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Bretton Woods Observer Autumn 2021
A quarterly critical review of developments at the World Bank and IMF

Published by BRETTON WOODS PROJECT
Working with NGOs and researchers to monitor the World Bank and IMF

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1. Opportunity lost? IMF approach to Special Drawing Rights
channelling risks wasting golden chance (FINANCE/analysis)
2. Global civil society achieves significant victory as World Bank
discontinues contentious Doing Business Report (FINANCE/news)
3. IMF rhetoric and practice on public sector wage constraints:
Advice to slash spending continues despite Covid-19 pandemic
Guest analysis by David Archer, ActionAid International (SOCIAL
SERVICES/commentary)
4. New IMF climate strategy seeks to radically expand its climate
work – amid concerns about its approach (ENVIRONMENT/analysis)
5. World Bank’s new Accountability Mechanism: One step forward…?
(IFI GOVERNANCE/News)
6. World Bank and IMF´s gender analysis of VAT falls short (GENDER/
news)
7. Pressure mounts for an end to IDA’s Private Sector Window as IDA20
negotiations continue (FINANCE/news)
8. Time for action: How can IMF help countries use their SDRs for
crisis recovery? (FINANCE/analysis)
9. Nigerian CSO denounces increase in energy tariffs linked to World
Bank-backed reforms (INFRASTRUCTURE/news)
10. Learning lessons from the Covid-19 pandemic: The World Bank’s
macroeconomic policies and women’s rights (GENDER/news)
11.IMF increases limits of its concessional lending facility, leading
to warnings from debt activists (FINANCE/news)
12. New US treasury guidance introduces limits for US support for
fossil fuels at World Bank (INFRASTRUCTURE/news)
13. Former Ghana national oil company head links World Bank’s Sankofa
guarantee to gas power plant deals (INFRASTRUCTURE/news)

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FINANCE/analysis

Opportunity lost? IMF approach to Special Drawing Rights channelling
risks wasting golden chance

Summary
- IMF approves a historic allocation of $650 billion SDRs
- High-income countries’ SDRs need to be channeled to those in need
- IMF’s channeling proposals lack transformative potential and
ambition

On 2 August, the IMF board of governors approved a general allocation
of $650 billion worth Special Drawing Rights (SDRs), to serve as “a
shot in the arm for the global economy at a time of unprecedented
crisis.” SDRs are a type of international reserve asset which can be
freely traded for hard currency to pay for imports or any other type
of government expense. Following the board of governors decision, on
23 August IMF member countries (with some exceptions, such as
Afghanistan) received their allocated SDRs and are now free to use
them as they see fit to respond to the crisis.
While falling significantly short of the $3 trillion called for by
civil society organisations (CSOs) such as Belgium-based Eurodad, the
scale of the allocation is nevertheless significant. SDR allocations
occur very rarely – the IMF has done so only four times in its
history – and the current allocation accounts for 69 per cent of all
the SDRs ever disbursed. The disbursal, which had previously been
blocked by the US Trump Administration (see Dispatch Springs 2020),
is one of the landmark moments in the history of the IMF and has the
potential to serve as enormous support to low- and middle-income
countries (L/MICs) in their pandemic responses.
But the new SDR allocation is not the end of the story. Beyond
questions of how countries will be able to actually use their SDRs in
different country contexts (see Observer Autumn 2021), a crucial
issue now is how SDRs can be channelled from rich countries – for
whom the new SDR allocation is not needed and indeed would almost
certainly remain unused – to the countries in need of urgent economic
support.
Because of IMF rules, SDRs are allocated to countries based on the
relative size of their economies, not their relative need to respond
to the crisis, an arrangement that has been criticised by the G24.
This means that high-income countries have received nearly $400
billion worth of the SDRs, with MICs receiving $230 billion and LICs
just $21 billion. For an allocation whose motivation, in the words of
the IMF, is especially to “help our most vulnerable countries
struggling to cope with the impact of the COVID-19 crisis,” having a
large chunk of the SDRs sitting idle on the balance sheets of high-
income economies is unhelpful.
SDR channelling proposals from the IMF: Business as usual
High-income economies and the IMF recognise that for the SDR
allocation to have the largest possible positive effect, rich
countries need to channel some of their SDRs to LICs and MICs. In
June, the G7 stated, “we encourage the IMF to work quickly with all
relevant stakeholders to explore a menu of options for channelling
SDRs to further support health needs, including vaccinations, and to
help enable greener, more robust recoveries in the most affected
countries.” The G7 countries noted that they hoped for a global
channelling of $100 billion worth of SDRs.
Over the past months, the IMF has been working on channelling
proposals, and it is now relatively clear what approaches the IMF is
recommending that rich countries undertake: (1) using SDRs to boost
the resources of the IMF’s Poverty Reduction and Growth Trust (PRGT)
(see Observer Autumn 2021), (2) using SDRs to provide initial funding
to a soon to-be-created IMF fund, the Resilience and Sustainability
Trust (RST), and (3) on-lending SDRs to multilateral development
banks (MDBs), including the World Bank.
On the PRGT – the IMF’s concessional lending facility for LICs – the
IMF has called for $17.9 billion worth of SDRs to boost its lending
capacity. For the RST, the G7 has given the IMF the green light to
work on the plan, with the intention of providing loans for countries
to combat climate change or improve their healthcare systems. The
early suggestions are that it would be operational from the end of
2022 at the earliest and would require economic conditionality for
countries to access finance. In terms of on-lending to MDBs, high-
income economies are increasingly interested in this option, but an
issue remains around how countries can on-lend to MDBs whilst still
maintaining the option to recall their SDRs in the event of balance
of payment emergencies.
Assuming that the plans being mooted at present are close to what
will transpire, we will see high-income economies channelling around
15-20 per cent of their allocations to boost the conventional lending
capacity of the IMF, the World Bank, and other MDBs. As outlined
below, for many, this is an unsatisfactory state of affairs.
Calls for ambition at definitive moment in economic recovery
There has been vocal and varied criticism of the approach that the
IMF and high-income economies are proposing for SDR channelling.
Former US Treasury official Mark Sobel and Martin Wolf, of the
Financial Times, have both argued that the IMF should not be
burdening countries with more debt at this time of crisis, as would
almost certainly be the case under the PRGT/RST/MDB proposals. Sobel
wrote of the RST that “LICs need grants, not more debt”, while Wolf
argued that “bringing the pandemic under control is a global public
good, which must be delivered by grants from rich countries. It is a
crime and a blunder that this has not been understood and done
already.”
In similarly strong terms, CSOs such as Oxfam have argued that
channelled SDRs must provide debt-free financing and not include
economic conditionality that could force countries to impose
austerity. A group of UK-based CSOs, including CAFOD and the Jubilee
Debt Campaign, raised similar demands to the UK government, adding
that the UK should consider offering alternative foreign reserves to
the SDRs, freed up by the influx of SDRs to the Treasury, to provide
grants or support initiatives such as Covax. The details on how this
could be done in the UK context have been outlined by CAFOD, and
similar arrangements need to be explored for other high-income
economies. The size of rich countries’ SDR channelling is also a
matter of concern. Channelling 15-20 per cent of their SDR
allocations is far less than these countries can afford or what is
required.
A final problem that has emerged is that several high-income
economies intend to count their on-lending of SDRs to the IMF and
MDBs towards their aid commitments, leading to likely cuts to aid
spending elsewhere. As CSOs, including Oxfam and Christian Aid, have
noted, this would be a moral failure on the part of these
governments, as the SDR allocation is a new addition to their balance
sheets, and in no way incurs a cost to their taxpayers or negatively
impacts their debt profiles.
Ultimately, given the precarious moment that the global economy
presently faces, there is a need for high-income economies and the
IMF to be ambitious. The current course set on SDR channelling is one
of relatively limited benefit for LICs and MICs and, indeed, could
even see their debt outlooks worsen or the likelihood of austerity
being imposed increase, as well as potentially reducing the amount of
aid financing. The alternative – that large-scale debt-free financing
is provided to countries in need to allow them to respond to the
pandemic – is achievable, if the political will is there.
bit.ly/SDRs2021

