AJay Banga will become President of the World Bank in the summer. There can no longer be any doubts about that since the US Secretary of the Treasury, Janet Yellen, made such an expectation public. The former boss of Mastercard then leads an institution with which important shareholders such as Germany and the USA are dissatisfied. The critics find their country-based working model outdated in the face of global cross-border challenges such as climate change and pandemics. And they complain that the World Bank does far too little with their financial resources. Almost all stakeholders agree that the global challenges require more resources.
The spring meeting of the World Bank and the International Monetary Fund, which begins after Easter, will be groundbreaking: There, the shareholders will negotiate how the World Bank should be changed so that it mobilizes more funds and tackles major global crises with greater determination. It is about adjusting the mission of the post-war institution: it is still supposed to eradicate extreme poverty and help achieve prosperity for all. What is new is the addition that these goals are targeted by the World Bank “promoting sustainable, robust and inclusive development”. This is more than quibbles: the World Bank is supposed to fight major crises.
Developing countries need $2.4 trillion
The task is huge. The World Bank itself estimates that developing countries need a staggering $2.4 trillion every year for seven years to prepare for climate change, pandemics and conflict. The reallocation of funds associated with the proposed new focus of the World Bank’s mission is raising concerns in developing countries that the World Bank may be neglecting its core business of poverty alleviation at a time when double efforts are required.
The fight against abject poverty, which has progressed successfully for a long time, is stagnating. The goal of elimination by 2030 no longer seems achievable. Promoting participation in global prosperity is evolving slowly, and other development goals in the areas of education and health seem further than ever since progress was stymied by the coronavirus pandemic. In addition, many developing countries are approaching national bankruptcy in view of the high level of debt.
“We must remain absolutely committed to the poorest countries”
“We must remain absolutely committed to the poorest countries. We must not deviate from this,” says Axel von Trotsenburg, Managing Director of the World Bank, in an interview with the FAZ. However, he believes that there is a consensus among the shareholders in this regard. There should be no reallocation of funds at the expense of the poorest countries. Nevertheless, conflicts are programmed. For poor countries, the consequences of climate change are not necessarily high on the list of priorities. Rich countries save themselves by arguing that poor countries are bearing the brunt of the warming climate and therefore need additional help here in particular.
In this view, mitigating the effects of warming and fighting poverty are indeed closely linked. The World Bank has reacted accordingly: According to van Trotsenburg, it has tripled climate financing over the past six years and invested almost 30 billion dollars in climate protection in 2022 alone. It has thus underpinned its position as a leading development aid institution.
However, reformers are seeking a more systematic approach, driven by the notion that poor countries must not follow the same development path as rich countries that have benefited greatly from burning fossil fuels. “Developing countries need to find a low-carbon path,” said World Bank President David Malpass recently. Turning away from coal can not only reduce emissions, but also improve local air quality.
Can the World Bank really save the climate?
That sounds like “win-win”, but the rhetoric glosses over problems of justice. In a recent column, economist Tyler Cowen warned against using the World Bank more to fight global climate change. Instead, rich countries should shoulder the burden, significantly stepping up their research projects and changing their consumption preferences. For the poorest countries, which are generally low emitters and live on the edge of subsistence, fighting climate change is a luxury.