Posted July 18, 2023, 5:32 pmUpdated on July 18, 2023 at 19:17
It is a step in the right direction, but it cannot be enough. At the meeting of G20 finance ministers on Monday and Tuesday in Gandhinagar, India, the new president of the World Bank, Ajay Banga, unveiled another plan to strengthen the multilateral institution’s lending capacity. The proposed project aims to expand the bank’s balance sheet and help developing countries tackle climate change and reduce poverty.
The World Bank could increase its volume of loans by ten billion dollars by allowing its shareholders to guarantee its loans in case the borrower countries cannot repay. This measure alone would generate six dollars in new lending for every dollar in collateral over a ten-year period, or $30 billion for every $5 billion.
The bank is also proposing to issue a new “hybrid capital” instrument that would allow its shareholders to invest in bonds. This option would make it possible to increase its borrowings up to 6 billion dollars. In a third step, the institution proposes to take more risks by expanding the conditions for convertible capital, that is, for capital pledged by governments but not currently lent.
The fourth track allows the multilateral institution to provide loans at very low or zero interest rates, notably through a new $6 billion crisis facility through its subsidiary specialized in aid to the least developed countries. poorest, International Development Association (IDA).
Planned capital increase
However, the planned measures must be approved by the bank’s shareholders. They come in addition to the proposals that were approved last April during the spring meetings. These will result in an increase in lending of $50 billion over the next ten years. Ajay Banga made no secret of the fact that, in the long term, a capital expansion of the bank would be necessary.
It is true that to meet the needs for poverty reduction, climate change mitigation and sustainable infrastructure development, around $3 trillion in financing will be needed each year by 2030, according to the last assessment carried out in the request of the G20 by a expert advisory panel.
In line with the Paris Summit’s commitment to a new global financial pact, the World Bank is therefore responding “currently”. On the other hand, discussions within the G20 on restructuring the debt of the countries most exposed to the risk of default are progressing.
Status quo on debt
In Gandhinagar there is no remarkable progress. Last month, Zambia struck a deal to restructure $6.3 billion in foreign debt. But G20 finance ministers have not agreed to use Zambia as a model for further restructuring. “Each country is a special case and has its own debt profile,” Indian Finance Minister Nirmala Sitharaman admitted during the meeting’s final press conference.
Most of the big money creators have also been reluctant to grant new loans to vulnerable countries. Several ministers chose not to participate in the round table discussion devoted to the issue, which contributed to the slow progress on the issue, said a senior official present at the venue.
Added to this is the attitude of China, which is the main economic supporter of several countries in Asia and Africa in difficulty. So far, she has opposed a joint multilateral agreement on the issue of restructuring. The Indian minister was content to emphasize the “encouraging attitude” of the Chinese authorities. The managing director of the International Monetary Fund, Kristalina Georgieva, meanwhile, merely noted that China was more open to negotiations on these issues of debt relief.