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In this issue

- Global civil society achieves significant victory as World Bank
discontinues contentious Doing Business Report
- IMF rhetoric and practice on public sector wage constraints: Advice
to slash spending continues despite Covid-19 pandemic by David Archer
- New IMF climate strategy seeks to radically expand its climate work
– amid concerns about its approach
- Learning lessons from the Covid-19 pandemic: The World Bank’s
macroeconomic policies and women’s rights

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FINANCE/news

Global civil society achieves significant victory as World Bank
discontinues contentious Doing Business Report

On 16 September, the World Bank Group announced that it will
discontinue its Doing Business Report (DRB, see Observer Winter
2019). The end of the report is a significant victory for civil
society, popular movements and academics who have long criticised the
report on many fronts, including its methodology (see Observer Autumn
2020; Update Autumn 2013). However, the celebration will be tempered
for some by the Bank’s assertion in its announcement of the report’s
discontinuation that it, “remains firmly committed to advancing the
role of the private sector in development and providing support to
governments to design the regulatory environment that supports this.”
The Bank made the announcement hours after the executive board
authorised the release of the damning findings of an independent
report, Investigation of Data Irregularities in Doing Business 2018
and 2020, conducted by the law firm WilmerHale, at the request of the
Bank’s ethics committee in response to allegations that the DBR’s
data had been manipulated.
As reported by The New York Times, the investigation highlights a
series of extremely serious issues with the DBR and the conduct of
senior management, including the Bank’s former President Jim Yong Kim
and then World Bank CEO and current IMF Managing Director Kristalina
Georgieva. The investigation maintains that the management interfered
with the report’s methodology to appease the Chinese government
during the Bank’s capital increase negotiations in 2018 (see Observer
Summer 2018). The report contains similar accusations of data
manipulation in 2020 to improve Saudi Arabia’s standing in the Bank’s
Ease of Doing Business rankings by one of the DBR’s co-founders,
Simeon Djankov. The investigation is also highly critical of the
“toxic work culture” at the institution, including fear of
retaliation within the Doing Business team and a lack of “consistent
policies” guiding the production of the DBR.
bit.ly/DoingBizWBG

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SOCIAL SERVICES/analysis

IMF rhetoric and practice on public sector wage constraints: Advice
to slash spending continues despite Covid-19 pandemic
Guest analysis by David Archer, ActionAid International

