2023-10-08 20:30:15
By Andrea Shalal
MARRAKESH, Morocco (Reuters) – The U.S. Treasury Department is pushing the World Bank and regional multilateral development banks to finalize work on new rules that will increase shareholder capital commitments by April 2024, according to a high-ranking member of the body.
The idea behind this is to give greater importance to callable capital, which are shareholders’ commitments to provide additional resources in the event of serious financial problems. This change in bank balance sheets could result in a significant release of additional financing for developing countries.
U.S. Treasury Secretary Janet Yellen has been pushing for reforms aimed at expanding World Bank lending for about a year. This followed a review by a panel of experts that concluded that institutions, government shareholders and credit rating agencies were being overly cautious about financial risks.
Some experts argue that developing and emerging economies need $2.4 trillion a year to address global climate-related challenges, an amount that far exceeds the amount of financing currently available.
The World Bank last month unveiled proposals that would increase its lending to developing countries by more than $100 billion over a decade. These changes are part of ongoing efforts to expand the bank’s mission, including a focus on climate change.
A US Treasury official revealed that World Bank members are expected to approve these new measures this week and provide additional details on the callable capital issue, including the timeline for implementation.
The official explained that the US Treasury has already drawn up guidelines on required capital for the World Bank and regional multilateral development banks. They are asking these institutions to form working groups and conduct stress tests to make decisions on the matter by spring 2024.
The official noted that it is still too early to estimate the exact amount of additional financing that could be released, as it requires further discussions with credit rating agencies. However, this amount is believed to be considerable.
The US Treasury is also working on a model for major shareholders of multilateral development banks to assess the impact of callable capital commitments on their budgets in the event of a capital call. This could be an important factor in unlocking more funding.
Any new proposal related to the treatment of callable capital will need to be approved by the shareholders of each multilateral development bank. This was confirmed by bank officials.
An independent assessment commissioned by the Rockefeller Foundation last month concluded that the World Bank’s main lending arms could increase lending by nearly $900 billion if credit rating agencies adjusted their procedures related to callable capital.
The official added that the World Bank’s governing body will support a new vision statement, which is to “create a poverty-free world on a livable planet.” This will be discussed alongside other reforms during the annual meetings of the International Monetary Fund (IMF) and the World Bank in Marrakech, Morocco, this week.
The Treasury official emphasized the need to address global challenges such as climate change, pandemics and poverty, as these issues are interconnected and can be addressed more effectively together.
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