World Bank has a bold new plan

In a momentous move, the World Bank has embarked on a comprehensive strategy to bolster its lending capacity, delivering a significant push towards eradicating poverty and enhancing livelihoods for millions of individuals.

Aligned with the global community’s calls for action, the Bank is intensifying its efforts to address interconnected issues such as employment, climate change, fragility, and pandemics. These endeavours involve decisive actions aimed at transforming the Bank into a more effective institution, with the ultimate goal of creating a poverty-free world that coexists harmoniously with a sustainable planet.

Underpinning these efforts is a fresh approach, involving a new playbook that aims to drive impactful development and embrace higher risks. The objective is to establish an inclusive world that encompasses individuals of all genders and ages, resilient in the face of shocks, and committed to sustainability.

To maximise the value of every dollar while upholding its AAA credit rating, the Bank has carefully examined various options within its work plan. The measures announced today will significantly enhance the Bank’s financial capabilities, serving as a catalyst for economic growth and job creation – the most assured pathways out of poverty.

The absence of progress on this front would lead to stagnation at best and regression at worst. In the coming months, the Bank will further develop and share additional strategies to maximise its impact, exploring new opportunities while prudently managing potential risks.

The introduction of these instruments presents a game-changing potential for extending the influence of each dollar. For instance, an additional $1 can generate $6 in new lending over a ten-year period.

One initiative involves amplifying the power of guarantees provided by World Bank shareholders to bolster lending activities. The proposed portfolio guarantee program constitutes a shared approach to risk, making World Bank financing more accessible by allowing shareholders to step in if countries face difficulties in loan repayment. Consequently, $5 billion in guarantees could translate into $30 billion in lending over a decade, facilitating initiatives such as educating more girls, supporting farmers grappling with climate change, and providing vital healthcare services.

Another avenue being explored is the mobilisation of hybrid capital from shareholders and other development partners. Hybrid capital offers a fresh perspective on advancing development goals, as it allows shareholders and partners to invest in bonds with significant leveraging potential. With $1 billion in hybrid capital, the Bank could increase lending by up to $6 billion over ten years, thereby deepening its impact on the most vulnerable populations.

Furthermore, the Bank aims to extract more value from callable capital, which serves as a commitment from shareholders to provide additional funds only under extreme circumstances. By broadening the conditions, clarifying procedures, and establishing mechanisms for accessing callable capital, the Bank can assume greater risk and expand lending. Collaboration with rating agencies and shareholders will be crucial in making callable capital more effective.

Simultaneously, the Bank is progressing with the IDA Crisis Facility, recognising the pressing need for more concessional funds to address the climate emergency, food insecurity, and other crises in the poorest countries. Fundraising for the IDA Crisis Facility has commenced, with a target of $6 billion, promising substantial development impact for every dollar invested.

In conjunction with today’s announcements, the Bank recently launched additional initiatives to prioritise impact within its operations. Last month, the establishment of a new Private Sector Investment Lab was unveiled, with a focus on generating, testing, and scaling impactful ideas that eliminate barriers to investment in emerging markets. The Bank has also introduced an enhanced toolkit to facilitate rapid and effective responses to natural disasters and initiated efforts to develop a new approach for effectively tracking climate outcomes, placing greater emphasis on measuring impact rather than solely focusing on financial allocations.