Summary:
- Forthcoming research from ActionAid International shows IMF’s
support for public sector wage bill cuts continues
- Cuts often have devastating consequences for state spending on
education and health

Over 15 years ago, ActionAid documented the impact of public sector
wage bill caps imposed by the IMF as an explicit condition of loans
in low-income countries, showing how they blocked progress on
education and on responses to HIV/Aids. After three years of
consistent research and advocacy, the IMF backed down and removed
public sector wage bill caps conditionality in its loan programmes
worldwide in 2007. The IMF executive board at the time said that it,
“welcomed the declining incidence of such ceilings in Fund-supported
programs,” and hoped to dispense with them entirely, in the meantime
using them only “in exceptional cases.”
This dramatic policy shift, questioning one of the pillars of
austerity, occurred at a time when the IMF faced diminishing
influence and legitimacy – just before the financial crisis of
2007-2008, which re-emboldened the institution. Since then the IMF
has rebuilt its power and it has cast aside its aspiration to
dispense with the use of wage bill constraints, making routine use of
them as a central part of its coercive policy advice. ActionAid’s Who
Cares for the Future report, released in April 2020, showed that the
IMF recommended that governments either cut or freeze public sector
wage bills in 78 per cent of countries – over the previous three
years. This rose to 90 per cent when we revisited the data in October
2020, as shown in the report The Pandemic and the Public Sector,
which looked at the initial impact of Covid-19 on public spending.
Despite a shift in rhetoric during the pandemic, country level
practice remains largely unchanged and a rapid return to austerity,
including wage bill constraints is now predicted for 85 per cent of
the world’s population (see Observer Autumn 2020).
New ActionAid research shows IMF’s dogmatic approach to wage bill
cuts continues
ActionAid’s new investigation in 2021 looked at IMF country documents
over a five-year period, combined with in-depth research across ten
countries. To be published on 12 October in a report called The
Public versus Austerity, we will show that the use of public sector
wage constraints is both blunt and ineffective, often damaging the
very sectors that governments claim they want to protect. Despite the
Fund arguing that ‘exemptions’ are routine for education and health
personnel, we found no evidence of this in two-thirds of the
countries studied. Given that teachers and health-workers are usually
the largest two groups on the wage bill, overall cuts cannot be
delivered without impacting them – and at best ‘protection’ of these
meant a freeze, whilst even deeper cuts were made in other sectors.
The IMF claims that public sector wage constraints are only ever
short-term measures, but in the countries studied, we found every
country faced a consistent cut or freeze for at least three years and
most countries for five or six years. There was no consistent advice
given to countries to ensure that measures would indeed be temporary
– for example on how to increase fiscal space by raising tax
revenues. And even where countries did raise tax revenues
significantly, those countries were not advised to increase spending
on the public sector wage bill.
ActionAid’s latest research found that there is no guideline or
consistency on what percentage of GDP a country should sensibly spend
on the public sector wage bill, with this ranging from 13 per cent to
2 per cent in the countries studied. Every country was urged to cut
or freeze regardless of whether they were above or significantly
below regional and global averages. There is almost no reference made
in these documents to the shortages of health and education workers
that are evident in most countries and no clear attempt to assess the
impact of any constraints. Much of the data that the IMF claims to
have used in offering advice remain secret, making it hard to contest
any conclusions.
One of the most striking findings of ActionAid’s latest research is
that multiple IMF documents suggested countries needed to cut social
spending in order to increase social spending. That is, you need to
cut recurrent spending in order to increase capital spending on
buildings and equipment. Most people would see nurses or teachers as
key items of social spending but not the IMF. In fact, a focus on
infrastructure moves resources away from health and education (which
have large recurrent budgets) towards other sectors which depend more
on capital spending (roads, energy, water). This also diverts
resources from the public sector (frontline workers) to the private
sector.
The use of public sector wage bill constraints is not based on
evidence, is profoundly blunt and often has unintended impacts, so
why are the IMF and many Ministries of Finance still so keen? We
conclude there is an unconscious bias against the public sector, one
rooted in a fundamentalist ideological position and an attachment to
what might be best called the ‘cult of austerity’. There are so many
economic alternatives being explored by so many actors – including in
the IMF headquarters itself.  But these are not trickling down to IMF
staff involved in country level processes. Now is the time to stop
the cult of austerity and actively pursue the plethora of
alternatives – to reimagine the public sector workforce as a key
engine of national development in light of Covid-19 and the climate
crisis.
bit.ly/IMFSDR2021

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ENVIRONMENT/analysis

New IMF climate strategy seeks to radically expand its climate work –
amid concerns about its approach

SUMMARY
- Strategy proposes adding up to 95 new staff to boost Fund’s
capacity to work on climate issues
- Board’s support for proposal remains unclear ahead of general
budget discussions
- Civil society research suggests Fund’s common policy advice
misaligned with support for low-carbon transition

