Category: Blog
Do Clients Want the World Bank to Focus on Climate?
Last month, the World Bank released an “evolution roadmap” proposing to do more on climate change in low- and middle-income countries. It is a global challenge that will have a disproportionate impact on the world’s poorest countries. But it is also important to listen to the Bank’s clients, especially in poorer countries. And it would be an act of hypocrisy and desertion if the institution turned its back on them to refocus on a problem that they did little to create.
People in developing countries are concerned about climate change. Many there support carbon pricing and clean technology subsidies. But that doesn’t mean they want multilateral development banks, including the World Bank, to make climate the major focus of their work. World Bank clients rank climate low on the issues they see as vital to development or important for the bank to work on.
In 2020 and 2021, the World Bank completed 43 surveys of client countries with representatives from government, aid agencies, media, academia, the private sector, and civil society. Respondents were asked about their development priorities, the World Bank’s role in meeting those priorities, and the bank’s performance in the survey country.
In terms of development priorities, the survey team asked respondents to pick their top three out of a list of about 28 options. Across countries, education was most commonly picked as the top priority–in 24 out of 43, it was ranked among the top two development priorities. Public sector reform and jobs made it into the top two concerns in 10 different countries. Yet addressing climate change was ranked in the top two in just one country, coming in second place in Vietnam, where one-quarter of respondents listed the issue amongst their three greatest development priorities.
On average across the 43 nations surveyed, less than 6 percent of respondents listed climate as one of their country’s top development priorities (that rises to 7 percent among the countries of the Organization of Eastern Caribbean States).
When it comes to which three sectors respondents believed the World Bank Group should dedicate the most resources, climate change only ranked in the top five of the list of priorities in Vietnam (where it was first) and the Seychelles. It cracked the top 10 in only 7 out of 43 countries. Notably, none of those countries are among IDA recipients, that is, the world’s poorest countries and some small island states. Education; agriculture and rural development; governance reform; and work around jobs, poverty, and the economy were far more frequently put at the top of the list.
The World Bank’s results match other survey evidence. In 2021, Aid Data ran one of its “Listening to Leaders” surveys, in which it asked government officials, civil society leaders, academics, and others across the developing world about their opinions around aid issues. In one question, respondents were asked to choose six out 16 Sustainable Development Goals as areas of priority. Those goals ran the gamut from employment and poverty to education and health, climate and the environment, and so on.
Across countries, education came in first, selected by considerably more than half of all respondents as one of their priority areas. Education was followed by employment, peace and justice, and health and industry. Climate ranked 12th out of 16 overall, mentioned by fewer than one in five respondents as one of their six greatest concerns. (Below climate were hunger, life on land, responsible consumption, and life below water.)
U.S. Treasury Secretary Janet Yellen has noted much the same. “We talked with many government officials about what they’re looking for in reform of the World Bank and the multilateral development bank system. And what they want is agility, and they want scale, and they want institutions that are responsive to their needs…They want their national priorities to be understood and for programs to address them… importantly, they don’t want to see global challenges addressed at the expense of poverty reduction.”
Some might see the limited focus on climate as a sign of ignorance or short-sightedness. And, to be sure, climate change is a cross-cutting issue with implications for many of the priorities client country respondents do list more often. But surveyed countries are still home to hundreds of millions of people living on incomes just a tenth of the U.S. poverty line, facing hundreds of thousands of preventable child deaths each year, with many lacking access to basic infrastructure. Development is an urgent priority.
Furthermore, the focus on development goals like education and the economy is consistent with what we know about climate change and its impacts. First off, poorer developing countries emitted a small fraction of the greenhouse gasses that have caused climate change to date and will continue to be minor emitters decades from now. They aren’t responsible for the problem, and they’ll be a small part of the solution. Second, development is a resilience strategy: poor people die in natural disasters, richer people overwhelmingly don’t. Low and lower-middle income countries should be prioritizing development, both for its own sake and as a tool of adaptation to climate change.
