The World Bank Must Do More With Less

Thanks to COVID-19 and a host of geopolitical factors, the 2020s are setting out to be a turbulent decade. The pandemic left a trail of economic and social crises in its wake: An increase in health, stimulus, and social expenditures over the past three years added to the fiscal burden of several countries, and the aftershocks of tightening monetary policies in advanced economies tipped countries such as Sri Lanka, Zambia, and Ghana to default on their debt. Russia’s war in Ukraine, meanwhile, has raised global food and fuel prices, harming the world’s most vulnerable. And the threat of global warming is only growing.

Amid this polycrisis—a term popularized by this magazine’s columnist, Adam Tooze—the World Bank is more important than ever. Founded in 1944, the organization is the oldest and largest multilateral development bank on the planet, with 189 member states. It provides low- and middle-income countries with a variety of long-term policy-based loans for social, governance, and infrastructure projects. In this way, the bank is distinct from the International Monetary Fund, whose mission is to promote fiscal stability through the provision of emergency loans to countries experiencing debt crises.

The World Bank is now undergoing a leadership transition. The bank’s president is traditionally an American nominated by the United States. Departing President David Malpass led the organization through a tepid COVID-19 response and was criticized for his ambiguous stance on climate change. Now, U.S. President Joe Biden has nominated Ajay Banga, an Indian-born American who ran the payments company Mastercard for a decade, for the role. If confirmed by the World Bank’s board of directors, Banda’s success will hinge on being able to do more with less.

Well-meaning advocates such as Barbadian Prime Minister Mia Mottley want the World Bank to pursue an expansionist reform agenda. This means the bank would increase its existing lending to countries and widen the scope of its engagement to new areas, especially by investing in so-called “global public goods,” such as fighting climate change and proactively preventing pandemics. Mottley has proposed a large-scale reform of the global financial architecture known as the Bridgetown Initiative. Among other measures, the initiative seeks to increase multilateral development banks’ concessional lending—loans with favorable terms—to $1 trillion. The World Bank’s own evolution roadmap for reform also plans to increase lending in middle-income regions where other financiers are very active, such as Southeast Asia. Yet these sorts of expansionist reform proposals overestimate the bank’s capacity to take on new responsibilities on its own and using public finance. Banga himself acknowledges that “working alone, [the World Bank] will fall short of what is required.”

Expanding the World Bank’s lending and scope will not make it more effective; in fact, doing so would overload an organization already stretched thin. In today’s polycrisis, the World Bank cannot go it alone. The global infrastructure investment gap is already $15 trillion, and at least $150 billion is needed annually in Africa alone to build hospitals, power plants, and electric grids. But without cutting-edge financial innovations, the bank’s capital base is unlikely to expand. In theory, the World Bank’s total capital base is $298 billion, but in practice only $19.2 billion has actually been paid by donor countries and thus is available for lending. The remaining $270 billion is callable capital comprising guarantees from donor countries and has never been drawn upon.

Take the bank’s concessional arm, the International Development Association (IDA), into which rich countries pool resources to be packaged as loans to the poor countries. It is unlikely that wealthy donor countries will significantly increase their IDA contributions this year due to projections of slow economic growth and the war in Ukraine, among other geostrategic considerations.

The United Kingdom is an important bellwether for these funding trends. Historically the third-largest IDA donor after the United States and Japan, the U.K. in 2020 cut its total aid budget from 0.7 percent of gross national income to 0.5 percent “until after 2027/28 at least.” These cuts affect the U.K.’s contributions to multilateral organizations, especially the World Bank, which the British government confirmed would receive more than 50 percent less from 2022 to 2025 (about $1.7 billion) than from to 2020 to 2023 (about $3.7 billion).

The U.K.’s 2022 aid strategy also explicitly states that London “intends to deliver more aid directly to countries, rather than via multilateral institutions such as the World Bank.” This may be at least in part because the U.K.—like the United States—is gearing up for competition with China, which is seeking leverage commensurate with its economic weight at the bank. China wants to expand the bank’s shareholder voting power to have more of a say in how the organization is run. This would also increase Beijing’s own contributions to the IDA. But it is difficult to see the United States, U.K., and European Union—which has explicitly identified China as a “systemic rival” and “economic competitor”—giving the country more power at the bank, even if doing so could ease the IDA’s operations.

On the whole, IDA contributions will not increase materially without new donors—and as long as traditional contributors such as the U.K. prefer to channel their foreign aid bilaterally or for domestic purposes. This trend is likely to accelerate: A growing share of the U.K.’s bilateral aid is currently being redirected domestically to Ukrainian refugees and could increase multifold if extended to Ukraine’s reconstruction efforts in the coming years. Meanwhile, U.S. contributions to IDA replenishment cycles have declined since 2010, and the EU is grappling with an economic slump.

First, the World Bank must go back to the basics. At its core, it is a policy bank that finances the development needs of client countries. But in a world where development needs intersect with the imperative of drastically reducing carbon emissions, the bank should help low- and middle-income countries figure out how to integrate climate action into their industrialization. The World Bank should make sure any climate financing it provides is not a replacement for these countries’ productivity and growth priorities, but instead an enhancement.

