IMF, World Bank meet as calls for reform grow louder

By Sara Schonhardt | 04/10/2023 06:23 AM EDT

The spring meetings of the World Bank Group and the International Monetary Fund are set to take place this week in Washington. Officials at the two organizations are under growing pressure to address climate change.

Activists from Extinction Rebellion and Debt for Climate shut down vehicle traffic along Pennsylvania Avenue in front of the IMF and World Bank in an attempt to block people from entering the annual meetings on Oct. 13 in Washington, DC.

Activists from Extinction Rebellion and Debt for Climate shut down vehicle traffic along Pennsylvania Avenue in front of the IMF and World Bank in an attempt to block people from entering the annual meetings on Oct. 13, 2022, in Washington. Chip Somodevilla/Getty Images

The world’s financial heavyweights will gather in Washington this week to reimagine how the world will underwrite the challenges of the 21st century.

Their mission: revamping a nearly 80-year-old system so it can better tackle climate change, debt distress and other pressing problems.

That’s shaping up to be the central focus of the spring meetings between the World Bank and International Monetary Fund, as economic turmoil and tensions between nations deepen — and as the World Bank pursues an evolution under the guidance of a new president.


These meetings come at a time “when we need deep reform and urgent action,” said Kevin Gallagher, director of Boston University’s Global Development Policy Center. And the World Bank “is the first real opportunity for significant reform.”

The drumbeat to remake the world’s financial system isn’t new, but it has grown steadily louder in recent years as the impacts of climate change and the Covid-19 pandemic have thrown its inadequacies into starker relief. It got a boost last October when the U.S. — the World Bank’s largest shareholder — demanded that it produce a plan for how it would extend more lending to respond to challenges like climate change (Climatewire, Oct. 7).

Bank management released a plan late last month that centers on updating the bank’s official mission and operations and increasing its lending capacity. They’ll be seeking its endorsement by World Bank governors during spring meetings this week.

Bigger, bolder announcements aren’t expected until later in the year given that the bank itself is in the process of transition, with embattled President David Malpass retiring in June after months of scrutiny over his leadership (Climatewire, Sept. 23, 2022).

But the timing is no coincidence.

This year’s confab takes place following a pandemic, global energy crunch and multiple climate disasters — and as the world reels from the worst economic slowdown in more than three decades, according to the IMF. It warned last week that lower growth and higher borrowing costs could force the world’s poor into deeper poverty and hunger.

“It’s because of the last few years that governments are pushing for reforms, because they’ve seen that the World Bank has not been able to deliver as fast, as efficiently or as much finance as has been needed,” said Joe Thwaites, an international climate finance advocate at the Natural Resources Defense Council.

The winds of change

The bank’s “evolution road map” outlines ways it can free up additional capital at a time of growing need.

That’s likely to put the focus on short-term fixes, such as how the bank can revise its lending rules, take on more risk and mobilize more private sector capital for green growth, said Rachel Kyte, dean of the Fletcher School at Tufts University and a former World Bank Group vice president.

But this week’s meetings will also begin to address how deeply climate finance is interwoven with debt distress and the need to rehabilitate the broader multilateral development bank (MDB) system.

“This is really about a collective,” Kyte said during a briefing with reporters last week. “The MDB system as a whole has to work more efficiently and more effectively.”

The World Bank’s reform plan would free up roughly $5 billion annually over the next 10 years, mainly through a slight relaxation of the bank’s rules for how much risk it can assume. Specifically, it would lower the bank’s so-called equity-to-loan ratio from 20 percent to 19 percent, which would allow it to increase its lending with the same amount of shareholder money.

Critics have called the plan underwhelming, saying it’s still too vague and risk-averse. Some argue that the equity-to-loan ratio could be lowered further without jeopardizing confidence in the bank’s lending ability, making additional lending capacity available.

Others say a broad range of voices beyond just donor governments will be critical to the reform process.

“The perspectives of recipient countries who borrow from the MDBs should be at the heart of these debates,” wrote Karim El Aynaoui, head of the Policy Center for the New South, and Masood Ahmed, president of the Center for Global Development, in a recent blog post.

