The World Bank is under increasing pressure to reform after the leaders of Barbados and France meet in Paris to call for $100 billion in new capital to boost climate and development finance.
In a consultation paper seen by financial institutions, Barbados Prime Minister Mia Mottley provided a major update to last year’s so-called Bridgetown Initiative proposals to reform lenders, Proposals for additional capital and $100 billion in foreign exchange guarantees were crucial.
Over the past year, Motley has led a push for smaller, less wealthy countries to get more money to help fight climate change by reforming the World Bank and the International Monetary Fund, established after World War II.
The “Bridgetown 2.0” consultation paper calls for new financing proposals to reduce the “excessive risk” that poorer countries have to take to finance green investments.
Major World Bank shareholders, led by the United States, have previously rejected calls for more cash. The pandemic, inflation and Europe’s energy crisis have all squeezed government budgets, leading countries to argue that banks should aim to do more with existing money.
But Germany’s economic cooperation and development minister, Svenja Schulze, told the Financial Times on Friday that it might be willing to provide more funding.
“I call for ‘better banks’ before ‘bigger banks’,” she said. However, “Germany is willing to start talking about more funding” if the reforms are substantive and tangible.
A U.S. official also said the Biden administration would review the need for more paid-in capital as broader reforms across the bank are undertaken. The full implementation of the reform measures will make paid-in capital more efficient, the official added.
If the new World Bank president, Ajay Banga, who was among the attendees in Paris, outlined strong reforms and started implementing them, “the issue (increasing paid-in capital) would become more open,” said Michael Jacobs, Visiting Senior Research Fellow at ODI Think Tank and former UK Government Climate Advisor.
Motley and her advisers are consulting with other world leaders to build support for an updated agenda for an initiative aimed at expanding low-interest loans for climate-related projects, several people familiar with the matter said.
Foreign exchange risk is one of the “major barriers to green infrastructure investment” because of the “premium for foreign investment in non-major currencies,” according to a summit attendee.
An independent review of development banks commissioned by the G20 found that with “very manageable changes in risk tolerance,” the World Bank and others could lend “increased hundreds of billions of dollars over the medium term” while maintaining AAA The credit rating allows it to borrow on favorable terms in the capital markets.
The Paris summit is expected to focus on several other areas, such as addressing debt problems in borrowing countries, new sources of financing to fight climate change, including the sale of carbon credits, and private sector engagement. Mineral supply chains and efforts to protect biodiversity will also be discussed, a French official said.
A working group of more than 100 delegates, including state representatives, NGOs, sovereign wealth funds and philanthropists, has been involved in preparations for the summit, sources said.
French President Emmanuel Macron is also pushing for greater cooperation between the IDB and other banks working at regional and national levels to ensure projects go smoothly.
A U.S. official said it was pushing for new ways to assess which borrowers should be prioritized for concessional financing and exploring new models for allocating funds to combat climate change and pandemics.
Other U.S. priorities include mobilizing private capital and accelerating debt restructuring in poorer economies, one official said.
France touted the June 22-23 meeting as an opportunity to forge consensus on a more inclusive financial system.
Claire Healy of the E3G think tank in Washington said the meeting was an opportunity to put forward new climate policy proposals to “get some leverage” and “a political, leadership push”.
Organizers said at least 21 leaders had confirmed their attendance, including German Chancellor Olaf Schulz, the presidents of Gabon, Mozambique, Congo and Mauritania, and European Commission President Ursula von der Leyen. Narendra Modi, India’s prime minister and G20 chair, is not expected to appear.
Prime Minister Rishi Sunak has yet to confirm his attendance, despite a letter from the nonprofit urging him to attend.
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