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WASHINGTON, USA – Ajay Banga, US President Joe Biden’s pick to run the World Bank, will face a tough slate of issues around the institution’s finances and capital structure from the get-go, thorny problems he must address as he reshapes the bank into a force for combating climate change on top of its traditional role as a poverty fighter.
Biden and his team have ambitious plans for overhauling the 77-year-old World Bank, which critics have said under its outgoing chief David Malpass was too timid in financing climate initiatives and still funds substantial fossil fuel projects across the developing world.
The key to it all, of course, is money, and as organized and funded now, the World Bank would be stretched to meet those goals.
Banga’s nomination, announced on Thursday, February 23, won a round of rapid endorsements as top finance leaders met on Friday, February 24, in India, a sign his ascendance by early May – or possibly sooner – is all but assured, though other member countries can also submit nominations through March 29 before the World Bank’s governors choose the president.
Even before he takes office, the former Mastercard chief is expected to start working his numerous constituencies as early as April when top officials meet in Washington at the World Bank and International Monetary Fund’s spring meetings. Member countries are expected to approve initial moves to stretch the bank’s balance sheet to free up more funds for climate projects, pandemic preparedness, and other priorities.
If confirmed, he will jump into high-profile talks in June hosted by French President Emmanuel Macron and Barbados Prime Minister Mia Mottley focused on developing a new global financial pact to reform how rich countries finance poor countries grappling with climate-driven damages.
Under Banga’s leadership, Mastercard became among the first companies to set net-zero emission targets under the Science Based Targets initiative. He also serves on the advisory board of Beyond Net Zero, a climate finance fund.
Biden administration officials touted Banga’s decades of experience building global companies and public-private partnerships to fund responses to climate change and migration.
“Ajay has proven his ability as a manager of large institutions and understands investment and the mobilization of capital to power the green transition,” said John Kerry, the US special envoy on climate change.
An even tougher challenge then awaits Banga in winning a capital increase from member countries.This will be especially difficult for the World Bank’s top shareholder, the United States, due to political brawling between the Biden administration and the Republican-majority House of Representatives. The House has major sway over the country’s purse strings and its leaders are not disposed to widen the World Bank’s role in fighting climate change.
In fiscal 2022, the World Bank committed more than $104 billion to projects around the globe, according to the bank’s annual report. Experts say countries will need trillions of dollars to fight and adapt to climate change.
Before an increase can even be considered, US officials say changes in World Bank debt-to-equity ratios and other rules could free up more funds for the climate fight, given the reluctance of a politically divided US Congress to appropriate more funds in a direct capital increase.
An independent report prepared for the Group of 20 major economies said changing the way the bank and other multilateral development banks (MDBs) operate could unlock hundreds of billions of dollars in additional funds.
But some middle-income countries worry that could weaken the bank’s AAA credit rating and raise borrowing costs, Mark Malloch Brown, president of the Open Society Foundations, told Reuters.
“The middle-income countries worry…that the cost of borrowing will increase because of the refusal of the West to put up more cash.”
Iskander Erzini Vernoit, director of the Morocco-based climate think tank Imal Initiative for Climate and Development, said the US – which has only contributed $2 billion of the $100 billion in climate finance rich countries have pledged – needed to invest more.
“Playing the blame game with management of the MDBs will only get you so far, and not far enough to finance tackling the polycrisis at scale,” he said. – Rappler.com