More money, more problems?
The World Bank’s “Evolution Roadmap” and what’s missing from the conversation
During the World Bank’s 2022 Annual Meetings, US Treasury Secretary Janet Yellen, representing the Bank’s biggest and most powerful shareholder, asked the Bank to develop an “evolution roadmap” that would reflect how the Bank plans to evolve to better face a changing global environment, and to do it fast! Since then, the Bank’s president and senior leadership have been under pressure to present options for how the Bank can better position itself to address “global public goods” especially climate change, expand its concessional financing to middle income countries, and to lend more. Centering around the Bank’s mission, its operating model, and its financial model, the draft roadmap was prepared in record time and discussed at the Board last week.
The simplest way to define evolution is as a gradual change through time, developing, refining, and adapting. And after more than 70 years of existence, the Bank has evolved significantly, but yet not nearly enough. And the last five years have been particularly exceptional: the world has faced a multitude of crises, and through them, a reversal of years of progress on poverty, combined with the supercharging of inequality. An evolution is certainly needed to ensure the Bank is up to the task.
Instead of summarizing the draft roadmap which you can read for yourself, we want to offer some perspectives which appear to be missing in the discussion so far.
Let’s start with the mission…
Over the past decade, the Bank’s mission has gravitated around the twin goals of eradicating extreme poverty by 2030 and boosting shared prosperity, which have shaped not just the Bank’s operations, but so much more. Just look at the globally agreed Sustainable Development Goals and their indicators on poverty and inequality to see the influence.
But sadly, we now know how far out of reach the extreme poverty goal is, and while the shared prosperity goal was a welcome step towards dealing with inequality, it never quite articulated the problem (and therefore solutions) well enough. Tackling inequality cannot simply be focused on raising the incomes of the bottom 40%. Instead, it must be about understanding what is happening with the alarming concentrations of wealth at the top as well and advancing the redistribution of wealth and resources, especially through the investment in public services that all can benefit from.
On to the global public goods agenda…
Climate change will inevitably feature strongly in the evolved mission; it was a key driver of this roadmap afterall. And aside from it being an existential threat to all development, it is the world’s poorest people who are on the front lines and who are most vulnerable to the impacts of the climate crisis. The World Bank has a critical role in boosting climate finance and supporting countries to adapt to the impacts of climate change, building resilience while limiting warming to 1.5C. Yet, there are many questions about what is being counted as climate finance and if it is truly being used in the most effective way possible to address climate change, in part because of a significant deficit in transparency. And so, as we speak about reforms to increase the flow of climate finance, we absolutely have to speak about greater transparency and accountability of such critical resources as well.
We also need to see enhanced concessional financing for adaptation finance in particular for those countries that are climate vulnerable, and improved distinction between emergency assistance, loss and damage finance, and adaptation finance for example. And how could we possibly have this conversation without talking about how the Bank can truly align its mission and operations with the Paris Agreement? The urgency and pressure to phase out of fossil fuels has never been stronger with a massive redirection of finance to support sustainable and renewable energy needed.
Given the Bank’s prominent work and financing in the health sector across so many countries, its support for the new Pandemic Fund, and its convening power, addressing pandemics will also be part of its evolution. Linking this to country operations and the Bank’s added value will be key: the COVID-19 pandemic was an abrupt reminder of the critical importance of our public health systems. Strengthening those systems is foundational to pandemic preparedness, prevention and response (PPPR) and should remain in focus in coming years. Advancing free and universal public health systems should be a central priority for the Bank in achieving its objectives on global public goods, including on PPPR.
There is also much to say on the Bank’s role in fragile contexts, much of which has already been articulated in the Bank’s fragility strategy. Humanitarian relief and development programs are not serial processes but rather are needed at the same time to tackle the systemic inequalities that trap people in poverty and expose them to risk. As such it’s essential that the Bank play its part effectively, thoughtfully, and in partnership with others.
