World Bank calls for increased funding to combat climate change and other crises

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The World Bank is looking to significantly increase its lending capacity in order to tackle climate change and other global issues. According to a document seen by Reuters, the bank will engage in negotiations with shareholders ahead of April meetings on proposals that include a capital increase and new lending tools. The document, which has been sent to shareholder governments, marks the start of a process to alter the bank’s mission and financial resources, moving it away from a model that focuses on specific countries and projects. The World Bank management aims to have specific proposals for changing its mission, operating model and financial capacity ready for approval by the joint World Bank and International Monetary Fund Development Committee in October.

A World Bank spokesperson stated that the document is intended to provide information on the scope, approach and timetable for the evolution, with regular updates for shareholders and decisions later in the year. The development lender will consider options such as a potential new capital increase, changes to its capital structure to unlock more lending, and new financing tools such as guarantees for private sector loans and other methods for mobilizing more private capital. However, the World Bank Group (WBG) is not prepared to abandon its top-tier credit rating in order to boost lending, stating that “management will explore all options that increase the capacity of the WBG whilst maintaining the AAA rating of the WBG entities.”

US Treasury Secretary Janet Yellen has called on the World Bank and other institutions to revamp their business models in order to lend and leverage private capital to fund investments that will more widely benefit the world, such as helping middle-income countries transition away from coal power. Proposals under consideration by the World Bank include higher statutory lending limits, lower equity-to-loan requirements and the use of callable capital (money pledged but not paid in by member governments) for lending. Experts have suggested that this shift would significantly increase the amount of lending compared to the current capital structure, which only uses paid-in capital.

The document warns that increased lending for climate change, health care, food security and other needs may require a capital increase in order to boost the capacity of the World Bank’s middle-income lending arm, the International Bank for Reconstruction and Development (IBRD). The IBRD received a $13 billion capital increase in 2018, but the document states that this “was designed to be prepared for one mid-sized crisis a decade, and not multiple, overlapping crises” such as the COVID-19 pandemic, the war in Ukraine and the effects of accelerating climate change. The IBRD’s crisis buffers are expected to be depleted by mid-2023.

As an alternative, the roadmap suggests that World Bank shareholder countries could increase their periodic contributions to the lender’s fund for the world’s poorest countries, the International Development Association (IDA), which have decreased in recent years despite increasing needs. The document also proposes the creation of a new concessional lending trust fund for middle-income countries that would focus on global public goods and be similar in structure to the IDA, with regular funding replenishments that would be separate from the bank’s capital structure.