Unlocking Financing for Developing Countries: U.S. Treasury Urges New Rules for World Bank and MDBs

2023-10-08 17:06:29

The U.S. Treasury Department is urging the World Bank and regional multilateral development banks to complete work by April 2024 on new rules for leveraging shareholder capital commitments to increase lending capacity, a senior Treasury official said.

Putting more value on callable capital – shareholders’ commitments to provide additional resources in the event of serious financial problems – on banks’ balance sheets could unlock “a lot more financing” for developing countries, the official said. , who was not authorized to speak publicly.

For the past year, US Treasury Secretary Janet Yellen has been pushing for reforms to increase World Bank lending, after a panel concluded that institutions, government shareholders and credit agencies rating were too timid in the face of financial risks.

Some experts estimate that emerging and developing economies need $2.4 trillion a year to address global climate challenges, a figure that far exceeds the amount of financing currently available.

Last month, the World Bank released proposals to increase its lending to developing countries by an additional $100 billion over a decade, part of ongoing changes to broaden the bank’s mission to include change. climatic.

The Treasury official said World Bank governors are expected to approve the new measures this week and gave previously unseen details of the callable capital issuance, including the timetable for action.

The official said Treasury had already drafted terms of reference on callable capital for the World Bank and regional MDBs, and was asking institutions to set up task forces and conduct stress tests in order to make decisions on the issue in spring 2024, the official said in an interview with Archyde.com.

“This is what we are moving very strongly towards,” said the official.

The official declined to estimate how much additional funding could be released, noting that additional discussions were also needed with credit rating agencies, but said the amount would likely be considerable.

Treasury is also working to develop a model for major MDB shareholders on how to assess the impact of repayable capital commitments in their budgets in the event of a capital call, the official said.

“We want to take into account the specificities of each bank, but make sure that there is a common point, so that we can discuss with other stakeholders and, above all, with the rating agencies,” the official said. “This could unlock a lot more funding.

Any new proposals on the treatment of callable capital will need to be approved by shareholders of each of the respective multilateral development banks, bank officials said.

An independent assessment commissioned by the Rockefeller Foundation last month concluded that the World Bank’s main lending agencies could increase their lending by nearly $900 billion if rating agencies changed their procedures regarding required capital.

The official said the World Bank’s governing body would approve a new vision statement – “creating a world without poverty on a livable planet” – and a series of other reforms when it meets in Marrakech, Morocco, this week at the annual meetings of the International Monetary Fund and the World Bank.

“You need to work on global challenges like climate fragility, pandemics, poverty and promoting shared prosperity at the same time, because they are mutually reinforcing and intertwined,” the Treasury official said .

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