In mid-December 2022, World Bank management published ‘Evolving the World Bank Group’s Mission, Operations, and Resources: A Roadmap’ – a programme of work intended to allow its shareholders to take decisions on the Bank’s future by the Autumn 2023 Annual Meetings. This Roadmap responds to shareholder requests to ensure that the Bank is best equipped to deliver its development mandate while scaling its response to global challenges.
Although the Roadmap is timely, it must go much further. There is broad consensus in two areas: first, that the international community faces an enormous challenge to meet global development and climate goals, necessitating a significant step-up in investment and innovation; and second, that the finance currently on offer is nowhere near sufficient. Multilateral development banks (MDBs) – with the World Bank Group at the centre – could form a much bigger part of the solution. To do so, they must all adapt their missions, set ambitious targets, exploit synergies, use capital more efficiently, embrace private capital mobilisation and streamline processes.
Below, we outline six ways in which the Roadmap could be enhanced.
1. Shareholders should set out a compelling and ambitious vision for the World Bank Group that responds to the scale and interdependence of global challenges.
Expanding the mission to cover global challenges cannot simply be ‘additive,’ but should reflect the critical interdependence between development and climate goals. The future of development finance is to deliver sustainable, inclusive and resilient growth, not development and climate activities on separate tracks. This has significant implications, including at operational level.
Above all, over the coming decades we will witness profound economic transformations driven by technology and the energy transition. These will entail the fundamental reshaping of economic systems – cities, transport, energy systems and land use, among others. The World Bank should play a central role in international efforts to design and support such transformations. The Bank’s new analytical tool – the Country Climate and Development Report – is an excellent basis for such an integrated vision. In turn, this integrated vision should be reflected in the Bank’s operating model: notably, the current country focus should be augmented with more global, regional and sub-national approaches, and its vertical sector organisation should be adapted to capture economic systems.
2. The World Bank should recognise its role at the centre of the MDB system and the wider development finance landscape.
There is a need for collective action to fully harness the capacities and complementarities across the system. The 2018 Report of the G20 Eminent Persons Group on Global Financial Governance outlines many ways in which such cooperation could be achieved, including country platforms, convergence on standards, creating asset classes for private mobilisation or jointly delivering on global public goods. The World Bank could play an important leadership role in such efforts. Instead, the current Roadmap is largely inward-looking.
3. The World Bank should establish specific and ambitious financing targets, commensurate with the scale of the development and climate challenges.
Reflecting the critical role of MDBs, the Independent High-Level Expert Group on Climate Finance estimated that MDBs need to collectively triple their annual lending volumes in the course of the 2020s. Such a stretch target would match an enhanced future role for the World Bank.
The Roadmap discusses ways to increase the Bank’s resources, including more efficient use of capital, more capital and/or more mobilisation. But in the absence of a financing path, this puts the cart before the horse. Targets should be set first before any discussion on how they will be achieved.
4. A more comprehensive approach is required to increase the efficiency of capital usage.
Specifically, the World Bank should explore the full set of recommendations issued by the G20-commissioned external review of MDBs’ Capital Adequacy Frameworks. The review made three sets of recommendations, referring to the scope for MDBs to take on more risk while preserving high credit ratings, replicating or scaling up balance sheet innovations, and strengthening the governance and transparency of their capital management. While the Roadmap considers several potential capital innovations, it should systematically explore the other proposals, particularly those concerning risk and governance.
Even though fresh capital will almost certainly be needed if the World Bank is to increase lending at the necessary pace and scale, there is an obvious value-for-money imperative to ensure existing capital is being used efficiently before calling on shareholders.
5. For comprehensive engagement with the private sector, the World Bank will need to adapt its operating model.
As part of the Roadmap, the Bank will need to closely examine how it originates, delivers and structures projects, the skillsets of staff, incentive systems and possibly pricing approaches. It should help set the right policy frameworks ‘upstream’ of private investment, work through public-private country platforms and move from transaction-by-transaction models to providing programmatic support (e.g. for PPP programmes).
The Roadmap’s recognition of the importance of strengthening efforts to mobilise and enable the private sector is most welcome. This includes further financial innovation and the promotion of investment approaches that are standardised for replication (e.g. for renewable energy). Nevertheless, the Bank is unlikely to greatly increase its impact in this area, especially in sovereign operations, unless it adapts its business model. Simply adding new instruments is insufficient.
6. The Bank must streamline its processes and procedures.
The operating model update represents a key opportunity to tackle some of the very heavy transaction costs involved in borrowing. These include extremely long processing times, onerous safeguards and heavy policy conditionality. If the Bank is serious about incentivising greater borrowing, especially in middle-income countries, it cannot ignore these issues that are critically important for client countries.
Resolving these issues would improve the incentives for borrowing for global public goods – a key focus of the Roadmap. Such efforts would complement the provision of extra concessional financing and/or – as suggested above – integrated approaches to low-carbon development.
Discussions on World Bank reform must go far beyond the proposals outlined in the Roadmap. The current efforts to reshape the World Bank offers a rare opportunity to strengthen the world’s development toolkit. With consultations taking place in the next few months ahead of the Spring meetings, the six proposals detailed above aim to contribute to these deliberations with a view to delivering an ambitious reform of the World Bank – one that equips it with the necessary means to confront the urgent development and climate crises facing the world today.