Yet despite the facts about development and resilience and its own survey findings, the World Bank has already started shifting its attention from development toward climate, with a set of multibillion dollar climate funds focused on mitigation in richer developing countries and commitments that a third of all funding will go towards climate projects and promises of 100 percent “Paris Alignment.” The Bank is also facing increasing pressure from wealthy stakeholders to devote even more attention to climate issues, even as those rich countries open coal mines and reactivate coal-fired power stations (burning particularly dirty coal) because they, too, apparently have higher priorities than climate mitigation.
To avoid becoming utterly hypocritical practitioners of climate colonialism—but more importantly to ensure that the World Bank doesn’t push the work of fixing a problem richer countries created onto the backs of the world’s poorest people—donors and bank shareholders have to ensure that climate finance is truly additional to its traditional development funding (something they have utterly failed on to date) and doesn’t come larded with conditions. And they should free the World Bank to give its clients what they want: grant money in particular should go to the poorest countries for development, which is, thus far, the only proven path to climate resilience.
This blog post was also published by the Breakthrough Institute.
How Emerging Economies Are Reshaping the International Financial System
It’s been 25 years since the 1997 Asian financial crisis led to the creation of the G20 forum for finance ministers; and 15 years since this became a leader-level meeting following the global financial crisis. During this period, there has been significant shift in the global finance and economic landscape. The ascent of several emerging economies has seen their contributions to the multilateral finance system that supports development rise significantly. Our new report collates those contributions over the last decade for the first time. It charts how China’s annual contributions to the UN and multilateral development banks rose twenty-fold from $0.1bn to $2.2bn. But it also looks collectively at a group of 13 rising economies whose developmental contributions to multilateral finance institutions have risen five-fold to over $6bn over the last decade. These contributions now make up an eighth of the total; and have seen the creation of two new multilateral finance institutions.
In this blog, we draw out key findings from our analysis, including the balance between funding existing and new institutions like the New Development Bank. We consider whether continued growth in the 13 emerging actors could generate enough new funding for development over the next quarter century, and even create an institution as large at the World Bank’s fund for low-income countries (IDA). Despite recent rhetoric around the return to a bipolar world order, this report is evidence that a wide group of countries are already playing major role in the global economic and development system, and will continue to do so in years to come
The transformational effect of economic growth on the multilateral system
In 1990 most people in the world lived in low-income countries; by 2020, this share had fallen dramatically to just seven percent of people. Meanwhile, the share of the global population living in middle-income countries swelled from 30 percent in 1990 to 73 percent in 2020. Such a transformation implies a greater number of countries with the economic output to contribute internationally: widening and deepening participation in the multilateral system.
And this is just what we’ve seen. Over the decade to 2019, we find a group of emerging actors have significantly increased their contributions of development finance to multilateral organisations. These include thirteen major economies outside the group of more established providers within the Development Assistance Committee (DAC), which tend to receive more attention. Ten of these emerging actors are G20 members, including the BRICS—Brazil, Russia, India, China, and South Africa—but others have grown quickly too: Argentina, Chile, Indonesia, Israel, Mexico, Saudi Arabia, Turkey, and the United Arab Emirates. Collectively, we refer to these thirteen emerging actors as the “E13.”
Over the decade, the E13’s annual contributions of development finance to multilateral organisations (both core and funding earmarked for particular purposes) have increased almost five-fold, from $1.3bn in 2010 to $6.3bn in 2019 (up 377 percent). And their unrestricted core contributions have risen even more: increasing from $1.0bn to $5.2bn (up 410 percent).
Of these core contributions, we see that those to UN agencies more than quadrupled over the decade, steadily rising from $0.3bn to $1.2bn (up 330 percent). But by far the most striking development in E13 core contributions has come from the creation and capitalisation of two new multilateral organisations: the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB).
The role of China
Although China has recently stepped back its bilateral finance efforts, its multilateral contributions increased steadily to 2019; and provided a third (34 percent) of the E13 total over the decade. Our colleagues have examined this in detail, including how China has the second highest aggregate voting share after the US in international finance institutions it supports. Still, our analysis also highlights the importance of Russia, Brazil and India who each contributed over $3bn over the period and collectively contributed a further third of the total. While China’s multilateral contributions have been concentrated (59 percent) in new institutions it co-founded (see below), other providers have concentrated funding in traditional institutions: for example, Argentina, Chile and Mexico did not support the new institutions while for Saudi Arabia and UAE they were 17 percent and 21 percent respectively.