The IMF quietly proposed a major increase in staff capacity to work
on climate at the end of July as part of an institution-wide climate
strategy, even as questions about its approach remain.
A new staff paper published on 30 July, IMF Strategy to Help Members
Address Climate Change Related Policy Challenges: Priorities, Modes
of Delivery, and Budget Implications, proposed adding up to 95 staff
to boost the Fund’s capacity to tackle climate issues, including in
its surveillance work, capacity building and debt sustainability
analyses.
However, the IMF executive board’s assessment of the paper appeared
to stop short of giving a full endorsement of the proposed increase
in capacity, noting that it, “looked forward to assessing this,
together with other funding requests, during the discussion of the
Fund’s overall budget,” which is due to happen by the end of 2021.
The strategy comes as research from civil society organisations and
academics has highlighted the negative climate impacts of recent IMF
policy advice (see Dispatch Springs 2021, Annuals 2020).
This includes a report published by ActionAid USA and the Bretton
Woods Project in late August. The research, based on a review of the
IMF’s bilateral surveillance in its member states since the Paris
Agreement was signed in December 2015, found that the IMF has been
undermining a just energy transition in many countries, including
through support for fossil fuel infrastructure expansion in over half
its members (105 countries). The report argues that the Fund’s policy
orthodoxy across much of the Global South, which often prioritises
fiscal consolidation and increases in carbon-intensive exports, is
misaligned with states’ national climate plans.
Surveillance: A key priority of the IMF’s climate strategy
Among the key components of the IMF’s proposed climate strategy is a
significant increase in climate coverage in its surveillance work
(see Inside the Institutions, IMF surveillance). The Fund is seeking
to cover different aspects of climate’s ‘macrocriticality’ – or how
climate is immediately relevant to countries’ macro-financial
stability – in 60 countries per year under the proposal (an increase
from 8-12 per annum currently).
The strategy proposes looking at adaptation and resilience issues in
Article IV reports – the IMF’s annual economic “health checks” of its
members – in 20 countries each year which are particularly vulnerable
to the physical impacts of climate change (i.e. where storms, floods
or other impacts risk causing significant economic damage).
Similarly, the IMF is seeking to proactively engage the world’s 20
largest greenhouse gas emitters on climate change mitigation issues
in its Article IV reports, with a proposed 6-7 reports yearly focused
on this issue.
Significantly, the strategy also includes a strong emphasis on
‘transition management’ to a low-carbon economy – an acknowledgement
by the Fund that weaning its members off fossil fuels will involve
traversing considerable macroeconomic challenges, particularly for
countries heavily reliant on revenues from carbon-intensive sources.
The strategy notes, “Transition management is a macro-critical policy
challenge for almost every IMF member”, with the macroeconomic
implications of meeting national climate plans as one area
highlighted by the Fund. As such, the Fund proposes to look at the
issue in Article IV reports in all countries, once every 5-6 years,
meaning 25 reports focusing on this topic annually.
Policy advice for an equitable future?
Despite being cautiously optimistic about the Fund’s attempts to
integrate climate change into its mandate, civil society and
academics have highlighted that this is a significant departure from
the Fund’s current policy advice.
Research by Boston University’s Global Policy Development Center
released in March 2021 found that only three Article IV reports even
mentioned transition risks related to climate change in 2020. The two
Article IV reports that did note the risk of fossil assets being
‘stranded’ by the low-carbon transition also gave contradictory
advice about the need to boost investment in carbon intensive
sectors.
The ActionAid USA and Bretton Woods Project report documented that,
in addition to support for fossil fuel infrastructure expansion,
other common features of the Fund’s policy advice in its surveillance
are also contrary to achieving a just energy transition in emerging
and developing economies, in particular.
The Fund’s commonplace advice that countries pursue fiscal
consolidation has implications for the energy transition: The report
found that the Fund has supported the privatisation of state-owned
enterprises in the energy sector in 69 countries. This can pose
challenges for coordinating the rapid phaseout of fossil fuel-based
energy required to meet global climate goals, including resulting in
privatised fossil fuel assets being owned by foreign investors. Such
investors have increasingly sued states in investor-state dispute
settlement tribunals (such as the World Bank-hosted International
Centre for Settlement of Investment Disputes), if they attempt to
retire these assets early (see Observer Summer 2021).
The report also found that the IMF’s efforts to reduce fossil fuel
subsidies (present in 71 countries) primarily focused on ‘demand-
side’ subsidies, rather than fossil fuel production subsidies.
Without clean energy alternatives, which are often lacking in
emerging and developing economies, this policy is unlikely to reduce
emissions at scale, resulting in higher energy prices for those in
the Global South, in what has been referred to as ‘green structural
adjustment’ (see Observer Autumn 2021).
The report calls for the Fund to develop clear guidance for staff on
managing transition risks that ensures that – at a minimum – the
Fund’s policy prescriptions ‘do no harm’. It calls for Fund advice on
energy subsidies to be “firmly embedded in countries’ national just
transition dialogues,” and for the Fund to create an institutional
view on sustainable industrial policy, “that empowers IMF operations
to support effective and coordinated strategies for sectoral and
economic transformation,” as part of a re-think of its advice on
privatisation.
bit.ly/IMFClimateStrategy

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IFI GOVERNANCE/news

World Bank’s new Accountability Mechanism: One step forward…?

