The World Bank is under increasing pressure to reform, following a call for $100bn in fresh capital to drive climate and development finance ahead of a summit in Paris to be co-hosted by the leaders of Barbados and France.
The proposal for extra capital and $100bn in foreign exchange guarantees are central to a big update, put forward by Barbados’s prime minister Mia Mottley, of last year’s so-called Bridgetown Initiative to overhaul the lending institutions, in a consultation document seen by the Financial Times.
Mottley has led a push over the past year by smaller, less wealthy nations to secure more funds to help tackle climate change through reforming the World Bank and the IMF, which were set up after the second world war.
The “Bridgetown 2.0” consultation document calls for new funding proposals to cut the “excessive risks” that poorer countries have to take to borrow to fund green investments.
The World Bank’s big shareholders, led by the US, have previously rejected calls for more cash. The pandemic, inflation and the European energy crisis have all squeezed government budgets, leading countries to argue that the bank should aim to do more with existing funds.
But Germany’s minister for economic co-operation and development Svenja Schulze told the Financial Times on Friday it was potentially open to providing more funding.
“I have called for ‘a better bank’ before ‘a bigger bank’,” she said. However, if reforms were substantial and tangible, “Germany is willing to embark on a discussion about more funding”.
A US official also said that as broader reforms were carried out across the bank, the Biden administration would examine whether any more paid-in capital was needed. The official added that fully implementing reform measures would make any paid-in capital more effective.
If the new World Bank president Ajay Banga, listed as an attendee in Paris, outlined strong reforms and began to put these in place, “that question [of an increase in paid-in capital] becomes a much more open one”, said Michael Jacobs, visiting senior fellow at the ODI think-tank and a former UK government climate adviser.
Mottley and her advisers are consulting other world leaders in a bid to secure support for the updated agenda to the initiative that aims to expand low-interest lending for climate-related projects, several people familiar with the talks said.
Foreign exchange risk was one of the “major inhibitors of investments in green infrastructure”, according to one summit participant, because of the “premium for foreign investment in non-major currencies”.
An independent review of development banks commissioned by the G20 found that with “very manageable changes to risk tolerance” the World Bank and other institutions could boost lending by “several hundreds of billions of dollars over the medium term” while maintaining the AAA credit rating that allows it to borrow at advantageous terms in capital markets.
The Paris summit is expected to focus on several other areas, such as tackling debt for borrower countries, new sources of finance to deal with climate change, including selling carbon credits, and involving the private sector. Mineral supply chains and efforts to preserve biodiversity will also be discussed, a French official said.
Working groups, some numbering more than 100 delegates including national representatives, NGOs, sovereign wealth funds and philanthropists have been involved in preparing for the summit, people involved said.
President Emmanuel Macron of France is also pushing for greater collaboration between the international development banks and other banks working at regional and national level to ensure projects go ahead.
A US official said it was pushing for new ways to assess which borrowers should be prioritised for concessional financing, and exploring new allocation models for funds to tackle climate change and pandemics.
Other US priorities include mobilising private capital and speeding up debt restructurings for poorer economies, an official said.
France has promoted the gathering, on June 22 and 23, as a chance to build consensus for a more inclusive financial system.
Claire Healy, of the E3G think-tank in Washington, said the gathering was an opportunity for fresh climate policy suggestions to “get some heft” and a “political, leader-level push”.
At least 21 leaders have confirmed they will attend, organisers have said, including German chancellor Olaf Scholz, the presidents of Gabon, Mozambique, Congo and Mauritania, and European Commission president Ursula von der Leyen. Narendra Modi, India’s prime minister and chair of the G20, is not expected.
British prime minister Rishi Sunak has not confirmed his attendance, despite being urged to do so in a letter from non-profit organisations.