Thursday, May 26, 2022 – 10:00 AM
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MR. MALPASS: Hello, everybody. Good morning. We're at the World Bank cafeteria, and we are going to have a very interesting conversation. I'm here with Masood Ahmed. He's the President of the Center for Global Development. We want to talk about development and have a conversation and then bring in the audience, where we can.
I'll give just a little bit of a start and then you can give a little start, and then we'll see where we go from there. The basic context that we're in is a very difficult one for developing countries. We've talked a lot about the multiple crises that they're facing, and also the inequality that has built up in the world. That's a combination of much of the response to COVID was channeled through the advanced economies and stayed there and left developing countries behind. We've had reversals in development on a number of fronts: on poverty but also on education, on median incomes, and other key indicators of development. That's a giant challenge and a crisis in itself, because it adds to fragility and it's bad for people. As the food crisis now hits and fertilizer and farmers are under pressure, it raises the risk of famine or of hunger certainly already growing, and malnutrition growing.
That's the general context. I've argued for various policy changes in the advanced economies, but also very much in the developing economies to counteract inflation, to prepare for the interest rate hikes that are coming, and also the climate changes that are ongoing.
From a program standpoint, the World Bank has tried to respond to the COVID crisis and now to the latest set of crises from Russia's invasion of Ukraine. We've tried to respond rapidly and with size. That's the context that we're in right now, with the Bank going through its biggest surge of financing. It started with COVID and we're in another surge, now. With that as a context, welcome, Ahmed. I know you know this field well from all your history, but you might please start us off, with CGD and yourself.
MR. AHMED: Thank you very much, David. It's always great to be here. I should say it's great to be back, because one of the important things about my life is that I actually spent 20 years working here at the World Bank. So it's very much like coming back home for me.
As you just said, David, at the Center for Global Development, we've been following what you've been doing, what other institutions have been doing, what the IMF is doing across the street, and, most importantly, the impact that this crisis, in terms of food, energy, fertilizer costs going through the roof, has had on countries that were already suffering from all the previous crises.
I think what we don't recognize often is that here in Washington, most of you--almost everyone here--is wearing a mask. When you look outside, when you go around here or in U.S., in Europe, in Japan, in rich countries where the majority of people are vaccinated, we are putting the COVID crisis behind us. We see that as something that is over and we're beginning to focus on the next phase. And yet, if you go into most developing countries where probably one-in-six, one-in-seven people have been vaccinated, the COVID crisis is still very much part of their lives for this year, for next year. So, they are already struggling, as you say.
And maybe that's a good place from which to start. You said, David, the Bank had come forward with 170 billion--if I remember right--is the number of the surge over the next 15 months, which is actually slightly larger than what you'd done in response to COVID. That was at the time of the Spring Meetings that you announced that; that was a month ago.
And the last month has seen a continuation of the war in Ukraine and expectations about high food and energy prices. It would be good to get your take on--in talking to all the country representatives and policymakers, how do you now see this impacting particularly low-income countries, but also those middle-income countries that are very exposed in terms of their financial markets? A lot of them have borrowed money, both sovereign and corporate sector; interest rates are going up; market conditions are tightening. That's going to have an impact. I really think we'd appreciate your take on that.
MR. MALPASS: Exactly, Masood. The data has been worse since the Spring Meetings. We were trying to anticipate some of that, and I think we did that. I was last week in Europe. The development ministers of the G7 met in Berlin, and the finance ministers and health ministers met in Bonn. I participated in those meetings so I have a sense of how that group is thinking, and very worried about how can there be enough support for developing countries, with both groups-- the middle-income and the poorest countries being discussed in terms of fragility, but also in terms of the pure monetary effect of the price spikes that are going on now.
I guess one message that I really think is important is that, as the world moves away from the dependence on Russian energy, then new supplies will be vital. As we look forward one year, two years, and three years, this is not a short-term crisis that we're in, and it will depend--or the severity of it –will depend on production worldwide. That's farmers planting crops, getting fertilizer. We know in the advanced economies most of the farmers who want fertilizer will be able to get it, but it's coming at the expense of diverting supplies that would have gone to developing countries.