SUMMARY
- Civil society welcomes new dispute resolution function within the
World Bank’s accountability system
- Concerns raised about potential erosion of Inspection Panel
independence and lack of remedy mechanism

In September 2020, World Bank executive directors approved
significant changes to the institution’s accountability system. This
included the establishment of a new Accountability Mechanism (AM),
which will house the existing Inspection Panel (IP), and a newly
created Dispute Resolution Service (DRS; see Observer Spring 2020).
While civil society has welcomed the creation of a dispute resolution
mechanism, it has voiced concerns that the AM’s structure may
undermine the IP’s independence, and lamented the lack of a mechanism
for provision of remedy to affected communities.
The creation of the AM was accompanied by a resolution outlining its
terms of reference. The resolution reaffirms, “the importance of the
[Inspection] Panel’s function, its independence and integrity.” The
DRS and IP will be “organizationally separate”, with the AM
responsible for oversight of the IP’s administration. The IP will
continue to determine the eligibility of all complaints. The
mechanism became operational on 3 May with the appointment of Ms
Orsolya Székely as its Secretary, who will report directly to the
board of directors.
The AM was established after a two-year period of fraught internal
deliberations (see Observer Autumn 2019). A group of 33 civil society
organisations (CSOs) raised their concerns about the process’s
insufficient consultation and transparency and the erosion of the
independence and authority of the IP in a December 2019 letter to the
Bank’s Committee on Development Effectiveness.
As Margaux Day and Gregory Berry of US-based CSO Accountability
Counsel noted in a March 2020 blog, the establishment of the DRS
means that “communities may now seek to remedy adverse project
impacts through dispute resolution, which was never before an option
for WBG public-sector projects.” The blog outlined additional
significant changes brought about by the IP review and the
establishment of the AM: For newly approved projects, “impacted
communities will be able to file complaints to the Inspection Panel
up to 15 months after the closing date of the loans financing the
projects. Previously, complaints could only be filed if less than 95
percent of loans were disbursed, and under limited circumstances, the
Inspection Panel now has the power to verify bank management’s
adherence to ‘Management Action Plans’ that are drafted to address
project shortcomings.”
Concerns about the Accountability Mechanism remain
Day and Berry outlined concerns that must be addressed through the
AM’s procedures, which are currently being developed, particularly
regarding the lack of clarity about the “guardrail” that separates
the IP and DRS. They stressed that the AM’s structure with “new
reporting lines and responsibilities risks undermining the
independence and effectiveness of the World Bank’s accountability
system.”
While the new dispute resolution function addressed a long-standing
gap, in a November 2020 blog of the European Journal of International
Law, various academics echoed Day and Berry’s concerns. The blog
underscored several potential shortcomings of the AM arising from the
inherent power imbalances between communities, the Bank and borrowers
during the dispute resolution process. The authors identified a
serious threat to the IP’s ability to fulfil its mandate if it is
restricted to merely accepting the outcome of the dispute resolution
process and closing the case if the parties reach an agreement. The
blog asked whether the parties could “lawfully waive – by agreement –
violations of Bank policies and procedures regardless of the legal
consequences of the material adverse effects of these violations on
the Requesters and the communities they represent.” It also
emphasised the missed opportunity to create a mechanism for
reparations for harms caused to communities by World Bank projects.
Given the impact of the procedures that will guide the AM’s operation
and the risks outlined above, Accountability Counsel’s Day and Berry
stressed that, “it is critical that communities and civil society
advocates be consulted with and have the opportunity to provide input
on their implementation.” Secretary Székely’s current focus on
drafting the AM’s procedures provides the next critical opportunity
for dialogue and consultation.
bit.ly/WBGAM

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GENDER/news

World Bank and IMF´s gender analysis of VAT falls short

SUMMARY
- BWIs’ analysis of gender impact of VAT at odds with civil society
demands
- CSOs call for a deeper and more focused gender analysis of
regressive taxes

Civil society organisations (CSOs) have long called on the World Bank
and the IMF to ensure that they consider the gendered impacts of
their tax policy proposals, which have the potential to exacerbate
gender inequality. One particular concern for CSOs is the
disproportional impact that value-added tax (VAT) increases have on
women (see Briefing The IMF, gender equality and VAT).
Both the IMF and the World Bank appear to be taking small steps
towards considering the impact of VAT on women. For example, a joint
World Bank/IMF/OECD blog in June noted the impacts of certain types
of VAT increases on women. It highlighted that, “The broad-based
nature of VATs may raise the price of services, including those that
substitute for household services. This may create a disincentive for
women to work.” Additionally, within the IMF’s tax policy assessment
framework (TPAF), a new box has been included which asks, “Does the
VAT impose a gender bias?”
While a positive advance in the Bank and Fund’s efforts to lay out a
gendered analysis of their policy prescriptions and conditions, these
initiatives do not fully engage with the recommendations and evidence
provided by women’s rights groups and UN Women. In the above
mentioned TPAF, the IMF notes that, “Whether VAT is biased for or
against women…depends on various aspects, including the different
consumption patterns of men and women as well as the choice of goods
and services covered by the VAT. Assessing this can be complicated
and, even conceptually, not straightforward.” This however seems to
ignore substantial evidence gathered by CSOs and academics
demonstrating how VAT disproportionately affects women.
Additionally, the Bank and Fund’s country-level prescriptions fail to
take into account the above-mentioned concerns as both continue to
promote the use of regressive taxes. A World Bank Development Policy
Financing loan to Nigeria in 2019 aimed at supporting the
government’s fiscal consolidation efforts to reduce its deficit,
which included prior actions such as the increase of VAT and income
tax revenues, demonstrates the trend. It did not include an analysis
of the impact of measures such as the introduction of an 8 per cent
VAT rate on petroleum products on women (see Briefing Learning
lessons from the Covid-19 pandemic). “International financial
institutions continue to ignore or deny the regressive effects of
consumption taxes like the VAT on those with low incomes. For
example, contemporary research now focuses on the claim that the VAT
is actually progressive when the informal sector is included in
distributional impact analysis,” noted Kathleen Lahey, of Queens
University in Canada.
IMF and World Bank conditionalities often force governments to
increase regressive taxes, such as VAT, which CSOs and academics have
shown impacts heavily on the poor and especially women. CSOs have
long raised concerns that both institutions rely too heavily on
regressive taxes, without systematically measuring their
distributional and gendered impacts (see Dispatch Springs 2019,
Annuals 2017). This trend has also been reflected in IMF’s lending
programmes agreed in the context of Covid-19. Research by Belgium-
based CSO Eurodad published in October 2020 found that of 59 country
programmes analysed, 39 made commitments to the IMF to increase the
share of indirect taxes, particularly VAT, in total government
revenues (see Observer Winter 2020).
bit.ly/GenderVAT

