Annual Meetings, Perennial Challenges

War broke out in the Middle East just as travelers converged on Marrakesh for the 2023 annual meetings, but you wouldn’t know it looking at the official documents—neither the G20 communique, or the World Bank or IMF Chairs’ summaries referenced the conflict. Instead, all three documents used the language on Ukraine from the G20 Leaders’ Declaration negotiated in early September. I suspect most parties recognized that any attempt at a drafting session around the Middle East conflict would be futile—succeeding only in eliciting hot tempers and cold shoulders.

Otherwise, the meetings unfolded as expected: shareholders endorsed a broader vision for the World Bank and the eight areas that fall under the new “livable planet” objective (climate/adaptation, fragility and conflict, pandemic prevention, energy access, food security, water security, digitalization and protecting biodiversity and nature; I am still puzzling over digitalization). They also endorsed the next phase of reforms as laid out in the Evolution Roadmap. (See our blog post for details on what those look like.)

The G20 communique contained the usual boilerplate language on the multilateral development banks (MDBs), focusing heavily on capital adequacy measures to support more lending. The G20 agreed to “collectively mobilize more headroom and concessional finance to boost the World Bank’s capacity to support low and middle-income countries that need help in addressing global challenges,” and “provide strong support for the poorest countries.” The big unstated and unanswered question is where the additional resources will come from to meet both these goals. This will loom large in 2024 when fundraising for IDA, the World Bank’s arm that provides funding to the poorest countries, begins in earnest.

Ajay Banga impressed at his first annual meeting as World Bank President

This was Ajay Banga’s first annual meeting as World Bank President and to me he projected seasoned-captain-amid-turbulent-seas vibes. His plenary speech laid out a new playbook for better positioning the Bank to support “a world free of poverty on a livable planet.” Most of Banga’s ambitions have been integrated into the Roadmap, but he also previewed the possibility of lengthening IBRD maturities to 35-40 years to help countries make investments in social and human capital. (Lending tenors at the IBRD, the arm of the Bank that lends to more credit-worthy countries, now range from 8 years for high-income countries to 18-20 years for recent IDA graduates.) This idea, coupled with pricing incentives for some climate-related borrowing, would represent a departure from current World Bank practice, which is to link prices to country income levels, not differentiate by sector. To me the idea of linking tenors to expected returns on investment makes sense—investments in health and education can take a generation before showing real dividends.

Banga dexterously managed the question of a general capital increase (GCI) for the World Bank, affirming that he will put this to shareholders after he has achieved his objectives for a better bank—mostly internal plumbing issues (which my colleague argues here could have a real impact) and capital adequacy reforms. This position should reassure those in the pro-GCI camp without antagonizing his biggest shareholder. My guess is he is looking to the 2024 annual meetings before moving this agenda forward—just weeks away from the next US presidential election.

Shareholders have been put on notice: IDA 21 should be the biggest yet

Ajay Banga also conveyed that the next IDA replenishment, which launches in 2024, needs to be the biggest yet, exceeding the record $93 billion raised for IDA 20. He is setting the bar high with good reason: The World Bank estimates that growth in sub-Saharan Africa will slow to 2.5 percent in 2023, down from 3.6 percent in 2022. And in its regional economic note, the IMF cautioned that “funding for development seems likely to become increasingly scarce and ever more costly, making it more difficult for countries to sustain even current levels of per capita spending on priorities such as health, education, and infrastructure...”

IDA’s growth over the last decade is due to mobilization of resources within the World Bank – such as IDA debt issuances- not donor largesse—so shareholders will need to step up for IDA 21. In the World Bank Chair’s summary, members acknowledged the importance of “an ambitious IDA21 that will scale up support to IDA countries.” As I said here, the “ambitious IDA” language was all but guaranteed because shareholders say this about every IDA replenishment. But the phrase “that will scale up support to IDA countries” implies an increase.

What worries me is that even a record IDA replenishment of $100 billion or more would not offset the declining fiscal space for productive spending resulting from deteriorating debt dynamics. According to the IMF, average debt ratios in sub-Saharan Africa have nearly doubled in the last decade and are equal to almost 60 percent of GDP as of end-2022. Interest payments alone have increased by more than ten percent in 13 African countries over the last decade.

I had no expectation of any movement on this issue, but still find it discouraging that the message from Marrakesh is that the common framework—despite its flaws—remains the best option for now. The IMF’s regional note recommended that the international community “continue to work toward a more rapid, predictable, and efficient resolution framework” while the IMF Chair’s Summary affirmed support for the IMF’s work with the World Bank to “help strengthen and accelerate the implementation of the G20 common framework for debt treatments.” Finally, the G20 called for “continue discussion on policy related issues linked to the implementation of the Common Framework.”

Frankly, I find it hard to reconcile such banal statements with the gravity of the debt crisis.

The US public statements could have used more oomph

Treasury Secretary Janet Yellen’s speech on MDB reform was devoid of economic or political context, which would be unusual under any circumstances but is perplexing given that the sustained conflict in Ukraine coupled with the war in the Middle East threaten to wreak global economic havoc. I was also hoping for a full-throated defense of multilateralism and a plea to shareholders to affirm the centrality of MDBs in mitigating the multitude of risks to development. Finally, not acknowledging Claudia Goldin’s Nobel win for her work on economics and gender was a missed opportunity given her relevance to development and Yellen’s own thoughtful comments on women’s economic participation.

The US statement on the World Bank Development Committee lauded “significant” accomplishments (e.g., revisions to the World Bank’s mission and reforms to its balance sheet) and outlined the next set of priority reforms, including staff incentives related to the global challenges and private sector agendas, full implementation of the capital adequacy framework (CAF) report, and the development of “scalable platforms” to support securitization, insurance, and local currency lending. There is nothing objectionable here, but these asks came across as a bit hackneyed in the context of mounting global threats which are likely to push fuel and food prices up and growth estimates down. The general tone was too much business as usual and not enough pulling the emergency cord.

Onward to 2024…

Aside from the COP27 climate conference in November-December, there are no more high-level events that include MDB reform in 2023. 2024 is going to be a tough and consequential year for the World Bank due to the range of funding asks, including the portfolio guarantee facility, hybrid capital, the Global Public Goods Fund (which Banga wants to scale up), and potentially a push for a GCI. The real test will be how to identify sources of concessional financing for middle-income countries while still delivering on IDA. Donors have leaned heavily on capital adequacy reforms and private sector mobilization as sources of finance, but there is no escaping the fact that they will need to open their pocketbooks in the very near future.