WASHINGTON, March 23, 2023—World Bank Group President David Malpass today announced a new approach to strengthen private sectors and the delivery of Private Capital Facilitation in World Bank Group operations and knowledge work aimed at increasing growth and the resources available for development and climate costs.
The World Bank Group estimates that developing countries will need $2.4 trillion per year for the next seven years to address climate costs, conflict, and pandemics alone. In a speech to the Center for Strategic and International Studies, President Malpass set out an approach to enabling private capital, building capital investment pipelines, and establishing private capital connectors, to try to close that financing gap.
“Our new approach provides a blueprint to strengthen private sectors and increase the amount of private capital flowing into development to help millions of people around the globe,” said World Bank Group President David Malpass. “Our ambition is to see the creation of a dynamic, investable asset class for infrastructure in developing countries that spans borders and sectors. These efforts will boost growth through private sectors and increase private capital to help meet development and climate costs.”
Speaking at CSIS, President Malpass outlined the three pillars of the new approach:
- The first pillar is enabling private capital. The World Bank Group is revamping core analytics that will systematically identify barriers to private investment and capital market development, as well as market distortions that affect capital allocations. This new analytic work builds on the Bank’s support for countries to achieve macroeconomic stability and prudent monetary, exchange rate and fiscal policies, and efforts to increase transparency of public debt contracts to better assess debt sustainability and promote accountability. The new analytics will also complement the World Bank Group’s toolkit targeting private sector development, including the IFC 3.0 strategy for creating markets with upstream work, and Business Enabling Environment reports that will evaluate the business environment both from the perspective of an individual firm’s ease of doing business and from the standpoint of private sector development as a whole.
- The second pillar is building capital investment pipelines. President Malpass outlined how World Bank Group Global Priority Programs can develop initial projects and follow-on transactions that combine World Bank, IFC and MIGA interventions, and replicate these in different cities and countries. For example, these programs could focus on energy access, the digital economy, or access to capital for entrepreneurs in Africa. Delivering growth and impact requires investment approaches designed to realize scale and uniform documentation, such as the World Bank Group’s Scaling Solar and Mini-Grid programs. President Malpass said that as part of this pillar, the World Bank will look to create new opportunities to support State Owned Enterprises, or SOEs, to attract private capital. SOEs in the poorest countries are large economic actors, with revenues close to 16 percent of GDP and employment accounting for around 6 percent of the formal sector. This work is designed to help SOEs optimize their balance sheets and operational efficiency and monetize existing assets to invest in growth.
- The final pillar is establishing private capital connectors by creating a market of investment grade securities that will provide institutional investors better access to EMDE infrastructure debt. This work aims to create greater depth and liquidity and longer tenors in EMDE infrastructure debt markets, mainly domestic capital markets by aggregating and packaging EMDE loan assets into investable securities for institutional investment. President Malpass announced the World Bank Group is exploring an originate-to-distribute model to unlock institutional capital at scale. For example, IFC is developing a new multibillion-dollar platform to securitize IFC loans by packaging and distributing them to institutional investors through a warehouse. This platform can also be designed to include assets originated by other MDBs. As debt aggregation vehicles require market reforms for optimal impact, the World Bank Group will focus on reforms to develop local capital markets with legal and regulatory framework for securities issuance, investment, trading, and supervision, and support incentivizing deeper pools of domestic savings for investment, with fuller financial participation by lower-income households and women. Finally, the Bank is working to enhance investors’ access to payment history for private sector projects in developing markets through the Global Emergency Markets Risk Database, or GEMs, to make the aggregated statistics available as a global public good with appropriate safeguards and quality standards.
President Malpass noted that progress on all of these pillars is heavily reliant on blended finance approaches from the global community, where concessional resources are combined with commercial funds. Results-based approaches such as the World Bank Group’s new fund SCALE (Scaling Climate Action by Lowering Emissions) and outcome bonds such as the Water Bond in Vietnam and Rhino Bond in South Africa issued by the World Bank Treasury are transparent and avoid greenwashing.
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