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FINANCE/news

Pressure mounts for an end to IDA’s Private Sector Window as IDA20
negotiations continue

SUMMARY
- Civil society calls for an end to IDA’s Private Sector Window
- African Heads of State demand an IDA replenishment of at least $100
billion

As the World Bank and broader international community pursue their
responses to the inequality, debt and climate crises exacerbated by
the Covid-19 pandemic (see Dispatch Springs 2021), the 20th
replenishment of the International Development Association (IDA20)
has attracted significant attention from civil society organisations,
labour unions (see Observer Summer 2021) and heads of State.
The resources of IDA, the World Bank’s low-income country are,
normally replenished every three years, with the 19th replenishment
approved in 2019 for the period of 1 July 2020 to 30 June 2023.
However, as almost half of IDA19 resources were committed during its
first year in response to the pandemic additional resources are
required, “for countries to meet their urgent development needs”.
According to the World Bank, the IDA20 replenishment process, which
aims to support 74 countries between July 2022 and June 2025 “in
their recovery from the COVID-19 crisis and transition to green,
resilient, and inclusive development”, will be completed in December
2021. The third IDA20 replenishment deputies’ meeting is scheduled
for October, following the World Bank’s 2021 Annual Meetings.
The importance of the IDA20 replenishment process was evident in the
15 July Abidjan Declaration endorsed by 13 African heads of state and
government. It called on “IDA donors to support an ambitious and
significant IDA20 replenishment of at least USD 100 billion by the
end of 2021,” to help countries meet the sustainable development
goals.
IDA’s Private Sector Window – draining essential resources from the
public sector during a crisis
One point of particular concern in the IDA20 negotiations is the fate
of IDA’s Private Sector Window (PSW). The PSW was established in the
IDA18 replenishment (see Observer Winter 2017), with the allocation
of $2.5 billion of IDA resources to the World Bank’s International
Finance Corporation (IFC), its private-sector investment arm, and the
Multilateral Investment Guarantee Agency (MIGA), its political risk
insurance arm. The PSW transformed IFC from a contributor to IDA to a
net recipient of IDA resources. The PSW is intended to “catalyze
private sector investment in IDA-only countries, with a focus on
fragile and conflict-affected states” and forms a key part of the
Bank’s Maximizing Finance for Development strategy (see Observer
Spring 2020,  Summer 2017).
A September article by economist Jayati Ghosh and Eurodad’s Farwa
Sial in online magazine Project Syndicate criticised the PSW for
draining scarce public finance away from IDA during the pandemic,
stressing the lack of evidence of development impact and “poor
targeting of development-related projects in the context of responses
to COVID-19.” Reinforcing these concerns, in June Oxfam recommended
that the PSW be closed in IDA20 and resources redirected “either to
expanding [the] crisis response window (e.g. for vaccines) or back to
IDA for…building long term public health, education or social
protection systems.”
Oxfam argued that the pandemic is an important reminder of the limits
of market-based solutions, stressing that, “there is little
justification to divert aid resources to the private sector at this
time of crisis and that the Bank and its donors should be maximizing
public sector investments through IDA20.”
In April, Charles Kenny from US-based Center for Global Development
wrote a blog calling for a large IDA20 replenishment, but with the
exclusion of the PSW, arguing that “the Window (and the IFC as a
whole) is particularly poorly designed as a crisis response tool.”
Despite concerns about the PSW and the calls made in the Abidjan
Declaration, the Co-Chairs’ Summary issued at the end of the second
IDA20 Replenishment Meeting on 28-30 June made several references to
the PSW and the key role of the private sector, and limited IDA20
financing scenarios to an upper limit of $95 billion, of which $24.9
billion would be comprised of new donor contributions.
bit.ly/IDAPSW

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FINANCE/analysis

Time for action: How can IMF help countries use their SDRs for crisis
recovery?