That's very clear in LNG, liquified natural gas, which is a vital building block for fertilizer and for cleaner energy. What's happening is the LNG supplies get diverted to Europe. And that means, in developing countries, they burn heavy fuel oil. They burn diesel generators for the well-to-do, and the farmers aren't getting the fertilizer. And so the crop yields will be down. That's the immediacy of the crisis for developing countries, whether the low-income or the middle-income: they're both facing this price spike problem.
I think we have to focus on the best solution which will be massive new supply. A much less beneficial solution is to divide up the existing pie. Because the unfairness of that the richer economies will get what they need, and that means shortages elsewhere.
MR. AHMED: Which is exactly what we saw 18 months ago with vaccines, and when you saw the distribution of vaccines which were in short supply. And it wasn't just that the vaccines were going primarily to rich countries, but that sometimes you found, in many rich countries, we'd ordered way more vaccines than we were ever going to be able to use. And we ended up actually throwing some of them away because we could not use them in time, at a time when those very same vaccines could have gone to help and protect frontline workers who were dealing with the pandemic elsewhere.
MR. MALPASS: One difference is if you think of the total amount of money needed for vaccines--not counting the R&D, but the actual just cost--was relatively small. If there'd been a way to allow developing countries to contract and get in line for the receipt, there would have been enough money to go around.
In this particular crisis, the size of the financial needs are much bigger. That is because energy and food and fertilizer are a much bigger part of the global economy than the vaccine cost.
We need new ideas and especially--I'm just making a little bit of the distinction that for vaccines what there needed to be was fairness in contracting, so that the poorer countries would be able to get contracts that were executable. This time around, it's not so much that. It's the actual allocation of giant parts of global GDP where the advanced economies will take first dibs on a lot of it.
MR. AHMED: Right. I think that's a fair point. I want to step away--we could talk a lot about the current crisis, but I wanted to step back a little bit and maybe go into an area where I know the World Bank Group has been doing a lot more over the past few years, which is the work that you're doing in fighting climate change.
One of the things that a lot of people talked about in the Spring Meetings, which was just a month ago, was whether going forward the World Bank and development banks more generally should be doing something more or something different in relation to climate change, pandemic prevention, global health security--global public goods, if you like, as the term. Some people might have seen a speech by the U.S. Secretary of the Treasury, Janet Yellen, in which she was pretty pointed in saying that the World Bank shareholders and the World Bank as an organization needs to think--I think the term she used was, "think creatively”--of solutions that go beyond what they're doing country by country.
I am trying to understand how you interpret that move towards greater focus on global public goods. Is it: do more of what you're doing? So, if you look at your numbers on climate-related lending, both in the absolute and as a share, they've gone up. So, you say, look, we're doing that. We could raise that further. Is it something doing differently? Is it the same in low-income countries or middle-income countries? How do you both understand and then respond to this call from shareholders for the World Bank to become much more focused on global public goods, and climate in particular?
MR. MALPASS: I think it's useful to have that discussion. As that is put forward, that encourages the Bank in a direction that it's moving. But to your point, does that mean more of the same? No-- it means an even faster evolution of the Bank.
Global public goods extend our climate, in part; that's things that are within a country but that have big impacts outside that country. We can even think of vaccination as a global public good in that it helps the world if more people are vaccinated, because of the variants and that aspect. And I think it is also including refugees. As people move across borders, it affects everyone. We view it that way. The Bank has been evolving pretty quickly in those areas.
One part of it is spending more on climate. As you know, the World Bank is the biggest, by far. Half of the finance of international financial institutions, of all of them--of the IMF and all the other MDBs--the World Bank has half of the total. And has grown rapidly in recent years in the financing--
MR. AHMED: On climate.
MR. MALPASS: For climate, yes. Another aspect, or what we then want to do, and have described in our Climate Change Action Plan, is help the world find and see that it goes way beyond ambition and pledges and conferences. That when you get into climate, you have to be talking about projects that reduce greenhouse gas emissions, which I think has not actually been discussed all that much. I go to the conferences and there is very little discussion of what actual change is going to happen. So we, the World Bank, have put forward a very ambitious climate change action plan, built on the process to integrate climate and development, to identify projects that will be impactful.
