Seeking Global Development and the Green Transition as Well

Just for the Weekend an examination of reform plans discussed at the Marrakech Fall Meetings

It is hard to focus on the growing demands for global development in the face of ugly conflicts in international relations both Russia and Ukraine and now the war between Israel and Hamas. And it was partly as a result of these deadly and loud conflicts that less attention than usual it seems to me was paid to this year’s fall gathering of the International Monetary Fund (IMF) and the World Bank Group that took place in Marrakech, Morocco. 

Now my good colleague Stewart Patrick* of the Carnegie Endowment for International Peace (CEIP), in fact, did focus on the Fall Meetings and I think he was fortunate enough to attend in Marrakech. In the piece, Stewart focuses his attention particularly on the efforts of the new head of the World Bank Group, Ajay Banga to reform the Bank’s efforts. As Stewart points out: 

Since assuming his position in June, Banga has become an evangelist for a controversial yet indisputable thesis: the goals of climate action and poverty alleviation are inextricably linked. Many leaders from the developing world are distrustful of this linkage.

Stewart underlines the skepticism of many leaders in the developing world:

The argument that development cooperation must prioritize climate mitigation efforts grates on many advocates for developing countries. They worry that the donor community’s burgeoning focus on climate action will come at the expense of country-led programs, which focus on priorities identified by borrower nations. Many middle- and low-income countries already face competing policy challenges. Nearly half are either in debt distress (19 percent) or on its doorstep (29 percent), in part due to the effects of the coronavirus pandemic, the war in Ukraine, and high interest rates.

I am sure Banga is more than aware as Stewart points out. Nevertheless, Banga focuses on the urgent need to tackle both: 

Developing countries chafe at being asked to respond to a global climate crisis they did little to create but whose impacts are falling disproportionately on their citizens. Banga acknowledges this harsh reality: “The Global South’s frustration is understandable. In many ways they are paying the price for the prosperity of others.” Yet he insists, correctly, that “we cannot endure another period of emissions heavy growth.” Climate change poses an existential threat to all of humanity, notably the world’s poor. To cite one figure, some 1 billion children—nearly half of the world’s 2.2 billion kids—live in countries at “extremely high risk” of climate impacts, says the United Nations Children’s  Fund. … A grand bargain arrangement is necessary, whereby the wealthy world invests massively in a new form of development that helps individual countries accelerate their clean energy transition and preserves a habitable planet. The World Bank’s leadership and own institutional reforms are crucial in facilitating this shift.

And what institutional reform is needed, according to Banga? First, what the World Bank needs to do is to squeeze more out of the resources that the Bank currently holds. Thus, the Bank needs to provide more for climate change projects in the developing world. But then, and I suppose not surprisingly, Banga calls for resource enlargement. As Stewart identifies: 

Doing more with existing resources is not enough, however. Banga continues to emphasize the need for “a bigger Bank.” To boost the institution’s firepower, he is working with shareholders to increase the capitalization of its IBRD, which provides loans to middle-income countries on commercial terms. He also wants to ensure that the next replenishment of the World Bank’s concessional window, known as IDA21, is the largest in the IDA’s history.

That increase in capitalization, of course, remains a significant hurdle. Stewart, and others are more more than alert to the difficulties in enlarging the capitalization:

Achieving these ambitions will not be easy. Among the biggest uncertainties is whether shareholders will ultimately approve the envisioned money for IBRD and IDA. U.S. President Joe Biden’s administration, for instance, requested $2.25 billion in supplemental appropriations for the World Bank (including $1.25 billion for the Global Challenge Programs), but the fate of such funding is uncertain, especially as congressional Republicans are divided over support for Ukraine.