Summary
- Under addressed aspect of the SDR debate relates to how national
governments might use their SDR allocations
- Experts argue that the IMF needs to do much more to support
governments to try to use their SDRs to help the poorest and most
vulnerable

Much attention following the IMF’s historic allocation of $650
billion worth of Special Drawing Rights (SDRs), an IMF international
reserve asset, in August has focused on how rich countries can best
channel part of their new SDR allocations to low- and middle-income
countries (L/MICs) (see Observer Autumn 2021). But of more immediate
importance in determining the ability of countries to respond to
their health and economic crises is how LICs and MICs will use their
own designated SDR allocations.
Throughout the pandemic, civil society organisations (CSOs) have
pushed the IMF to allocate SDRs to support developing countries. In
February 2021, more than 200 CSOs called on the G20 and IMF to
approve an allocation that “would free up funds urgently needed for
the pandemic response, including gender-responsive public health
systems, universal social protection and comprehensive vaccine
rollouts.” The idea, in short, was that a SDR allocation was needed
to respond to the economic crisis exacerbated by the pandemic, whilst
helping to avoid a new wave of austerity promoted by the IMF.
While concerns over equity in the distribution of SDRs amongst
countries remain, the sums reaching LICs ($21 billion) and MICs ($230
billion) are nevertheless significant. The amount of SDRs that Uganda
received exceeds its annual health budget, for example, and it is
estimated that Senegal’s allocation is 300 per cent of the country’s
previous foreign reserve levels.
These funds are at the disposal of governments right now and could be
used to counter the austerity foreseen across developing countries
(see Observer Autumn 2021). As Oxfam argued in August, “the decision
on how to use SDRs can be critical: they could remain in central bank
reserves and help maintain the austerity status quo; or they could be
used to reduce inequalities and as a tool to set the path for
alternative policy choices, steering away from austerity.”
The role the IMF must play
The ‘save vs spend’ SDRs debate has rumbled on over recent months. As
South American CSO coalition Latindadd noted in an August
publication, “conventional voices have argued that SDRs are only
reserve assets and should only be used (exchanged) exceptionally for
balance of payments purposes, exclusively by central banks”, whilst
others argue that they should be used as fiscal resources.
The decision is politically complex, partially owing to often
competing views of central banks and treasuries, exacerbated by the
IMF-backed rise of central bank independence (see Observer Summer
2021). In Mexico, for example, the central bank has stated that it
will only give the government access to SDRs at market prices and
further rejected the government’s claim that SDRs could be used to
pay off debt.
To its credit, in its guidance note on the SDR allocation, the IMF
was relatively positive on
the possibility of fiscal uses of the allocation, writing that the
allocation will “provide scope for spending on members’ crisis
response, helping to protect the most vulnerable,” and suggesting
that spending now can boost debt sustainability.
But the IMF must go further to ensure that countries are given the
necessary support to use SDRs positively, say experts. As Ecuadorian
economist Andrés Arauz argues, “Developing countries (and their
central bankers) need IMF reassurance – not calculated ambiguity –
that governments can use SDRs as budget support. The IMF should not
stop at ‘it’s a matter of domestic law’; its recent guidance needs a
step-by-step update to include all of the legally viable and
accounting pathways to expeditiously use the SDRs as budget support
for strategic priorities and essential needs. The top-of-the-pyramid
decision by governments to issue the SDRs will not be felt on the
ground by people, if the ‘last mile’ of the SDR allocation is not
resolved.”
bit.ly/IMFSDR2021

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INFRASTRUCTER/news

Nigerian CSO denounces increase in energy tariffs linked to World
Bank-backed reforms

Nigerian civil society has opposed further proposed electricity price
increases in the country linked to World Bank-backed energy reforms.
In a 1 September interview with online news outlet, Premium Times,
Ene Obi, of ActionAid Nigeria, noted that the planned increase will
further erode the purchasing power of Nigerian workers and impoverish
more Nigerians. She stressed that, “The increase in electricity
tariff is not only ill-timed but insensitive to the precarious plight
of Nigerians whose lean disposable incomes are already decapitated.”
The World Bank has been a key promoter of energy sector reform in
Nigeria, with a $750 million Performance 4 Results (P4R) loan in 2020
linked to reforms of the sector (see Observer Autumn 2020). Despite
measures to mitigate impacts on the poorest, the reforms have led to
increased electricity prices for most Nigerians, amidst a deep
economic crisis triggered by the Covid-19 pandemic.
A further $500 million financing package – consisting of a P4R loan,
an investment loan, and technical assistance – was approved by the
Bank’s board in February 2021. The package includes performance
indicators for Nigeria’s electricity distribution companies (DISCOs)
and its success measured according to improvements in percentage of
metered customers, annual electricity billed and annual collection of
billed electricity. The reform of the DISCOs is just one element of
wider market-based reforms promoted by the Bank that have led to
increased energy tariffs (see Observer Autumn 2020).
Power sector reforms have been consistently pursued by the World Bank
and the IMF over recent decades, with uneven ‘success’, according to
the Bank’s own research published in 2020.
bit.ly/NigeriaEnergy

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GENDER/news

Learning lessons from the Covid-19 pandemic: The World Bank’s
macroeconomic policies and women’s rights

The World Bank has been staunchly criticised by civil society
organisations for failing to put a feminist, just recovery front and
centre of its Covid-19 pandemic response, and failing to take
adequate steps to reduce the harmful impacts of the pandemic on
gender equality globally.
A new briefing by BWP’s Gender and Macroeconomics
Project (GEM) argues that the World Bank must reconsider its
diagnostic tools and policy prescriptions and advice attached
to loans. It is vital that the Bank understands its own role in
undermining countries’ fiscal space, decent work and progressive
taxation policies, to ensure that similar policy recipes are not
repeated, especially as countries attempt to recover from the
economic health and social crises triggered by the pandemic.
bit.ly/GEMCovidLessons