That's very important. It's not how much you spend on the project, it's how impactful. How do you finance that impactful project, and how do you work with the governments to actually get it done? We're doing now a new diagnostic for climate change--country climate development reports that are coming out on individual countries. What can the country do to reduce greenhouse gas emissions? This has been very well received by the international community. I was just at the G7. The communique and the discussion at the table is very supportive of what the World Bank is doing to lead so strongly in this direction, that we have to have people talking about the impactful projects on greenhouse gas emission reductions. So, that's methane leakage, which is one of the big greenhouse gasses, and that means concrete projects. Which pipeline and which country? Who's going to work on Turkmenistan? Who's going to work on Russia, now that it's started a war? And other major methane emitters around the world -- and then, coal-fired power plants is a big category of emissions. Of course, agriculture and land use are big, and industrial users of the steel industry, the cement industry.
So, in Uzbekistan, what changes are going to be made to reduce the carbon intensity? The World Bank has active, big programs in some of the big-emission countries.
I don't want to ignore adaptation. 50 percent of our climate finance goes to adaptation. That's unique among international financial institutions and so we are pressing forward with that. And it's particularly relevant for lower-income countries because, by and large, they aren't producing much greenhouse gas emissions; they're feeling the impact of it. We balance that.
To emphasize, it's very strongly supported and well received by the international community. What I think we want to do is continue evolving that, and the big challenge is finding the most impactful projects. That hasn't really been the direction of institutions in the past. It's maybe been here at the World Bank, but we're putting more emphasis on identifying projects that will actually matter and make a difference, and then work with the governments. We're working with South Africa, with Vietnam, with Indonesia, with India, with China on impact.
MR. AHMED: Right. So, if you do a fast-forward, let's say, ten years from now and look at the portfolio of the World Bank and look at middle-income countries in particular where the Bank is involved, you could have two visions of it. You could say, well, we'll be doing--our basic design is to work in each country according to what the priorities of that country are. It could be climate; it could be education. So, we'll be everywhere. Probably, we're doing a bit more climate in different places.
Another vision could be to say, we are basically going to become a climate and development institution, and that is what we will be offering as an offering of choice, if you like, in middle-income countries, not because the other things aren't important, but because this is the area where the shareholders of the institution or the World Bank can make the biggest difference.
And it's a spectrum, obviously. And I'm just trying to get a sense from you, as you look out ahead, which end of that spectrum are we likely to be closer to in ten years?
MR. MALPASS: There's been a big ramp-up in climate financing. I'm comfortable with where we are, and I think the world is comfortable. We have a 35-percent target for our new commitments. That will gradually mature, meaning then the portfolio will reflect that.
But what I think is really important is that the quality of each of those loans will go up, meaning the impact. You could have a billion-dollar loan that was called climate change but didn't really have much impact; or, you can have a billion-dollar loan on the portfolio that's very impactful. What I'm hoping we can do is have the quality of the lending go up. The reason to avoid having the target go up is because it subtracts, dollar for dollar, from education, from child nutrition, from our work on gender equality and violence against women, and so on. And so, do you really want to reduce that? My contention is what we want to do is make the climate spending that we're doing--which is massive, it's our biggest chunk of our portfolio--make it as impactful as possible.
You know, people talk about the hundred billion per year; the World Bank alone is a quarter of it. I sit in the G7 meeting where the World Bank alone is more than all the G7 spending by a lot. And it's very hard for them to say World Bank should do more. What really is needed is the global community to recognize that it needs to participate in impactful projects. We're looking for the pooling, the finance pooling, that will allow that participation by the global community.
MR. AHMED: I think the point about impact is really important to emphasize, because we did some work at CGD. A couple of our colleagues looked at projects that were done by some of the climate funds, and just to try and see what is the unit cost in terms of ton of carbon averted.
And first thing is that a lot of the projects don't have the numbers to be able to make that call. And that already is a problem. You know, we need to have the data to be able to decide what's the best use of limited resources. And then, where you do have the data, the variation in dollar cost per ton of carbon varies from 1 to 50, and there's no reason why we should be having such a wide variation, and that's basically because we haven't yet introduced the discipline that comes from so many years of doing effective project preparation, project evaluation, supervision, appraisals that help to make sure that you get the best value for money for--and the money is going to get limited. No matter how you look at it, the needs are going to be multiples of what is going to be available. So, I'm very much in favor of that.
