Banga also outlined a funding strategy that places equal emphasis on climate mitigation and climate adaptation. However, this stance has sparked climate action protests due to the bank’s ongoing support for fossil fuels.
In addition to environmental concerns, the World Bank is shifting its focus from financing scale to output. Banga urged shareholders to expand the capital base for enhanced capacity. This move is expected to provide an additional $150 billion support over ten years. Alterations in the loan-to-equity ratio are projected to generate an extra $40 billion in lending over the same period.
The strategy also includes leveraging hybrid capital and portfolio guarantees six-eight times without a capital increase. Special drawing rights (SDR) are being used to secure a $150 billion lending capacity over ten years, marking a rise of 15-20%. Despite these measures, Banga declared them as insufficient.
The World Bank seeks to strengthen private sector ties and de-risk investments as part of its new approach. The Independent Expert Group has endorsed this plan, which broadens the bank’s mandate to include climate change and other public goods while maintaining a focus on poverty reduction.
The US is currently seeking Congress approval for more capital, with Germany and the UK initiating similar steps. The International Finance Corporation (IFC), World Bank’s private sector lending arm, plays a central role in this new approach.
Banga emphasized the need for reducing the existing 27-month approval process for development projects, stating “development delayed is development denied”. The World Bank plans to collaborate with other multilateral agencies for streamlined funding. Based on client feedback, the revamp includes providing a complete solution to countries and faster decision-making on lending. The need for a larger balance sheet was underscored, despite G20’s non-acceptance of some proposals.
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Source: Economy - investing.com