Serving all clients…
With deep levels of poverty and inequality existing not just in low income countries (LICs) but middle income countries (MICs) too, and where climate vulnerabilities do not align with countries’ income levels, it is absolutely time for the Bank to consider different vulnerabilities for countries to access concessional financing. There is already precedent for such financing if we look at the Bank’s Global Concessional Financing Facility or the International Monetary Fund’s new Resilience and Sustainability Trust for example. At the same time, it’s crucial that any effort to increase concessional financing for MICs doesn’t come at the expense of concessional financing for the world’s poorest economies. This includes the terms and amounts of such lending. It will also be important to consider what this discussion implies for debt sustainability analyses and beyond. And once again, we should expect these discussions to have impacts far beyond the World Bank.
On additional financing capacity: considerations and risks
There is much chatter about a general capital increase and even more so about the Capital Adequacy Framework which is squarely on the table, but we’re focused where others may not: we’re living in a world which appears resource constrained but is by no means so. When the pandemic hit, rich countries immediately dug deep into their pockets to find trillions of dollars. While lower income countries are facing years of austerity and spending on debt servicing at the expense of essential social protection, climate investments and others, rich countries are on a path towards recovery. Rich corporations and wealthy individuals are doing well too. Oxfam’s latest analysis of 95 food and energy companies found that they made an eye watering $306 billion just in windfall profits, while billionaire fortunes have increased by $2.7 billion a day. The resources are available. The distribution is where we have a challenge: it is a political choice when rich countries reduce their aid budgets and when governments around the world choose not to tax the wealthiest.
It is essential that the Bank highlights this reality rather than echoing a somewhat false narrative of a lack of resources. If donors want the Bank to increase concessional financing, they can’t look for “win-win solutions” in which they avoid meeting their own aid commitments. We need more resources for climate and for development. Wealthy countries are not living up to their 0.7% (of GNI) aid commitment, or the $100 billion per year in climate finance; and it’s time for them to step up and do that. This should be done via the World Bank (and especially via the International Development Association/IDA), as well as through other multilateral and bilateral initiatives.
(Side note here: in thinking about other financing options, it’s worth the Bank considering adapting what the African Development Bank is proposing: a mechanism to allow countries that have excess Special Drawing Rights to channel those resources to countries that are in greater need. Any such mechanism should feature fair principles to maximize concessionality and flexibility.)
A “cascade” of problems
The Maximizing Finance for Development (MFD)/ Cascade/ “private sector first” approach is also being talked about again. This approach has not resulted in the “Billions to Trillions” of private finance for development that had been promised, and it also comes with a host of risks. Oxfam research on blended finance has found there is little evidence of the positive development impact of this approach, yet strong concerns about transparency, accountability and local ownership still remain. Recent research on public private partnerships (PPPs) from Eurodad and on education PPPs from Oxfam also demonstrate the fiscal and social risks of such an approach, including deepening inequalities in access and outcomes, particularly in social sectors. The MFD approach should be seriously reviewed and at a minimum social sector investments should be protected or even excluded from this approach, as there is strong evidence that private finance and PPPs in the social sectors drive inequalities in access to services and in outcomes.
Putting people at the center
As the Bank weighs options for increasing the amount of finance it provides, it will also need to ensure proportionate attention to doing quality projects, that include strong outcomes on poverty and inequality, and which ensure gender and equity concerns are meaningfully built into all projects; a do-no-harm approach via the Environmental and Social Framework; ensuring a robust and independent accountability framework is in place with remedial action when projects result in harm to communities; and having independent evaluation.
The Bank cannot and should not talk about increasing the quantity of financing without talking about improving the quality of financing. A key part of this has to be strengthening and recommitting to meaningful citizen engagement in Bank operations. And at a time where the safety and space for civil society to operate is under increasing threat, the Bank needs to properly understand and respond to the context within which it is operating. This includes comprehensive civic space assessments, but also, a strong framework to operationalize the Bank’s commitment against reprisals and retaliation.
Amidst this discussion on how to massively boost financing, let’s remember to center those who are supposed to be the true and ultimate beneficiaries of the Bank’s mission: people and communities.
This blog was co-authored by Oxfam International’s Nadia Daar, Head of Washington DC Office, and Christian Donaldson, Senior Policy Advisor on IFIs and Economic Justice, with contributions from Katie Malouf-Bous, Senior Policy Advisor on Public Services and Linda Oduor-Noah, Health Policy & Advocacy Advisor.