Could we--I know we're going to--we could run out of time, probably. So, I do want to go to another topic, if I may, which you have been very vocal about, David, personally. And I think the Bank as an institution has been very much out there, and this is the issue of the growing burden of unsustainable debt. There are plenty of numbers out there. I'm not going to spend time walking you through on how many countries have the problem, et cetera.
What is interesting for me are two things. One that, for a variety of reasons--and we can go into that and I would appreciate your view on this--the problem is going to get worse this year than it was last year. Probably, this year, Sri Lanka is not the only country we are going to see. I can think of a half-a-dozen other countries and I know that people in the World Bank have said that the number is even higher, that are going to run into difficulties this year with managing their debt repayments.
And we seem to be incapable as an international community to do anything about it. So, you wrote out, here's a set of things that could be done to make the common framework work better: put in a standstill; put some better definition of comparable treatment; put in some timelines and process clarity; get the private sector to the table. These things have been out there for months, now. Kristalina Georgieva at the Fund has said the same things. Everyone's pointing out the problem, and I guess my question to you is, time is passing; countries are getting into trouble; we've pointed out how to fix it. And here we are now, May is ending. We're halfway into the year and I don't see us any closer to moving from diagnosis to action.
So, what's holding it up, David? How do we move forward?
MR. MALPASS: Yeah, do something, right? The real world consequence is poor countries are still paying a lot on their debt.
That means it's in direct opposition--they're facing higher prices for everything and then, in addition, seeing the interest rates go up and they're paying out to creditors that, by and large, are wealthier than they are. And so -- big problem.
There's multiple aspects of it. One is, starting today, wouldn’t it be good if we could avoid having nontransparent contracts into the future, ones that were more subject to rescheduling? We can't even get that. You know, a starting point is stop making the problem worse, but every day we see contracts that are written by lenders with developing countries where there's a nondisclosure clause. We've asked to stop that. China, in particular, began that process in roughly 2014, of putting it standard into contracts that the contract can't be shown to anybody. That reduces accountability. We'd like to get that and have some principles of transparency for contracting with sovereign governments.
You know, we do that now in IDA. There's something called the SDFP, which is the Sustainable Debt Finance Process, and so it works with IDA countries to have some standards for how they're borrowing. A problem is they don't always follow that, and then what's the pressure? Because they're under pressure from the lender to say, please, take my money. I know it's a high interest rate, but you'll get lots of benefits right now, and you'll only have to pay for it over the next 10 years, or 20 years in some cases. Some of these contracts are long term.
As far as what we can do, one is bringing in the G7, the G20, and really asking them, don't you want a stronger process? We've tried working with the IMF. We've made proposals to them on ways to improve the process so that there can actually be a debt restructuring for countries. Zambia is in that process. Unfortunately, even though they started it well over a year ago, still, there hasn't been a meeting of creditors. At the G7 last week, I proposed to the group that, rather than waiting for a creditors' committee to form, have creditors meet on a monthly basis--meaning, don't wait for someone to call a meeting, but just have a monthly meeting of creditors that would bring together the private sector creditors and all of the official bilateral creditors; that's China, as well as the Paris Club. We'll see if that can work. There are other processes going on to try to, on a case-by-case basis, solve the various ones.
One idea is having the debt sustainability analyses being reviewed by the Boards of the World Bank and the IMF. That would allow a more inclusive process so that there is a consensus of opinion that a country needs a debt treatment and a debt restructuring.
There's some concrete things going on, but where we stand today is it's a fully stalled effort. And basically, the countries keep paying month after month to well-to-do creditors. We would like to see the private sector take more initiative, but remember, in the debt suspension initiative in the G20 in 2020, the private sector was given a free pass.
MR. AHMED: Free pass, completely.
MR. MALPASS: It was voluntary for you, which meant that the big chunk of the debt was simply not going to be reduced. Through the COVID process, remember what happened, even the poorest countries, kept paying month after month to rich people through their asset managers.
MR. AHMED: No, absolutely. And you know, I just think it's extraordinary that here we are, it's 18 months after we announced--the G20 announced the common framework, and not a single country has actually managed to go through the process.