Enlarging the resources of the WBG, however, is not the only pathway to tackle development and climate. For this alternative path one can turn to a series of reports just recently issued, titled ‘The Triple Agenda’.  Martin Wolf of the FT highlighted these reports recently in an FT column. In the piece, Wolf focused on the two reports prepared by the Independent Expert Group (IEG). Now, the IEG was established by the G20 during the India Presidency that is now just coming to an end. The IEG Co-convenors were Harvard economist Larry Summers and Nand Kishore Singh, the President of the Institute of Economic Growth and Chairperson of the Fifteenth Finance Commission of India. A technical team was added and the lead in preparing these two reports was our colleague, Homi Kharas, a senior fellow at Brookings. 

Having Homi Kharas was very good fortune and I could not  resist getting in touch with Homi about his efforts. The product of that conversation with Homi is the most recent podcast in the Global Summitry Project (GSP) - ‘Summit Dialogue’ podcast series. It is SE2, Ep 2 and can be found at Apple podcasts, or Spotify, or CloudSound, or at our own GSP website https://globalsummitryproject.com). That deeply interesting conversation, if I do say so, should be released by the middle of the week. Do give it a listen if you can.

But back to the two Reports. Volume 1 is titled: “Strengthening Multilateral Banks” and volume 2 is titled: “A roadmap for better  bolder and bigger Multilateral Development Banks” . As Wolf summarizes the two ‘Triple Agenda’ reports:

The first volume, published in June, proposed a “triple agenda” for the MDBs: tripling annual lending to $390bn by 2030; adopting a “triple mandate” of eliminating extreme poverty, boosting shared prosperity and contributing to global public goods; and expanding and modernising MDB funding models. This volume explains what this would mean in detail. Put simply, it calls for an overhaul of every aspect of how MDBs operate — the scale of their resources, how they use them, the risks they take, their relationship with the private sector and how they operate.

While both proposals require the “crowding in” of private funds, it does appear that the Triple Agenda targets more dramatically private sector resources. As Wolf notes: 

Finally, half the latter should come from private sources, $320bn as non-concessional official loans and $180bn as concessional official loans and grants. Half of this last sum would go to low-income countries and nearly all the rest to lower middle-income countries. … the MDBs need to work out how to engage with the private sector, which is at present unwilling to bear the risks of large-scale and affordable financing of emerging and developing countries. MDBs need to bring together their official and private lending arms to identify and create investment opportunities, develop project pipelines and share risks with the private sector. This will require new instruments, especially more effective guarantees, not least against foreign exchange risk. The potential for expanding the World Bank’s Multilateral Investment Guarantee Agency seems particularly noteworthy. Not least, MDBs (as well as the IMF) need to enhance their ability to help countries cope with shocks.

The Triple Agenda in fact focuses both on the ways that the MDBs carry on business and the needed large pool of resources required to tackle global development and the green transition. The reforms required can be clustered around five elements: 

I. Convert operating models to co-create multi-year programs for transformative change.

II. Streamline and simplify business processes to halve processing time.

III. Work together better as a system with individual and collective KPIs (Key Performance Indicators), shared diagnostic tools and pool risks.

IV. Bring a whole-of-institution approach to mobilize $240 billion in private capital and catalyze private finance by shifting culture from risk avoidance to informed risk taking.

V. Triple financing levels to $390 billion per year to achieve the transformational change required to meet national and global priorities.

In addition, the G20 Finance Ministers should establish a mechanism to independently assess the first-year implementation of the proposed roadmap.

It is a big ask but as you will hear from Homi, if you get a chance to listen to our ‘Summit Dialogue’ conversation, it is critically important to provide a roadmap on how to tackle global development and the green transition for middle and low - income countries. All the IEG could do - ‘was to lead the horse to water … ‘

As Wolf concludes in his column: 

The recommended transformation of the MDBs is both bold and sensible. Wise leaders would see that it happens. The question is whether we have them.

* Now, It just so happens that I had the good fortune to record a podcast with Stewart very recently on the impact and outcomes of the UN General Assembly 78 HIgh Level Week. Give a listen to Stewart.