Marrakech (Morocco): The World Bank must become “bigger and better” to become relevant for the next four decades to meet global developmental needs, multilateral lender’s chief Ajay Banga said.
The bank will soon approach its shareholders proposing a capital increase and redefinition of its mandate, he added. “I’m definitely going to go back to our shareholders to seek a bigger bank,” Banga said. “I believe that is what the world needs for the next coming decades.”
The measures underway at the bank can boost its lending capacity by about $150 billion over the next decade, Banga said here in his opening media briefing ahead of the annual meetings of the bank and the International Monetary Fund (IMF). He pointed out that a lot of work had gone into areas including loan-to-equity ratio, hybrid capital, and portfolio guarantees that can boost lending capacity by 15-20% and leverage resources six to eight times.
He added that if the countries can give special drawing rights, like in the case of the African Development Bank, it can boost lending.
“Idea is to make the bank more relevant for the next four decades,” he said, while stressing the need to bring about greater efficiency into the functioning of the lender. He highlighted that it takes 27 months from discussing to approving a project and a decade to implement it.
The idea is to have partnerships not just with the private sector but also with other Multilateral Development Banks (MDBs) while standardising practices to bring about greater efficiency, he said.
He emphasised the need for bringing greater synergy in various lending buckets including IDA (International Development Association), IBRD (International Bank of Reconstruction and Development) and MIGA (Multilateral Investment Guarantee Agency) and called for a deep cultural change to become “future-fit.”
“Clients complained we have silos in the bank… What we are trying to do is get them to come together… bring guarantees in one place for a country,” he said.
He said even the partnership with the private sector will require the lender to have a bigger balance sheet.
The Independent Experts Group on multilateral development banks appointed by the G20, under India’s presidency, has suggested measures for boosting MDBs’ lending capacity.
Banga signalled that the lender was also looking at the other avenues where money is available: subsidies on fuel or voluntary carbon market or private sector can be brought in.
Global debt and interest rates
On interest rates, Banga said these will stay higher for longer.
“That can be a complicated event in many ways, both for investments as well as for people, who over the years got used to a lower interest-rate environment.”
World Bank chief economist Indermit Gill said, “In spite of all of these shocks, we have not seen any big economy really get into trouble – but the good news basically ends there.” The trouble now is, because of the high rates, growth is slowing down a lot, Gill said
Gill cited the example of the 1970s, when the Federal Reserve also durably kept rates high, and said that one lesson then was that the tightening cycle didn’t just take one or two years.
“It left about 24 economies bankrupt,” he said. “We should expect some countries to get into trouble now.”
The reporter is in Marrakech at the invitation of CII