IMF vs. World Bank

Even with World Bank reform in the crosshairs this week, the International Monetary Fund, or IMF, won’t escape attention.

It works largely on ensuring global economic stability and provides emergency loans when a country’s economy gets pummeled by a typhoon, a pandemic or other economic shocks. It’s dealing with a looming debt crisis, with dozens of countries at risk of default.

The World Bank, meanwhile, has tended to focus more on providing long-term finance for development. Both financial institutions have hundreds of billions of dollars at their disposal.

That makes them vital players in helping countries shore up their defenses to the onslaught of climate-fueled storms, droughts, heat and rising seas — and then recover from their inescapable impacts.

The IMF under Managing Director Kristalina Georgieva has begun to take on direct climate-related lending through its Resilience and Sustainability Trust, which currently holds $40 billion. But billions of dollars in pledges to that fund have yet to be committed, and the fund has so far only approved a few billion dollars in lending. On top of that, countries have to already be part of an IMF program — meaning they’re already in distress — to be eligible to receive money aimed at preventing climate shocks.

In a speech last week, Georgieva called for “a green step change” to spur economic growth, estimating that $1 trillion is needed each year just to fund renewable energy expansion.

The World Bank is also seeking to revamp its mission to acknowledge that a greater emphasis on “sustainability, resilience to shocks and inclusion” are critical for achieving its “twin goals” of poverty reduction and shared prosperity.

Doing so will require a lot more money — roughly $2.4 billion annually up to 2030, the bank argues (Climatewire, Jan. 11). It spent $31.7 billion on climate change in fiscal 2022.

But getting countries to inject more capital into the World Bank will face major political headwinds. The United States, for example, would need approval from a Congress that has been reluctant to fund climate-related outreach, while Europe is already pouring billions in funding into Ukraine’s fight against Russia.

Another issue: The World Bank’s reforms focus mainly on its arm that lends to middle-income countries, to ensure, for example, that they have access to concessional finance to help them reduce their climate pollution. That risks overlooking the needs of the world’s least-developed nations, many of which depend on its support to build climate resilience.

“These institutions need to be masterful in being able to create some sort of outcome that’s a big win for climate, and especially [greenhouse gas] reduction, but is also a big win for the poorest countries that are not big emitters,” said Clemence Landers, a senior policy fellow at the Center for Global Development.

And the only way that win can really happen, she added, “is to get donors to fork up more money.”

Building bridges

That’s where the idea of climate vulnerability will factor into discussions this week.

A concept put forward by Barbados Prime Minister Mia Mottley advocates for a change to lending terms that would include natural disaster clauses, helping free up resources for vulnerable countries, such as small island states, to pay for climate-related damages when they occur.

Small island states are particularly prone to vicious financing cycles. Seen as high risk and with relatively higher incomes than many developing countries, they’re offered high-interest loans to rebuild when climate disasters strike. But then those debts — and the payments countries need to make on them — prevent them from responding to future climate disasters or building the defenses to bounce back from them.

The plan, known as the Bridgetown Agenda, has already received the endorsement of several governments, including French President Emmanuel Macron’s.

Avinash Persaud, a special envoy to Mottley, said the two will be discussing that plan with officials this week.

Radical collaboration

Hanging over the meetings will be the next person tapped to lead the World Bank, Ajay Banga.

President Joe Biden’s pick, Banga, is now the sole candidate for World Bank president, but he won’t enter that role until Malpass steps down in June. He has already started talking about how he will steer the ship but has also been careful to manage expectations, saying last week that he’s not a “white knight” with a magic wand.

Still, he’ll play a vital role in overseeing reforms the bank aims to implement before annual World Bank/IMF meetings in Marrakesh, Morocco, in October, analysts say. He’ll also need to try and tamp down criticism about the institution’s poor track record on climate change and show he can partner with other multilateral development banks, such as the African Development Bank.

That’s something that is deeply needed to bring about broader reform, said Kyte from Tufts.

“There is a desperate need to see how both capital but technical expertise, which is at the moment siloed in different MDBs and across the system, can be released and deployed more effectively,” she said. “So we need radical collaboration amongst MDBs, and that requires the World Bank president to be committed to do that.”