A better World Bank is needed to address global challenges, Ajay Banga says

Bank president says a reformed institution will be on display during 2024 Spring Meetings in Washington

World Bank President Ajay Banga. AFP

The World Bank must become a better institution to address the “intertwined challenges the world faces today”, the group's president Ajay Banga said while speaking on the reforms the entity has made in the last year.

Since becoming World Bank president a year ago, Mr Banga has sought to transform the institution into a larger and more efficient one.

His nomination came as the World Bank faced calls for reform as well as criticism over its response to the Covid-19 pandemic, which resulted in dozens of countries facing high levels of debt.

And G20 nations last year backed a joint agreement that called for a “better, bigger, more effective World Bank” to increase its lending capacity.

“The G20 leaders challenged the World Bank to change and to be a bigger part of the solution. They gave us a road map to evolve, an ambition for speed, simplicity levelling up our balance sheet by engaging partners and the private sector,” Mr Banga told reporters on Thursday.

The World Bank, whose core value has historically been poverty reduction, has also recently expanded its focus on climate change, food security and future pandemics.

“We need a better bank to address all these challenges, but also a better bank for the challenges of tomorrow,” he told reporters.

World Bank President Ajay Banga and his wife Ritu Banga arrive at a state dinner in Washington ahead of the 2024 Spring Meetings. Bloomberg

Mr Banga hopes to display this new-and-improved version of the World Bank during the Spring Meetings in Washington next week, where finance ministers and central bankers are expected to gather to discuss a range of global issues, from debt distress to price stability.

He noted several reforms the World Bank has made since last year, including quickening its approval process for projects and establishing a liveable fund that can be funded by governments and charities.

Debt distress a 'generational challenge', Treasury official says

Meanwhile, a top US Treasury official warned of the “generational challenge” debt-laden developing nations face today.

“And like prior generational challenges in debt and development, it calls for the international community to step up and take decisive, co-ordinated actions,” Jay Shambaugh, US undersecretary for international affairs, said at the Peterson Institute for International Economics in Washington.

According to a World Bank analysis, developing countries spent a record $443.5 billion on debt in 2022. More than 50 low and middle-income countries faced net outflows of public debt to bilateral lenders from 2021 to 2021, which Mr Shambaugh said was the largest amount in two decades.

During his remarks, which largely focused on China's emergence as a creditor, Mr Shambaugh highlighted the debt burdens that many developing nations currently face.

“Many countries operating in good faith are caught in these conditions with significant official bilateral and market debt and facing alarming trade-offs due to falling flows and rising debt service,” he said at the Peterson Institute for International Economics in Washington.

US Treasury Secretary Janet Yellen talks with Governor of the People's Bank of China Pan Gongsheng. EPA

Cumulative net debt flows from China since 2019 are now negative for more than 40 low and middle-income countries, Mr Shambaugh said, noting that most of these countries have had recent International Monetary Fund programmes, he said.

Outlining the US vision for global debt, Mr Shambaugh said private creditors should join efforts by multi-development banks like the World Bank to incorporate debt clauses into loan agreements.

Mr Shambaugh also said the international community must help developing countries undertaking ambitious climate and pandemic-related challenges from falling into high levels of debt.

He also said Washington officials had brought up the issue of debt distress on a recent visit to China.

“Sovereign debt distress in low-income countries is a global challenge. We need to be able to work together on it,” he said.