Ajay Banga lays out vision for World Bank and its expanded scope of climate financing

Lender's president says it is developing 'a new approach to track climate outcomes based on impact'

World Bank president Ajay Banga says the lender is looking to find ways to encourage a renewable energy transition. AFP

World Bank president Ajay Banga on Friday laid out his ambitious vision to transform the multilateral lender into a bigger and more efficient institution that will expand the scope of lending to include climate finance as well as cheaper and longer maturity funding.

The bank is also developing “a new approach to track climate outcomes based on impact” and it will share the progress with the world at Cop28 in Dubai next month, Mr Banga told the IMF and World Bank Annual Meetings plenary session in Marrakesh.

“We’re investigating if we can reduce interest rates to incentivise exiting from coal as part of energy transitions,” Mr Banga said.

“We’re [also] exploring maturities of 35 to 40 years to help countries navigate longer term horizons for social and human capital investments.”

In its bid to become a larger bank to boost funding for projects across the developing world, the bank has freed up $40 billion from its balance sheet, by adjusting its loan to equity ratio, that will become available over the next decade.

Development of a portfolio guarantee mechanism and the launch of a hybrid capital instrument, over the past few months has further boosted the lending capacity.

Taken together, the World Bank would provide $157 billion more in lending capacity over a decade, he said.

“We will need a bigger bank to increase our financing capacity, take on more risk to encourage investment, and support the replicability and scalability that the World Bank is preparing to deliver,” Mr Banga said.

The World Bank, the biggest global funding institution for developing countries, is seeking to grow its balance sheet and build additional lending capacity to help clients deal with challenges including climate change, food security, health care, human and knowledge capital development and disaster recovery.

It is looking to use various instruments to increase its funding pool, as well as additional equity from shareholders to help it fund and deliver more projects.

Earlier this week, Mr Banga said he will “definitely go back to shareholders” to seek more funding to become a “bigger” bank, “because I believe this is what the world needs”.

US Treasury Secretary Janet Yellen on Tuesday said she backs efforts to increase the lending firepower of the IMF and World Bank to combat poverty and climate change.

In his first major address since taking the helm at the World Bank, Mr Banga, who is a former chief executive of MasterCard, said the bank is streamlining processes to expedite project approvals and financing to achieve quicker output and delivery of projects.

In countries that benefit from the International Development Association and International Bank of Reconstruction and Development’s financing, the World Bank is looking to find ways to encourage a renewable energy transition by increasing concessional finance in the mix, Mr Banga said.

In terms of further expanding the scope of lending the World Bank is moving from small, bespoke loans to large, standardised investments that can be packaged.

“If done right, we could draw in institutional investors – pension funds, insurance companies, sovereign wealth funds – and put their $70 trillion to work in developing countries,” he said.

“We are in early days of building such a platform. But by doing the hard work now, we will be in a position later for success. Success that could be further multiplied across multilateral development banks to mobilise much greater amounts of private capital than ever before.”

Mr Banga said the world is facing difficult multiple challenges including declining progress in fight against poverty, an existential climate crisis, food insecurity, fragility a fledgling pandemic recovery and impact of conflicts beyond the front lines.

“A perfect storm of intertwined challenges and geopolitical complexity that taken together, exacerbate inequality,” he said.

Economic growth in much of the developing world is retreating, falling from 6 per cent to 5 per cent in two decades, and on track for just 4 per cent over the next seven years.

“With each lost per cent, 100 million people are pulled into poverty and another 50 million people are pushed into extreme poverty,” he said.

“Dig deeper and you’ll find people struggling to provide for themselves and their families as incomes have stagnated. In sub-Saharan Africa per capita income is the same as it was 14 years ago.”

Mr Banga urged the World Bank members to contribute large sums to its International Development Association, which help 75 poorest nations in the world to accelerate the fight against poverty.

“If we really want to incentivise change – we can’t just wish it – we need to fight for it. Nowhere is this truer than IDA,” he said.

“We are pushing the limits of this important concessional resource and no amount of creative financial engineering will compensate for the fact that we need more funding. This must drive each of us to make the next replenishment of IDA the largest of all time.”

He said donors, shareholders and philanthropies need to come together, and “bring their ambition to this fight, otherwise these instruments are just theoretical”, he added.