US Treasury Pushes World Bank for Reforms to Boost Lending Capacity
US Treasury Department officials are urging the World Bank and regional multilateral development banks to expedite the implementation of new rules to enhance lending capacity. The objective is to leverage shareholder capital commitments and complete the reforms by April 2024, according to a senior Treasury official.
Unlocking Financing for Developing Countries
The proposed changes aim to give more value to callable capital, which represents commitments made by shareholders to provide additional resources during severe financial crises. By incorporating callable capital into the banks’ balance sheets, a substantial increase in financing for developing nations could be achieved. The official, who spoke on the condition of anonymity, stressed the importance of these reforms in addressing the financing gap.
Janet Yellen’s Push for Reforms
The initiative to expand the World Bank’s lending capacity has been driven by US Treasury Secretary Janet Yellen, who has been advocating for reforms for the past year. A review conducted by an expert panel revealed a lack of proactive risk management by the institutions, government shareholders, and credit rating agencies. Yellen’s efforts seek to address this issue and provide greater support for developing and emerging economies.
The Need for Climate Financing
Experts argue that an annual funding requirement of $2.4 trillion is necessary for developing and emerging economies to effectively tackle global climate challenges. However, the current level of financing falls far short of this target. To bridge the gap, the World Bank recently proposed measures that would increase lending to developing countries by an additional $100 billion over the next ten years, with a specific focus on climate change.
Timeline for Action
The Treasury official revealed that World Bank governors are expected to approve the proposed measures this week during the annual meetings of the International Monetary Fund and World Bank in Marrakech, Morocco. The official also outlined a detailed timeline, stating that working groups will be established, stress tests will be conducted, and decisions on the callable capital issue will be made by spring 2024.
Enhanced Funding Potential
While the official refrained from providing an estimate of the additional funding that could be unlocked, they emphasized that the amount would likely be substantial. The Treasury Department is also working on a template to help major multilateral development bank shareholders assess the impact of callable capital commitments on their budgets in the event of a call on the capital. This comprehensive approach aims to facilitate discussions with stakeholders, including credit rating agencies, and potentially unlock even more financing.
Approval Process
It is important to note that any new proposal regarding the treatment of callable capital will require approval from the respective shareholders of each multilateral development bank.
World Bank’s Vision Statement
In addition to the reforms related to lending capacity, the World Bank’s governing body is expected to endorse a new vision statement during the meetings in Marrakech. The statement, “to create a world free of poverty on a livable planet,” reflects the bank’s commitment to addressing global challenges such as climate fragility, pandemics, poverty, and shared prosperity.
This rewritten article provides an overview of the US Treasury Department’s efforts to drive reforms in the World Bank and regional multilateral development banks. By leveraging shareholder capital commitments and incorporating callable capital into balance sheets, these reforms aim to unlock greater financing for developing countries, particularly to address climate challenges. The article highlights the role of Treasury Secretary Janet Yellen in advocating for these reforms and emphasizes the need for enhanced lending capacity. The timeline for action, potential funding increase, and the approval process are also discussed. The article concludes by mentioning the World Bank’s upcoming endorsement of a new vision statement during the annual meetings.
