Reflections ahead of the 2024 Annual Meetings: is a “Future-Ready” World Bank Group just another buzzword?
One year ago, at the time of the Annual Meetings in Marrakech, WBG President Ajay Banga said “I don’t subscribe easily to buzzwords about how to do things”. This was in response to CSO concerns about the use of the ‘cascade approach’ to development – a phrase coined by the WBG seven years ago. In plainer English it means the WBG seeks to leverage private finance in support of development and climate projects. Today, ahead of the 2024 Annual Meetings, which mark the 80th anniversary of the institution, the World Bank Group says it aims “to create a future-ready World Bank Group.” This sounds like yet another buzzword to us.
Over the past year, the WBG has embarked on implementing its new vision of “a world free of poverty on a liveable planet”. But rich countries are in no mood to cough up new money for this. Rather, there is an unfounded yet stubborn belief that private finance will save the day. This is reflected in the WBG’s controversial Evolution Roadmap which, along with balance sheet optimisation, focuses on financial ‘innovations’ – as leveraging private finance for development is euphemistically called. Needless to say, the recent WBG approach to supporting private sector projects in low-income countries – through a ‘Private Sector Window’ – is ill-suited, as poorer countries rely on public finance first and foremost.
A decade in which ‘private finance first’ has failed to deliver
The ’private finance first’ approach to development that underpins the Roadmap has failed to provide the “trillions” in development finance promised by its promoters almost a decade ago. This has been recently acknowledged by a group of WB economist, including by the Bank’s chief economist. As Center for Global Development’s Charles Kenny rightly puts it “it is good to know that it is becoming a consensus that billions to trillions is a fantasy.” Yet, the “future-ready World Bank Group” is championing initiatives that indicate that the belief in private finance mobilisation is still alive. Furthermore, efforts are being redoubled.
There is cause for concern that the quality of projects will be steamrolled over by Banga’s mission to “get projects through the pipe quicker,” driven by yet another of his buzzwords development delayed is development denied.” The failure of the new WBG Corporate Scorecard to include an indicator to measure the Bank’s contribution to economic transformation in an era that recognises the important role that projects can play in reinforcing or overcoming commodity dependence contributes to this concern.
The Private Sector Investment Lab and the rise of guarantees
One emblematic initiative is the Private Sector Investment Lab, which was launched in July 2023. Led by 15 top industry leaders, the Lab aims to “help remove barriers to private investments in emerging markets, including in the renewable energy sector.” The list of founding members of the Lab is a “who’s who” of leaders of major financial institutions managing an estimated wealth of US$16 trillion. These institutions are largely responsible for continuing to profit from climate destruction and associated environmental and social abuses, raising civil society concerns about the risk of the foxes guarding the hen-house.
One of the Lab recommended actions was the expanded use of guarantees to address political and credit risks. This request materialised in the launch of a new “World Bank Group Guarantee Platform” on July 1st. The platform, housed at the Multilateral Investment Guarantee Agency (MIGA), aims to serve as a one-stop-shop for all the Group’s guarantees, bringing together experts from the public and private sector arms of the Bank. MIGA plans to increase its guarantees from US$ 6.5 billion annually to at least $20 billion per year by 2030. The promise of guarantees as one way of mobilising more capital is seductive and framed as a win-win for multilateral development banks, investors and recipient countries. However, this promise is not accompanied by evidence of the financial and developmental additionality of guarantees as well as their risks, especially in a context where, according to recent figures from the WBG, “nearly half of [the poorest economies] – twice the number in 2015 – are either in debt distress or at high risk of it”.
WBG economists are also aware of this difficulty. Recently, they pointed out that “demonstrating that projects have crowded-in private capital to countries that would not have otherwise received it remains a challenge.” To overcome this, in 2018 MIGA developed the Impact Measurement and Project Assessment Comparison Tool (IMPACT) framework. This framework is an ex-ante development outcome assessment tool, which is based on a project’s developmental impact. However, the WBG’s own Independent Evaluation Group’s Results and Performance of the World Bank Group (RAP) 2023 report could not evaluate the projects approved under the IMPACT framework. In the absence of evidence of additionality, it is not clear how much private capital is mobilised by guarantees or whether this would have been mobilised without them. More importantly, the development additionality of guarantees in improving socio-economic indicators at the country level and creating long-term employment remains inconclusive.
Questions that still need answering
As these are not new ideas, pressing questions coming from the development community could be: how much (more) de-risking is needed to fulfil the never-ending need for private capital mobilisation? And who ultimately pays the price for private sector involvement in development projects? The increased promotion of private finance in public service provision, including in health and education, ultimately transform citizens into consumers, as secured revenue streams have to be created for investors to participate. Seen from this perspective, guarantees – as is the case with other instruments to mobilise private finance – are ultimately not for free. Moreover, the current context of Global South indebtedness also raises the question of how countries will deal with the context of increased lending without adequate debt restructuring and necessity of debt cancellation. Given these concerns, we need more evidence that the tripling of World Bank coffers does not end up being a vehicle for derisking the investors of the Private Sector Investment Lab. We will explore all of these questions in research that we will publish before the end of the year.
As we get ready for the 2024 Annual Meetings, the question is whether the “future-ready World Bank Group” will become anything more than just a buzzword.