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FINANCE/news

IMF increases limits of its concessional lending facility, leading to
warnings from debt activists

In July, the IMF approved reforms to expand the lending powers of the
Poverty Reduction and Growth Trust (PRGT), its concessional lending
facility, to allow the Fund to “better support” low-income countries
(LICs) in their pandemic response. The PRGT access limits have been
increased to 145 per cent of a country’s IMF quota annually and 435
per cent for the total size of the loan, up from 100 per cent and 300
per cent, respectively. Additionally, for the poorest LICs eligible
for “exceptional access”, hard limits on the size of concessional
loans have been removed altogether.
The IMF disbursed $10 billion through the PRGT in 2020, by far the
largest amount in the trust’s history, and 2021 is already the second
largest year for lending. The large demand on resources, coupled with
the plans to increase lending capacity, have led the IMF to call for
$4 billion to be granted by rich countries and an additional $17.9
billion worth of SDRs on-lent through a channelling of rich
countries’ new SDR allocations to the PRGT (see Observer Autumn
2021).
Reflecting on the PRGT reforms, Tim Jones, of UK-based civil society
organisation Jubilee Debt Campaign, stated that, “The IMF is
proposing a huge increase in lending and so debt for lower income
countries. In the absence of proactive debt restructurings, these
loans are primarily used to bail out previous reckless lenders, while
austerity is pushed on the borrowing country. The real beneficiaries
are banks and hedge funds from rich countries, while citizens are
impoverished.” Emphasising the debt concerns, research from Belgium-
based network Eurodad published in March had already noted increasing
debt vulnerabilities for developing countries as a consequence of the
pandemic.
bit.ly/PRGTincrease

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INFRASTRUCURE/news

New US treasury guidance introduces limits for US support for fossil
fuels at World Bank

In August, the US Treasury issued new guidance on US support for
fossil fuel projects for its representatives at multilateral
development banks (MDBs). This will guide the US’s ‘voice and vote’
at the World Bank and other MDBs going forward.”
Under the guidance, for future World Bank-funded projects, the US
will, “only consider [support for] fossil fuels if [cleaner options]
are unfeasible,” per reporting by online news site Climate Home. The
US remains the World Bank’s largest and most influential shareholder
(see What is the ‘gentleman’s agreement?’).
However, gas projects could still be supported by the US at the World
Bank if an ‘options study’ shows no feasible clean energy
alternatives. Civil society organisations (CSOs) have voiced
apprehension, noting the need for this process to be transparent and
credible. Indeed, analysis by Oil Change International showed that up
to 40 per cent of fossil fuel finance provided by MDBs from 2018 to
2020 — or $1.6 billion per year — went to gas projects that could
potentially be eligible for support under the guidance, depending on
how it is implemented.
“While the guidance introduces novel, broad-based restrictions on US
support for fossil fuel projects at the MDBs…[it] leaves loopholes
for continued fossil fuel financing that are so big, you can drive an
LNG ship through them,” said Luisa Galvao of Friends of the Earth US,
in response to the guidance.
The new guidance follows the release of the World Bank’s Climate
Change Action Plan for 2021-25 in June, which was criticised by CSOs
for not going far enough in limiting the Bank’s support for fossil
fuels (see Observer Summer 2021).
bit.ly/USFossils

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INFRASTRUCTURE/news

Former Ghana national oil company head links World Bank’s Sankofa
guarantee to gas power plant deals

Further details have emerged of the World Bank’s role in the
agreement of onerous ‘take or pay’ gas power contracts with
independent power producers (IPPs) in Ghana, which have contributed
to the country’s deteriorating public finances.
In a March interview with Ghanaian radio station Okay FM, the former
CEO of the Ghana National Petroleum Corporation (GNPC), Alex Mould,
stated that the Bank’s 2015 guarantee for the Sankofa offshore gas
mega-project (see Observer Spring 2020) included a commitment that
the government would agree power purchase agreements (PPAs) with four
IPPs for gas-fired power stations.
The Bank helped facilitate the Sankofa offshore gas project via two
guarantees (see Observer Spring 2020). This included a $500 million
payment guarantee from the International Development Association
(IDA), the World Bank’s concessional lending arm, covering the risks
of GNPC not fulfilling its payment obligations to Eni and Vitol, the
two private oil firms involved in the project. Mould indicated that
the Bank’s guarantee for the Sankofa project was instrumental in four
gas power IPPs subsequently raising commercial loans to construct new
gas plants, and that the Bank helped devise selection criteria for
the IPPs.
The PPAs included ‘take or pay’ clauses, which require the country to
purchase a minimum amount of electricity over the duration of the
long-term contracts, whether it uses it or not. ‘Take or pay’ clauses
– including for the four IPPs in question – have resulted in the
country facing a $500 million-a-year bill for unused electricity. The
contracts have become a bone of contention in Ghana, with the current
administration repeatedly citing them as adding to the country’s debt
burden. Ghana has signed 32 PPAs, overall, in recent years, according
to its latest IMF’s Article IV report.
bit.ly/SankofaGas

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