Through global capital markets, IBRD has been mobilizing finance for its client countries for over 70 years, leveraging $16 billion in paid-in capital from its shareholders to fund over $600 billion in projects and programs that help client countries address development priorities around the world. The World Bank leverages IBRD’s triple-A rating and strong standing in the markets to cost-effectively raise between $45 and $55 billion annually to support the Bank’s sustainable development mandate, to develop innovative financial tools that support global development priorities, and to help clients manage risk and build resilience.
Raising private capital for the poorest countries
In April 2018, IDA made its debut in the global capital markets for the first time in its nearly 60-year history, leveraging its strong financial position and triple-A rating. IDA’s inaugural bond—a $1.5 billion, five-year US-dollar benchmark issue—received strong reception in the market, with total orders reaching $4.6 billion from around the world. The bond pioneers a new model for development finance that combines funding from donors with funding raised in the capital markets, increasing IDA’s lending capacity in IDA18 by 50 percent. Going forward, IDA will continue to grow its borrowing program to raise funds that complement donor contributions, enabling it to expand its life-changing investments in the poorest countries.
Catalyzing a transformation toward sustainable capital markets
The World Bank is a leader in mobilizing private investment for development through the capital markets. Since issuing the first IBRD bond in 1947, the Bank has been a key promoter of unique capital market instruments that give the private sector the opportunity to engage in global development priorities. The World Bank is one of the largest issuers of green bonds, for example, which tap capital markets to support climate-related projects. Since issuing the first labeled green bond in 2008, the Bank has issued $11 billion equivalent through more than 140 transactions in 19 currencies. In April 2018, the Bank issued its first green bond denominated in Hong Kong dollars (HK$ 1 billion).
The World Bank also supports country efforts to build green bond markets. Through this work, the Bank helps clients demonstrate leadership on sustainability and climate action, while offering investors an opportunity to support development solutions that address climate change. The Bank’s work in this area is driving growth and innovation. In fiscal 2018, the Bank identified the opportunity to leverage the world’s biggest Shari’ah-compliant debt market (Malaysia) to combine the sukuk (Islamic Bond) and the green bond into a new financial instrument for climate finance: the green sukuk. With technical assistance from the Bank, Tadau Energy, a solar energy company in Malaysia, issued the first green sukuk in the world in July 2017, raising RM 250 million to finance a 50-megawatt solar photovoltaic power plant. Following this successful demonstration, four green sukuk and one green bond were issued by Malaysian companies, and Indonesia issued the first sovereign green sukuk in the world.
The World Bank, working with IFC, assisted Fiji in becoming the first emerging market issuer of a sovereign green bond (F$ 100 million) in the world. The Bank also provided technical assistance for Nigeria to issue the first African sovereign green bond (₦ 10.69 billion). In addition, the Bank supported the development of the Association of Southeast Asian Nations Green Bond Standards and the Indonesia Financial Services Authority Green Bond Regulations.
Building on the evolution of the green bond market and a growing demand from investors for opportunities to make a positive impact, the World Bank has broadened its offerings of sustainable investing instruments. In January 2018, IBRD issued a bond to raise awareness for how empowering women and girls is one of the most effective ways to accelerate economic development, reduce poverty, and build sustainable societies around the world. The bond raised Can$ 1 billion from institutional investors in the Canadian dollar market. In February, the World Bank issued a $350 million private placement with the Folksam Group to raise awareness for four Sustainable Development Goals—good health and well-being, gender equality, responsible consumption and production, and climate action—that anchor Folksam’s sustainability strategy. The World Bank is also promoting the transition toward sustainable capital markets through its partnership with Japan’s Government Pension Investment Fund. The partnership aims to identify and address the challenges in greater Environmental, Social, and Governance (ESG) integration—such as insufficient data and disparate standards—with the broader goal of directing more capital toward sustainable investments.
Building resilience with disaster insurance and risk transfer solutions
The World Bank is the largest provider of risk insurance for countries. By intermediating between client countries and the capital markets and through direct World Bank bond and over-the-counter derivative transactions, the Bank is helping countries build resilience against risks from natural disasters, pandemic disease outbreaks, and other destabilizing risks. Risk transfer coverage provides protection to governments, without increasing public debt, and is an important complement to other sources of funding, including emergency funds, budget reserves, credit lines, and international aid. To date, the Bank has provided clients with $3.9 billion in coverage against catastrophe, weather, and health risks.
In fiscal 2018, the Bank issued a $360 million catastrophe bond for Mexico to cover earthquakes and hurricanes, and provided $206 million local currency catastrophe insurance coverage for 25 provinces in the Philippines against losses from major typhoons and earthquakes. There have been two payouts under these programs this fiscal year. Mexico received a $150 million payout following the powerful 8.2 magnitude earthquake that struck in September 2017. In December 2017, Typhoon Vinta triggered a partial payout of PHP 83.5 million ($1.6 million) to the province of Davao del Sur in the Philippines. In June 2018, the Bank issued a $1.3 billion catastrophe bond to protect each of Chile, Colombia, Mexico, and Peru against potential losses from earthquakes. This marked the largest sovereign risk insurance transaction ever and establishes the World Bank as the largest provider of sovereign risk insurance.
Helping clients to manage public debt
When governments and other public entities need financing for development investments, borrowing is one of the available options. Ensuring that publicly held debt does not undermine development objectives requires sound management practices. Effective, strategic, and efficient public debt management is the cornerstone of financial stability and sustainable fiscal policy.
In fiscal 2018, the World Bank worked with 38 federal and subnational debt management offices in 33 countries across all regions of the world, helping governments build institutional capacity in all areas required for effective management of government debt. During fiscal 2018, the World Bank’s debt management advisory services reached more than 500 debt management practitioners in different countries through webinars, workshops and forums, online communication and virtual peer groups, and in-person meetings to build and manage long-term relationships with debt managers in partner countries. The World Bank also provides a repository of knowledge in the form of research reports and publications to stimulate discussions and further research.
Going forward, the World Bank will continue to use capital market innovations to finance sustainable development, to serve clients through advisory services and risk management projects, and to maximize the resources available to help countries to invest in their own development needs.