And as you say, it takes a year to get a creditors committee. And now, you have Sri Lanka, literally running out of cash every day, down to the last million dollars, pretty much, and can't get an IMF program because you need to get assurances from creditors. You can't get assurance from creditors because you can't get a creditors' committee. And it's sort of like the country's caught in a Catch-22. And it does seem to me that, as you say, the World Bank and IMF in some ways have to bring that whole process together somehow, right?
MR. MALPASS: I'll unload a little bit, then. The G20 makes up a big portion of our shareholders. The Group of 20 major economies are major shareholders in the World Bank. They meet on an annual basis and then frequently during the year.
As the debt suspension initiative was being done in 2020, the word kept appearing in the communique that it would be voluntary for the private sector. The World Bank stands up, says “no, that will undercut the effectiveness of the agenda. Please delete that word.” Then, as it goes 24/7, the negotiation on the communique, the communique comes out and it says it's voluntary for the private sector. That discussion of the major economies is hard to get inside, because there's different groupings. Many of them are creditors. One challenge or one strength the World Bank brings is our Board, our shareholders, are more heavily developing countries than most of the world's institutions. I can assert that the World Bank can be a voice for that, but it's hard.
Even at the G7, for example, where I was last week, we're just an observer. The communique itself is written by the countries, and you can kind of give suggestions, but that's about what they are. We work then with the shareholders and with the members to say, wouldn’t it be a good idea to make faster progress on this.
We should talk directly. China I think needs to be more forthcoming and the private sector needs to be more forthcoming in the willingness to see, in the long run, it's to their advantage to let these countries survive. And so, let's find a way to do it.
MR. AHMED: I think that's--I remember well the process of drafting of communiques and these meetings. And for some reason, they always start late in the evening, the process. Predictably, they start late in the evening, and then it sort of works its way through the night. And I think there's a method in this, which is just that people so tired by the end of it that you're ready to sign up to anything, because it's 4:00 a.m. in the morning and people haven't slept for 36 hours, you know.
MR. MALPASS: Plus, this word ‘voluntary’? Who cares?
[crosstalk]
MR. AHMED: And then, voluntary sounds good at 4:00 a.m. in the morning. But I think the key point of the last thing you just said, which is that it is in the interest of the creditors to have an orderly process of dealing with excess debt in countries, because the cost of picking up a broken outcome are always higher. And I think that's--somehow, that message hasn't got through.
But before we end, I want to go to just one last topic, which I think follows on from your last comment. You said China needs to be a bit more forthcoming. I mean, the World Bank, in a way, is the World Bank, right? You have shareholders from every part of the world, here. China is a big shareholder. The United States is the largest shareholder. And that's been its strength, that it brings everybody into this one institution. But now, some of your shareholders are basically not getting on so well. There's tensions and there's--it's more than tension, in fact. Geopolitics are getting tough. And I think it would be good to get your take on how do you think in a world which is going to be increasingly divided, geopolitics are going to be tense, what is the space for the World Bank? Does it become the common space for people who are otherwise at odds to come together on common issues, or does it get caught up in the middle of this big--I wasn't going to use "conflict," but--I don't want to use that word, but it's more the disagreements.
MR. MALPASS: I think it's been okay so far. We saw a little part of that at the Development Committee a month ago where Russia had attacked Ukraine, there was a war going on, and it's a shareholder. How do you handle that? They didn't come at a high level. And when their minister spoke by video, some of the shareholders walked out of the room. It was a demonstration of opposition to what Russia is doing, but it worked from a World Bank governance standpoint.
And we're continuing to operate -- our Board is functioning and can express strong views on what's going on in the war. It's inclusive with China, with India, with big, non-Paris Club creditors, having full voice within the World Bank. So, I think it creates a--
MR. AHMED: A safe space.
MR. MALPASS: --space for the world.
A practical problem on the debt is that the composition of the debt has changed so massively over the last ten years. We've gone from a situation where most of the debt was contained by the Paris Club creditors, to the point now where--very little of it is. We have, for example, Sri Lanka, just a small portion is Paris Club creditors. And yet, the mechanisms of the world are still set up to be centralized around that Paris Club creditor process That's been a case in Zambia, in Chad, and the others, where oftentimes the chair of the creditors' committee has zero exposure, which is not the way debt restructurings used to be set up.
