LONDON, United Kingdom — The World Bank will soon have a new boss. Ajay Banga, the sole nominee for the top job has said he will transform the 79-year-old institution into a “catalyst for change”, so it can be fit for contemporary purposes. Specifically, Banga has highlighted three ways in which he would like to transform the relationship between the World Bank and poverty.
Bringing in Extra Cash
Banga, a former CEO, took Mastercard from a “slow, bank association” and transformed it into a “high-performing, agile” company, according to longtime Mastercard executive, Mike Froman. Now, Banga hopes to do the same with the World Bank in order to give it more cash to fight poverty.
The World Bank needs extra trillions of dollars a year in order to implement Banga’s ambitions. He says this amount of money is “larger than what even the most generous governments” are willing to give. That is why the future World Bank President, looking to start his five-year term in July 2023, has signaled he would like to raise some investments from the private sector instead.
The Bank already “helps the private sector [to]invest in emerging markets.” Banga, though, would like to deepen this relationship further. As an institution that specializes in lending to low-income countries, Banga says the World Bank can supply the private sector with more of its technical know-how, data and project management expertise in areas of the globe that most Western companies have little-to-no knowledge of. That way, the private sector can invest out of its comfort zone, without feeling they are risking too much – and therefore provide the developing world with some much-needed, extra capital.
Beyond this, Banga has recommended the Bank follow The G20 Capital Adequacy Framework (CAF), which recommends using complex financial instruments to make more “efficient” use of its existing cash, according to Money Control. CAF, for instance, recommends borrowing against more of its available capital (both “paid-in” and “callable” capital, not just “paid-in” capital), which would raise more money without hurting the Bank’s AAA reputation. Studies have proven this could increase World Bank lending by up to $500 billion.
Banga believes that showing the World Bank’s shareholders (governments of high-income countries) it can use its existing cash more efficiently will convince them to invest yet more money in the future. This is all good news for both the World Bank and poverty action. Extra capital is needed to fund Banga’s transformational, poverty-busting plans – like tackling climate crises.
Tackling Climate Crisis
Former president Donald Trump nominated the current president of the World Bank, David Malpass, for the job. Malpass decided to step down early, though, after refusing to accept that fossil fuels were causing changing weather patterns, according to The New York Times.
Having grown up in India, however, Banga has seen firsthand how leaving the climate crisis unaddressed undermines efforts to eradicate poverty. Indeed, more than 80% of drought damage between 2008 and 2018 affected agriculture in low-income countries like India. Banga, then, realizes that to tackle poverty, he must tackle the climate crisis.
“I care about climate,” Banga has said, “because we are running out of time,” The New York Times reports. That’s why he is likely to expand the International Development Association (IDA). In 2021, 61% of IDA’s budget went to climate adaptation, helping 62 countries institutionalize disaster risk reduction. In Niger, for example, better land management brought a 6% increase in crop yields.
He also believes that by directing the investment of the private sector and the World Bank into new technology, developing countries can “bypass the emissions-heavy pathways of the past.” He added that this was “something he recently saw in Kenya, which generates the overwhelming majority of its energy from renewable sources.”
Not only can future investment in clean energy help mitigate changing weather patterns, but it can also support new green businesses, creating jobs in the developing world. This would further strengthen the relationship between the World Bank and poverty eradication.
Prioritizing Job Creation
Banga has made it clear that job creation will be a big priority once he takes over as President, according to Devex. He also highlighted the positive link he thinks the World Bank’s climate action can have on employment in the Global South. Writing in the Financial Times, Banga praised young entrepreneurs he met in Nairobi, who were showing him how they are benefiting from the Bank’s “expertise and financing to launch cleantech start-ups.”
One way Banga can help create jobs while, at the same time, combatting the climate crisis is by expanding the World Bank Group’s Climate Technology Program (CTP). CTP’s Kenya Climate Ventures, for example, gives a number of clean energy startups early-stage investment and business support to help scale up.
Not only could scaled-up versions of these businesses provide millions of jobs to people across Kenya and Africa, but they could also ease energy poverty for the over 600 million Africans currently lacking dependable access to electricity.
Overall, Banga’s Presidency represents hope for the World Bank and poverty action. If his ambitions are realized, they have the power to modernize this World War II-era institution, so that it is ready to tackle contemporary issues like the climate crisis and joblessness – utilizing both public and private sector funds.
– Sam Rucker