For instance, in West, Central, and East Africa—where eight out of 10 people lack access to clean cooking fuels and instead use charcoal derived from cutting down and burning trees—the World Bank should help finance pipeline infrastructure to expand access to liquified petroleum gas from gas-rich countries such as Nigeria, Senegal, and Tanzania. While natural gas is a fossil fuel that the world should eventually transition away from, it is a much cleaner option than cutting down trees for biomass, a strategy widely used by rural populations in Africa.

In other words: Rather than pushing climate solutions that are conceived in and respond to historically high-emitting rich countries’ green priorities—such as replacing gas stoves with electric ones—the World Bank’s climate finance should reflect borrower countries’ growth, poverty reduction, and industrialization priorities. After all, for the nearly 600 million Africans who lack access to a steady source of electricity, the immediate adoption of electric stoves is wildly unrealistic.

Second, the World Bank must harness its lending, advisory, and analytical instruments to close productivity gaps in low- and middle-income countries. A crucial driver of productivity growth is infrastructure, from roads and bridges to electricity and digital connectivity. In fiscal year 2022, the World Bank’s infrastructure lending was only $10 billion—one-third of the $30 billion borrowed by African countries that year. One way for the World Bank to increase this infrastructure lending would be to up its direct financing of projects in low-income countries. But more fundamentally, the bank could encourage the private sector to invest in low- and middle-income countries. It is impossible for the organization to be the only authority responsible for closing infrastructure financing gaps around the world.

The World Bank can attract private capital by lowering the investment climate risk in low- and middle-income countries’ markets. The private sector is often reluctant to invest in these countries due to monetary and fiscal instability, as well as the unpredictability of procurement, licensing, and contracting processes. But the bank can deploy its analytical expertise to identify investment-ready projects and conduct feasibility studies on them; provide technical assistance around environmental, social, and fiduciary responsibility standards as well as policy and regulatory reforms; and provide guarantees and insurance mechanisms to the private sector through the Multilateral Investment Guarantee Agency.

The World Bank’s technical assistance was instrumental to China’s economic transformation from a poor country in the 1970s to the world’s second largest economy today. The bank promoted better project management, competitive bidding, and technical improvements in the country’s numerous infrastructure projects of the 1990s. This means the new World Bank president has a template to get private capital into low- and middle-income countries and does not need to reinvent the wheel. Rather, the bank’s next leader should build on the elaborate groundwork already laid by the organization’s 2017 Maximizing Finance for Development initiative, which sought to achieve these exact same objectives but was largely derailed by bureaucratic politicking.

Third, the World Bank must ensure its data remains credible. The bank’s impartial and rigorous analytics—from flagship global reports to regional- and country-specific analyses—are essential in a world that is increasingly polarized. Researchers, policy advocates, and decision-makers rely on the thousands of economic and social indicators curated in the bank’s public data bank to do their jobs. It is a true global public good. The World Bank must continue setting the global development debate by ensuring its analytical work is grounded in data, draws from its deep institutional memory, and stays free of political bias. This will strengthen the bank’s credibility—on everything from public debt to infrastructure finance and climate change—and thus enhance its convening power among the world’s major and middle powers.

Finally, the World Bank’s new president must be strategic in working with important stakeholders inside and outside of the institution. For one, the bank must work to retain top talent. Some of its brightest minds have left due to frustrations with the organization’s bureaucratic structure and political stances. Fixing the bank’s retention problem will require reducing the uncertainties associated with its frequent and haphazard organizational restructurings. Within the past six years alone, the bank’s macroeconomic, trade, fiscal, finance, and private sector divisions have been merged, separated, collapsed, and restructured more than four times in ways that have seriously dampened staff morale.

Furthermore, a stronger commitment to increasing the pipeline of staff from low- and middle-income countries who rise to middle and upper management—particularly those of African descent—will be crucial to retaining top talent from diverse backgrounds, who often experience higher attrition rates. Staff of African descent are poorly represented in the World Bank’s middle management even though the Africa region accounts for 83 percent of total IDA commitments in fiscal year 2022. This lack of representation in the bank’s infrastructure sectors is one important reason the organization has a small footprint in these critical sectors in Africa.

Outside the organization, the new World Bank president should proactively seek ways to work with other major development actors, from regional development banks and international financial institutions to corporate philanthropies and institutional investors such as sovereign wealth funds and pension funds. There are regions where the World Bank’s role as development lender is eclipsed by regional development banks, such as the Asian Development Bank and the Asian Infrastructure Investment Bank in Central and Southeast Asia or Chinese policy banks in Africa. While the World Bank still has an important role to play in these regions, a better appraisal of its value-addition will be essential to clarifying its role.

The World Bank’s leadership transition offers an opportunity for the institution to retool its mandate to effectively address the polycrisis. Although the bank is no longer the top development financier in most parts of the world, it remains critical to global development. It will be incumbent on the World Bank’s new president to redefine the bank’s purpose in a crowded development finance landscape where the needs are high but geopolitics—especially intensifying U.S.-China competition—can be debilitating. So much will depend on being able to do more with less.