Creating new multilateral finance organisations
Over the ten-year period we examine, almost half of the E13’s core multilateral contributions were to the two new institutions (AIIB and NDB). After 2016, funding provided to these institutions made up over two-thirds of their contributions. Indeed, in 2016 the first financial contributions to AIIB and NDB causedE13 multilateral development finance to triple in a single year. The E13 provided an additional $6.0bn of core funds for AIIB and NDB in 2016, without reducing their multilateral contributions through other channels. Though annual contributions reduced to $3.1bn in 2019, AIIB and NDB still accounted for half of the E13’s multilateral development finance in that year, leaving their contributions at the end of the decade far ahead of the beginning.
Figure 1. E13 core and earmarked contributions of development finance to multilateral organisations (nominal USD billions)
Source: Authors’ analysis
Emerging actors fund a sixth of the UN system
As well as higher absolute contributions (Figure 1), the E13’s role in the multilateral system has also grown in relative terms (Figure 2). As a share of the level of finance provided by the 29 high-income countries in the OECD DAC, the E13’s core multilateral contributions rose from 5 percent in 2010 to 12 percent in 2019—more than doubling their relative significance. This was largely due to the effect of AIIB and NDB (clearly seen by the 2016 peak), but we also see that E13 core contributions to the UN system steadily and quickly rose as a share of the DAC level across the decade: from 5 percent in 2010 to 17 percent in 2019.
Figure 2. E13 core contributions of development finance to multilateral organisations as a share of contributions from DAC countries
Source: Authors’ analysis
A look to 2050—what role might the emerging economies play?
As the economies of the E13 continue to grow, what might this mean for their multilateral contributions in the future? Figure 3 shows how the share of economic output provided as development finance to multilateral organisations (either core or earmarked) tends to increase with higher levels of income per capita. Though the relationship is steeper for the DAC than the E13, even the E13’s current trajectory implies a significant increase in future multilateral development finance from this group.
Figure 3. Relation between Income per capita and contributions of development finance to multilateral organisations, 2010-19
Source: Authors’ analysis
As an illustrative scenario: we calculate that if the E13’s recent growth performance is extrapolated (roughly 4.3 percent growth per year in per head terms over the 2010s), and if the group continues to follow its current path relating income per capita to the share of GNI provided, then by 2050 the group could collectively provide 0.032 percent of its combined GNI as core contributions of development finance to multilaterals (this is still well-under half of the current figure for DAC providers). The E13 might then contribute some $64.5bn per year—up from 0.019 percent in 2019 ($5.2bn). To provide a sense of scale, the additional contributions would be enough to fund an additional organisation on the scale of the World Bank’s International Development Association (the IDA19 replenishment was equivalent to $27.3bn per year, which inflated to 2050 could be $50bn). This scenario is highly simplified—and we are working on other more careful potential scenarios in the coming months.
Just the beginning of the multipolar era
Whilst the war instigated by Russia, and rising competitions with China, could suggest a return to a Cold-War-esque bipolar world, the spread of economic growth and prosperity mean the economic and financial influence is much-wider spread.
The “emerging” economies we examine here are significantly stepping up their contribution to development and their choices on whether and how to support international financial institutions will have a significant bearing on development and prosperity.
What the Biden Administration Should Be Looking for in a World Bank President
With David Malpass’s announcement on Wednesday that he will step down as president of the World Bank, the Biden Administration is faced with the choice of a nominee to run the institution at a particularly challenging time.
Treasury Secretary Janet Yellen has put forward an ambitious reform proposal that puts global challenges at the center of the World Bank’s agenda, with climate finance chief among them. This implies significant change for an institution that generally sees itself responding to the demands of its borrowing countries. Where the United States and European allies increasingly see global challenges, many World Bank client countries continue to think in terms of their own national priorities.
As much as Yellen warns against “false choices” standing in the way of her agenda, it’s also important to recognize the real tradeoffs these reforms could entail. More money earmarked for climate means less discretion for the World Bank’s client countries and the bank’s management in defining how money will be allocated. Further, without fresh capital on offer from the United States and other shareholders, the bank’s clients grow suspicious that any new agenda will take money away from their priorities or otherwise increase the cost of assistance from the institution.