That's, I think, an evolution of the system that's going to be needed in order to reach more useful resolutions of debt issues. But then, it goes into trade issues and others. There has to be a recognition in the world of the big role of developing countries within the global framework.
MR. AHMED: And in climate. Anna's here. She's getting anxious. We're running over time, here.
MR. MALPASS: Anna, tell us what we're doing, and then we're both going to continue the conversation with the audience, I think. Fire away.
MODERATOR: Thank you. Thank you very much, David and Masood. That was absolutely a very insightful conversation.
So, in terms of process, what I'll do is I'll open the floor for questions. We'll start with an online question from our participants, and then would ask you if you could kindly raise your hand. I have two colleagues with mics. They will come up to you. Briefly introduce yourself, and then if you could ask your question in a very succinct manner so that we allow enough time for Q&A.
So, my first question from an online participant, which is Dr. Onyago [phonetic], and the question is: "We're seeing more environmental disasters, which are affecting development. What strategy has the Bank put in place to combat these challenges, while still helping with food security and infrastructure development?" So, I'll start with you, David.
MR. MALPASS: And please, join in as you go. You know a lot about these topics, as well.
One part of the answer is the financial instruments that we have. We have, within IDA, the crisis response window that can address--and we have CAT DDOs, which are catastrophic deferred drawdown option instruments that--where we work with the countries to be aware that they're more susceptible to natural disasters. And there are other tools, financial tools, aimed at that.
A second line I'll mention is biodiversity is a mainstream issue in the Bank, and we work with specific countries on ways to enhance that and protect the environment, straight out.
I would say a third is the surge financing process that we've demonstrated with COVID and we're now doing with the food crisis, that as there are specific impacts hitting countries, the Bank can respond quickly.
Other...
MODERATOR: Masood, would you have comments to add?
MR. AHMED: Just one footnote to what you said, David, which is: I think one of the issues we need to think about, and the Bank will think about, but the shareholders, also, is whether the financial models of the Bank support the roles that we want the World Bank to play. And I'm thinking in particular of surge capacity, right?
And in IDA, you can essentially do it by drawing forward what you were planning to spend later, and that's--we just had a two-year replenishment in IDA rather than the standard three. Maybe the next one needs to be two years, too, with the next surge. You know, I'd be in favor of that. But with IBRD, as I understand it, and the people in this audience--and I'm sure you do understand this much better than I do, but my understanding--my recollection is that there is built into the IBRD the capacity to deal with one big setback and one surge capacity of about $10 billion or so at one time.
Now, if we are going to have, for example, a second crisis come on top of the first, how do we make sure that the financing models allow the Bank to play the role in terms of surge financing that we want it to play and that we sort of hold it accountable for playing?
MR. MALPASS: And that's good. That's actually an active discussion now, as we face this second surge.
There's actually some good news on that. There's more flex than you might be aware of. For one--and I'll just mention a couple, but there are actually several. The capital cushion out of the 2018 capital increase is expandable. We used it first with COVID, and we're going to be able to continue that and add another layer of the cushion; so, that's good.
One other aspect that I'll--well, we have crossover windows from IDA that help with blend countries and with financing. I was going to also mention--I'm sorry, I lost my train of thought. There is the capital cushion and the--I'm sorry, I'll have to come back to it and tell you. Please, go to another question.
MODERATOR: Let me go to the live audience and see if there's a question.
So, yes, the lady in the black shirt to my left. Please, thank you for raising your hand. Kindly introduce yourself, and if you could answer your question succinctly. Thank you.
QUESTION: Hi, my name's Jasmin. I'm a member of the staff here at the World Bank Group.
My question was about the current downturn and inequality. Firstly, do you think that we're heading for a possible global recession? And secondly, will growing inequality between countries and within countries be a feature of that, more than in previous downturns, perhaps?
MODERATOR: Thank you very much. David or Masood, who would like to take that first?
MR. AHMED: David, go ahead.
MR. MALPASS: Clearly, there will be recessions in some countries, maybe many countries. The variables though are dominant in this: How long does the war last with Russia? And also, very importantly, how does the world respond in terms of new supply? If you knew that today, you'd have a better estimate of how many countries will fall into recession.
