Thank you, Chair.
I’d like to give you a short update on the World Bank Group and then raise some forward-looking issues.
We are scaling up with all possible speed. The Board approved a fast track approach to emergency health support programs that now covers 111 countries. Most projects are well advanced, with average disbursement upward of 40%. Our goal was to take broad, fast action early.
The operational framework we presented back in June has positioned us to help countries address immediate health threats and social and economic impacts and also maintain our focus on long-term development.
We are making good progress toward our announced 15-month target of $160 billion in surge financing. Much of it is for the poorest countries and will take the form of grants or low-rate, long-maturity loans.
In the first six months of the crisis, from April to September, IBRD and IDA committed $43 billion, 41 percent of their $104 billion envelope. IFC and MIGA together committed $21 billion, 39% of their combined total 15-month envelope of $53 billion. Much of this will help with the immediate private sector needs during the crisis, including trade finance and working capital.
As you know, earlier this week, our Board of Directors approved additional financing of up to $12 billion to help countries purchase and distribute vaccines. It will ensure initial vaccine doses are available to those who need them first in IDA countries and in IBRD countries with limited access. Financing will be available immediately.
IFC, through the Global Health Platform, will be providing financing to vaccine manufacturers to foster expanded production of COVID-19 vaccines in both part 1 and 2 countries, providing production is reserved for emerging markets.
Turning to debt, there has also been some progress—although the challenges ahead are daunting. I proposed a debt service moratorium in the Spring, together with Kristalina. The G20 endorsed a temporary suspension, and I was pleased with the May 1 start date. As of late August, 43 of the world’s poorest countries are benefitting from an estimated $5 billion in debt service suspension from official bilateral creditors. This complementing the emergency financing provided by the World Bank.
The DSSI has helped us make significant progress on debt transparency, which is critical for increasing high-quality investment.
It’s an important stopgap, but it is not enough. Too many of the creditors are not participating, so the debt relief is shallow. Debt payments are simply being deferred, not reduced. The G20 initiative decided to maintain net present value (NPV), which in today’s low-for-long financing environment, leaves the burden of debt effectively the same—or with penalty rates, even higher.
The use of historical NPV equations and very optimistic growth forecasts in debt restructurings have to be scrutinized for fairness to the people in the debtor countries.
I think we need to take a longer-term perspective on debt sustainability. Looking beyond DSSI, we must consider debt stock reduction. Otherwise there’s no light at the end of the debt tunnel for the people in the debtor countries.
The crisis-related lending operations supported by our institutions have put heavy emphasis on short-term financial flows. Those address liquidity needs but not the solvency crisis facing the world’s poor.
For example, reprofiling debt payments addresses liquidity but not solvency. We need to strengthen the IMF/WB Debt Sustainability Analyses to use a longer window.
This concern about the debt overhang also applies to the G20 discussion of a common framework on debt treatment. It’s important that the framework not just kick the can. Given the urgency of the debt crisis, it’s urgent to make rapid progress toward debt stock reduction, because debt burdens are crushing recovery and reversing decades of progress on poverty reduction. Even as we speak, we are seeing IDA countries spiral toward default.
The Development Committee holds a unique place in the international architecture. It is the only global forum in which the Governments of developed countries and the Governments of developing countries, creditor countries and borrower countries, come together to discuss development and the “net transfer of resources to developing countries”. The current International Financial Architecture system is skewed in favor of the rich and creditor countries. It is important that all voices are heard—so I urge the Ministers of developing countries to use their voice and speak their minds today. And I urge all of us to consider how we can build a new approach to debt restructuring that allows for a fair relationship and balance between creditors and debtors. This will be critical in restoring growth in developing countries; and helping reverse the inequality.
I’m pleased that the Development Committee communique, proposed for adoption by your Executive Directors, asks the World Bank and the IMF to review the debt challenges of both low-income and middle-income countries, and to propose solutions to their fiscal and debt stress.
Let me also say I warmly welcomed the public call of several European shareholders, including Ministers of Denmark, the Netherlands, France, Germany, Spain and Sweden. They called for “the World Bank and the IMF to deliver a coherent approach to debt restructuring that helps address the looming debt crisis, helps make sure countries do not lose sight of green and inclusive reforms, and helps lead the way toward more just and sustainable societies.” This is the core of our mission and our activities, and I welcome the encouragement and support.
And I warmly welcome the powerful call of our chair, Minister Ofori-Atta, in the Financial Times recently, for a “tectonic shift in the global financial architecture” and “ambitious reforms to address the fundamental inequities in the global financial system.”
We hear these calls, we take them very seriously, and we will continue to listen and to work hard to deliver.
With that, I look forward to Kristalina’s intervention and today’s discussion.
Related: World Bank/IMF Annual Meetings 2020: Development Committee Communiqué