New Delhi, (18/07/2023): On Tuesday, World Bank President Ajay Banga presented fresh initiatives to strengthen the bank’s balance sheet and assist countries in addressing climate change and other challenges, but he also stated that a capital increase would be required in the future.
Banga, a former Mastercard CEO who took over as World Bank President on June 2, unveiled the new suggestions to “make our balance sheet work harder” during a conference of financial officials from the Group of 20 major economies in Gandhinagar, India.
The latest initiatives, which are still being reviewed with shareholder countries, follow preliminary ones authorised in April that will increase World Bank lending by up to $50 billion over the next decade.
The United States, the bank’s largest shareholder, launched the reform campaign in October, subsequently appointing Banga to succeed outgoing President David Malpass with a special goal to hasten the institution’s evolution.
This week, US Treasury Secretary Janet Yellen called for more work to be done to reform the World Bank and other multilateral development banks, saying capital increases would be considered only after they made changes to expand their capacity to assist countries in dealing with climate change and other challenges.
Banga said in a remark, “We are making quick progress…We are building a better bank, but eventually we will need a bigger bank.”
The plans might produce tens of billions of dollars in additional financing by allowing shareholders to guarantee loans if governments are unable to repay them, a move that the World Bank claims will generate $6 in new lending for every $1 in guarantees over a 10-year period, or $30 billion for every $5 billion.
In addition, the bank might issue a new hybrid capital vehicle that would allow shareholders to participate in bonds, potentially increasing lending by up to $6 billion.
It intends to absorb more risk and expand lending by loosening the requirements for callable capital, which is money guaranteed by governments but not yet “paid-in.”
It also intends to boost very low or zero-interest lending, including through a new $6 billion crisis facility established by the International Development Association for the poorest countries.
