The World Bank, which is already reeling under some pressure to enable developing countries to cope with climate change, may very well alter its internal lending guidelines so as to free up $4 billion in terms of lending capacity every year, as per David Malpass, the World Bank’s president.
He said that the bank’s International Bank for Reconstruction and Development arm may reduce its equity-to-lending ratio by one percentage point and take it to 19%, thereby taking a slightly higher risk that will be in line with an independent report that was created by the G20 economies of the world.
When the equity-to-lending ratio gets lowered, it is going to set free more resources at a time when one is already pushing to the hilt with global challenges, like the Ukraine war. The board is supposed to decide as far as the issue is concerned at the April meetings of the bank and the IMF. Notably IBRD last year December elevated its sustainable annual lending limit by $2bn starting 2024 fiscal and according to Malpass, there indeed could be more provision for another 8% expansion in the entire IBRD lending. Apparently, the lending ceiling happened to be $37.5 billion in the 2022 fiscal year.
The World Bank has for long argued against altering its capital adequacy rules, as it is worried of the fact that by doing so it would undermine AAA credit ratings. The bank’s board has already discussed a proposal as well as many other options. According to one of the sources, the bank acknowledges that all this can be lowered in a financially sustainable way. The US, which happens to be the bank’s largest shareholder, has been pushing the bank for some time to make sure that it takes faster and bolder steps so as to free up certain urgently required resources.
Altering the banks’ exit ratio is one of the keys, and many recommendations have found mention in the 2020 independent report that was drafted for the G20 and concluded that the World Bank as well as other multilateral development banks may push their lending capacity by billions of dollars by making a change in the way they function.
The head of Boston University’s Global Development Policy Center, Kevin Gallagher opined that the proposal under discussion is all set to offer that step of progress after 5 years of world bank resistance, however further edits and an increase in the capital may be needed. All this happen to be important steps that are moving towards the right direction but its only $4bn out of the hundreds of billions of dollars that according to the G20 can be stretched so as to meet the climate goals. He added that if this is all they can do, then it is indeed a failure. Developing countries have to get $1tn a year when it comes to external financing for climate action by the decade end and also match up with their own standards and funds so as to cut emissions and deal with the damage that has already occurred due to climate change.