA, the enhancements of Country Private Sector Diagnostics, and the launch of the Private Sector Investment Lab”, despite vast evidence showing that the Bank’s Cascade approach has not only failed to provide the “trillions” in development finance promised, but also resulted in significant negative social and economic consequences. This flawed development paradigm has been long criticised by civil society organisations (CSOs) as it assumes incentivising private finance is inherently benign and productive, while failing to acknowledge that the type of projects designed to attract profit-seeking private investors and generate quick and sufficient returns might not match the public interest and national or local priorities, or support sustainable economic transformation (see Observer Summer 2023).
Finance mobilisation will continue to depend very much on shareholder donor pledges as members of the Development Committee recognised the need to increase the financing capacity of the International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD) – the Bank’s low- and middle-income lending arms, respectively, particularly by calling on “existing and new donors to pledge to the IDA Crisis Response Window Plus by the end of the calendar year.” This Crisis Facility aims to address the continuing far-reaching social and economic impacts of Russia’s invasion of Ukraine, by providing finance to help countries to respond to food insecurity, deal with economic shocks, address increasingly frequent and severe natural disasters, and respond to health emergencies and severe disease outbreaks. IDA management is concerned that IDA is facing a “cliff” as it does not have cash to help countries manage existing crises and is hoping to mobilise $6 billion to supplement IDA’s crisis response window (CRW), which, due to IDA’s leveraging capacity, requires $4 billion in new donor commitments.
Tackling the debt crisis – small hope for meaningful reform
Debt sustainability is recognised as an important issue in the Chair’s statement with members calling on the World Bank and the IMF to work closely together on debt sustainability with the Paris Club and G20 non-Paris Club creditors to support the implementation of the Common Framework. While members welcomed the launch of the Climate Resilient Debt Clause which would suspend debt repayments on a cost-neutral basis as part of the Bank’s ongoing work on crisis preparedness, this is far from sufficient to tackle the existing debt crises, with 60 per cent of low-income countries (LICs) already at high risk of or in debt distress.
In this context, the Bank must holistically evaluate its own role in debt sustainability, by incorporating human rights and environmental dimensions in its debt sustainability analysis (see Observer Autumn 2023), particularly as both its loans and intent to mobilise private financing are disbursed as debt-creating loans, even when concessional. At a time when international debt workout processes – currently under the aegis of the insufficient, inefficient and non-functioning G20 Common Framework – remain slow-moving and fraught with complications, the World Bank’s approach of providing “net positive flows”, with the priority of retaining its AAA rating and preferred creditor status, risks the Bank holding a greater proportion of developing countries’ unsustainable debt loads.
A bigger but not necessarily better Bank
Expressing concerns about the human suffering and the adverse impact of wars and conflicts around the world, Development Committee members urged the Bank to act with decisiveness, including as a convening power in situations of Fragility, Conflict, and Violence (FCV) around the world and placing a greater emphasis on the Bank’s role in driving progress on gender equality and human development. Such intent to build a “better” Bank is met with scepticism by CSOs which are warning that increased financing capacity must come with an evaluation of the Bank’s current lending practices that involve fiscal consolidation conditionality, with a diminished role of the state where public services and social investments become privatised and financialized, resulting in significant (gendered) inequality impacts.
In practice, the Bank’s Environmental and Social Framework, which sets out environmental and social safeguards of Bank-financed projects, does not apply to development policy financing. Moreover, the Bank ex-ante analysis for its loan operations is often applied inconsistently, with no follow-up monitoring (see Observer Autumn 2023), while negative (gendered) impacts tend to be addressed by insufficient mitigation measures – much like the Fund’s social spending floors – rather than yielding substantially different policy advice. As the Bank develops its new scorecard focused on development outcomes rather than money spent, CSOs are calling for an independent external evaluation of the Banks’ previous lending practices and for human rights indicators to be included in the scorecard highlighting that the Bank risks supporting inconsistent and counterproductive policy reforms, which could undermine its own aim to promote gender equality and contribute to the achievement of the SDGs.