Much of the detail behind the US-led agenda is technocratic in nature, entailing judgements about credit ratings and loan leverage ratios. But these reforms have been introduced against a backdrop of growing unhappiness in low- and middle-income countries about the stance of wealthy countries. They see hypocrisy on the climate agenda, with efforts to restrict the energy options of low-emitting countries as wealthy countries expand their fossil fuel consumption. And they see a stark lack of ambition in helping them deal with the collateral damage associated with Russia’s war in Ukraine, the effects of high interest rates globally, and mounting debt problems in many of their countries.
In such an environment, navigating the path toward a World Bank reform agenda has never been trickier or more consequential.
So, what sort of leader will be best suited to the task?
First, the Biden administration will need to acknowledge the limitations of the World Bank’s 75-year convention on the bank presidency. The World Bank president has always been an American and has always been nominated by the president of the United States. The upside of this convention is that the institution can be assured that its leader has the confidence of the bank’s largest shareholder. The downside, particularly now, is that nothing can be taken for granted when it comes to support from the World Bank’s other member countries. And a bank president with only weak support outside the United States is not well positioned to lead change at the 188-member-country institution.
Over the years, countries have grumbled about American dominance, or more frequently, complained about the qualifications of specific American candidates. By taking the convention for granted, successive White Houses have risked indifference to these concerns. In the current environment, that risk is acute. Any US candidate that cannot claim clear support and trust among the bank’s major constituencies (first and foremost the developing country members) risks being hobbled by questions of legitimacy.
So, while the Biden administration will undoubtedly exercise its prerogative to nominate a candidate, with a strong expectation of success, real success in the job will only come if the next president has a credible history of engagement, experience, and leadership in the developing world. In turn, the candidate will have to demonstrate those qualities vis-à-vis the bank’s wealthy country members, both to secure support from the Biden White House and to gain support from key European countries.
Second, the next leader will need to be an effective “insider outsider.” It does little good to lay claim to an ambitious World Bank reform agenda if you’ve never set foot in the building. This sprawling institution with 15,000 staff is not easy to navigate, let alone steer. Bureaucratic tendencies are strong at the bank, and the institution leans toward conservatism even as today’s poly-crises call for boldness. Today’s World Bank has 39 vice presidents, most of whom have decades of tenure in the institution. While any number of these individuals can be effective agents of change, the next president will be better able to lead fundamental change if she knows the institution as well as they do.
Third, as an effective insider, the next president will need to bring the reform mindset of an outsider. Many of the bank’s member countries rightly perceive an increasingly insular institution, resisting entreaties to collaborate with others when it is called for and offering only defensiveness in the face of criticism from outside the institution. This is a worrying and unhealthy culture for any institution, let alone one that plays such a large role on the global stage.
Finally, it is unavoidable to observe that the United States in 75 years has never nominated a woman to lead the World Bank. Among the firsts that the Biden administration has prided itself in when it comes to putting forward public servants that better reflect society, the first female president of the World Bank should be a claim that President Biden is able to make.
As much as this list may seem to point to a unicorn candidate, that need not be the case. Though the pool of qualified candidates may not be large, there are undoubtedly potential nominees who can both satisfy the traditional convention while also meeting the imperatives outlined here.
This blog post was initially published on October 18, 2022. It was updated on February 17, 2023. For more of CGD’s work on World Bank reform efforts, see our project “MDBs for a Global Future.”
The Expansion of the BRICS in a World of Shifting Power Dynamics
In this episode, Paolo Magri delves into the evolving role of Brazil, Russia, India, China, and South Africa in a world of changing geopolitical landscapes.
Over the course of this podcast, we explore the emergence of the BRICS group, tracing its roots back to the early 2000s and examining the political and economic factors that brought these diverse nations together.
We then move on to the New Development Bank, formerly referred to as the BRICS Development Bank, to discuss its status and role.
Finally, we address the growing concern around the expansion of the BRICS and the potential risk for politicization.
Join us on this exploration of the BRICS in a world of shifting power dynamics, and gain a deeper understanding of one of the most important economic and political blocs in the world today.