I'm quite concerned about it. Interest rate increases will be needed because we're running at a high inflation rate. That gives us the nature of the concern, the GDP growth kind of concern. There's slowdowns currently in China and in Europe, and those are extending and having impact on developing countries. And the inequality, as I mentioned, I'm very concerned about that, because the global system is set up in a way that leaves developing countries behind. That was true of the COVID response by the advanced economies, took the form of big demand generating or consumption oriented fiscal stimulus, meaning they borrowed from global capital markets, and then injected that money into mostly the advanced economies.
There hasn't been much penetration of that stimulus; same on the monetary policy side. And now, as the response is going to the food crisis, it's got the same set of problems that actually add to the inequality.
MODERATOR: Thank you. Thank you, David. I actually would like to pivot to a question from an online participant, and it's actually posed for the two of you, and it's on the education sector, which we all know is an issue and needs to be addressed with urgence.
The most vulnerable, kids, seem to be suffering, and this is a question from Dee [phonetic], and because they're either dropping out of school or they receive less quality education compared to their peers around the world. And in addition to that, there's a huge digital divide that exists between students here and students in developing countries. So, what are your perspectives? How are we going to assist countries so that no students are left behind?
Let me start off with you, Masood, and then ask David.
MR. AHMED: So, I'll say a couple of things about education. You know, we have been looking at this issue, my colleagues at CGD have been doing quite a lot of work on education over the last few years and what works, what doesn't work.
And the number--two big conclusions that have come from that, for me, are one that we all know that learning outcomes are quite varied and often quite poor in many countries, even where kids go to school they don't learn a lot, and we've been very focused on that. But despite that, even with the poor learning, the returns on investment in education are high. So, it's worth having the kids go to school even as we work to make the schools better and more effective. It's important not to lose sight of that.
Second thing that's coming through for is that in terms of one intervention that has been shown to have an impact on learning outcomes at scale, which is to say not just in limited number of trials in tens or hundreds of kids, but across different environments is school meals. If you can invest in providing school meals, you can easily scale up school meals, because the technology to deliver school meals is not that complicated. And kids who are not hungry and are better fed learn a lot faster. So, school meals make a big difference.
And the final thing I want to say about education is that there is a reluctance on the part of some finance ministers in developing countries to borrow money for education, but they're willing to borrow for other kinds of projects. Historically, we used to think of hard sectors and soft sectors. I've never understood why you want to call it soft sector--investing in education, but that's how people used to think of it. I think there's personally, there's no rationale for not investing in education. And if you need to borrow funds for that, that's fine, as long as your overall debt sustainability makes sense. It's the country-level debt sustainability that matters rather than some sectoral--arbitrary sectoral distinction.
So, I want to make those points.
MODERATOR: Thank you, Masood.
David, anything to add to that?
MR. MALPASS: Good points. Just building on that, in addition to the school lunches, the hours at school turns out to be important, and of course, the relationship with the teacher. I was in Morocco and saw a school where the government was allowing money--and the World Bank was supplementing it, encouraging it to go to NGOs that were running the preschool program, and they have enough hours that it's really having an impact.
I like your point on scaling it and getting the government to recognize that it's an investment that's critical. We highlight that in the Human Capital Index.
I want to come back to the capital cushion, because I've had a chance to collect my thoughts. We're using the capital cushion again now in this crisis. Also, one change that's been made over the last five years or so is the transfer from IDA goes down a little bit when the World Bank's--when the IBRD profit goes down. So, rather than being a fixed rate, so that allows or leaves IBRD in the middle-income countries able to do some part of the surge.
One thing that we did starting a year-and-a-half ago was really encourage countries to switch from floating rate to fixed rate. They were able to lock in through the World Bank, and we got a lot of billions of dollars locked in on fixed rate. That's helping them withstand the interest rate rising environment.
A fourth I'll mention, and there are actually quite a few more, is the scaleup window in IDA has been expanded substantially in IDA20. So, what that means is it makes resources available to the blend countries that can then give some relief to IBRD.
The net result, and the reason I wanted to raise it, is we have the capital capacity to do this surge that we're doing, even though it's a second one. Your going in was right--of somewhat designed for one surge or one crisis, but we are finding ways to make it extend.
