2023-10-13 19:54:51
Five months following his election as head of the World Bank, Ajay Banga delivered his first official speech to the international community, this Friday, October 13 in Marrakech, during the official ceremony of the Annual Meetings of the World Bank and the International Monetary Fund (IMF). A session enhanced by the participation of the Managing Director of the IMF Kristina Georgieva, the Royal Advisor Omar Kabbaj, the Wali of Bank Al-Maghrib Abdellatif Jouahri, the head of government Aziz Akhannouch, and the Minister of Economy and Finance Nadia Fettah Alaoui.
In a long speech, the boss of the financial institution revealed his main priorities and the new reforms that he wishes to implement during his mandate. According to him, the World Bank has identified five key areas towards which it will direct its financing. First, human capital (health, education and social protection), prosperity (jobs, tax policy, economic policy, financial inclusion and small businesses), sustainable development (air, water, soil health, biodiversity, forests , climate adaptation and mitigation), infrastructure (roads, bridges, energy) and digital technology. “In these five vertical areas, we will measure our impact on equality between men and women, youth employment and the impact on the climate (…) We are studying time frames of 35 to 40 years, to help countries to move towards longer-term horizons for investments in social and human capital,” he says.
Obviously, the completion of these major projects, especially in an unstable global context, requires the mobilization of significant financial resources. The Breton Woods institution is aware of this and is working on it. In recent months, it has created a portfolio guarantee mechanism and launched a hybrid capital instrument.
“These new tools allow us to take more risks and further increase our lending capacity, while preserving our AAA rating. Together, we will be able to provide an additional $157 billion in lending capacity over a decade,” reveals Ajay Banga.
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This hybrid capital, managed by the International Bank for Reconstruction and Development (IBRD), a subsidiary of the World Bank, will be supplied in particular by Germany, whose contribution will enable the IBRD to provide 2.4 billion euros of additional loans over the next ten years. The United States also plans to support the IBRD, which might allow it to unlock around 25 billion in new loans.
Creation of a private sector investment laboratory
The Bank also wants to increase contributions from the private sector, hence the launch of a private sector investment laboratory which brings together fifteen of the world’s biggest CEOs, from asset management companies, banks and operators .
According to Ajay Banga, this laboratory focuses, initially, on increasing private investments in renewable energies and the energy transition in developing countries, and on the search for projects “which will make it possible to influence the “emission-intensive growth curve”.
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Other investors are in his sights. “We are opening the door to governments and philanthropic organizations, which might increase concessional resources. Thanks to this greater ambition and our ability to fulfill our new mission, we believe that this will be a real Fund for a liveable planet,” he maintains. Ditto for institutional investors such as sovereign wealth funds, pension funds and insurance companies, to “put their 70,000 billion dollars at the service of developing countries”.
Reduce interest rates to encourage the energy transition
According to the head of the World Bank, it is necessary to spend better to combine growth and sustainability. By reallocating, for example, part of the $1.25 trillion spent each year on subsidies for fossil fuels, agriculture and fishing, or the $6 trillion representing the annual economic cost of air pollution and overfishing, “to encourage sustainable practices, protect air, water and forests, while continuing to support those who need it most.”
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As part of the energy transition, providing loans to developing countries is good, encouraging borrowing with lower interest rates is even better. Ajay Banga does not say otherwise. “We are studying the possibility of reducing interest rates, in order to encourage the exit from coal as part of energy transitions,” he announces.
“And in countries that use both IDA (International Development Association, a subsidiary of the World Bank) and IBRD, we are looking at ways to encourage the transition to renewable energy by increasing concessional financing.”
At the same time, the financial institution created a co-financing platform to facilitate coordination between global and regional priorities. “This unified approach might greatly benefit the governments we serve, by facilitating their access to resources from a diverse set of multilateral development banks, by concentrating lending on a single national platform,” says the president of the World Bank .
Evaluate the impact of financing
Ajay Banga also wants to review the World Bank’s performance evaluation methods. In short: appreciate the impact of your actions more than the amount of funding released. This by putting in place indicators such as the number of girls in school, the number of jobs created or the number of tonnes of carbon dioxide emissions avoided. “That’s why we are rebuilding our company scorecard from scratch. We are orienting it towards results and evidence, and reducing it from 153 indicators to around 20,” he emphasizes.
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Another major project, internally: streamlining project management procedures. According to the head of the financial institution, it currently takes an average of 27 months for a World Bank project to benefit from one dollar. And we have to wait more than 10 years to see the first results. “It’s a lifetime. We must do better. And we can save valuable time. We have the entire process in our sights and we are working, as a first step, to reduce by a third the time required for the review and approval of projects, in particular through the use of smart technology,” says Ajay Banga.
Despite a precarious international situation, the head of the World Bank wants to be optimistic. “We have inherited decades of knowledge and benefited from the generosity of all nations. Today, we are called to lead and we have never been better placed to achieve the progress requested,” he concludes.
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