Critical in that is that IDA20 starts now on July 1st, and it's bigger than IDA19. So, that's giving us more room. That's why we're able to say $170 billion now. COVID was a big stretch for the Bank, that was $150 billion, for the 15-month period that started in April of 2020. But now, two years later, how is it that we're doing $170 billion? Well, we're using even more tools to the maximum. And also, we have IDA20 starting up on July 1st.
So, it's a key part. And IFC's capital increase came in just in 2020. All of those measures are adding--and we're stretching as much as we can. And I want to thank all the World Bank staff. You know, working from home, getting huge amounts of output. It's been good, but I'm really encouraged with physical presence here today.
MODERATOR: Thank you. Thank you very much, David and Masood.
Let me just turn back to see if we have any questions within the live audience. Yes, please, the gentleman in the middle, in the white shirt, please, if you can stand up and briefly introduce yourself and ask your question.
QUESTION: Yes, thanks very much, David and Masood. I'm Philipp, from the German ED office here. I have two questions.
Unfortunately, the first is you laid bare the lack of resilience that countries had in both the COVID crisis but also the current crisis, and you responded with a GRID approach--green, resilient, and inclusive development. At the same time, you published a Changing Wealth of Nations report which actually showed that sometimes you can have flow measures that increase but that the stock measures--human capital, environmental capital, and physical capital can be reduced.
So, my question is how can we make sure that the country engagement model, the guidance for staff, both on the analytical side and on the sort of strategic side is fully consistent with this new approach that we need to implement?
MODERATOR: Can he answer that and then I will come back to you. I promise you that. Let me just give him a chance to answer that question.
MR. MALPASS: So, the Bank has country approaches and knowledge approaches. We need to apply both. You're exactly right, flow versus stock, that we need to have a way that countries can look far forward and recognize they have to build human capital, for example, which doesn't have any immediate payoff.
But that should be embedded in the Country Partnership Framework. So, the CPF, which is a primary and important document for the Bank that gives kind of a five-year forward look of what we're planning to do in a country should be picking up those changes. Those go to the Board; the Board comments on it; and that's a useful, iterative process.
I would say to Masood and to all the stakeholders, I'm encouraging input and particularly most helpful is where you see a World Bank program and you say, this is a good one, do more of these. And this one doesn't look so good, try to avoid that. Because the World Bank has an array of programs, 30 different kinds of programs. And there's not as much input as you might guess--or as you might think there should be, on which ones really look like they're effective. We're trying to build those. Is there a second...
MR. AHMED: Can I just add a point on that?
MODERATOR: Yes, please go ahead, and then we'll go back, yeah.
MR. AHMED: I don't know if I may, which is to Philipp's question.
You know what? Look, the biggest challenge in organizations like the World Bank, or similar organizations, is once you have a strategy or a vision at the level of the Board or the level of Senior Management, how do you operationalize that so that it begins to show up in the actual activities that are being done by a whole number of relatively decentralized units?
And in the case of the World Bank, I agree with you very much, that you have a country partnership strategy, and I think that's the moment at which each of those has to be reviewed, not just in the context of whether it makes sense in itself, but how much it coheres with the strategic direction that has been laid out? So, if you come along with a country partnership strategy in a middle-income country where you've got very interesting things, but nothing in there about climate change or global health security or the challenges we're facing as an institution, as you are committed to do as an institution, I think there's something missing in that strategy.
And that's always a source of tension. I always feel that, in a way, the hardest part is to say no to good things, because there's nothing in those country partnership strategies, generally, that doesn't make sense. It's just not what the institution is driving to achieve at the aggregate level. That's the challenge, right?
MR. MALPASS: Small point, you know, we're working hard on workplace culture, and one key part of that--relevant to what you're talking about--is contestability. We've got Practice Groups within the Bank and regional groups. And we've also got IFC and MIGA, which have loud voices and need to be included, as people think about-- there's the operations committee--that has an ADM that governs how the input comes from around the Bank, and that is supposed to maximize the benefit. Those are done--you know, there's a big one coming up, I think, this week still--today's Thursday--I've lost track of which day it goes to the operations committee. And there needs to be active discussion, because it brings in lots of voices to say--because it's exactly the problem you name, that it's no good if 20 different groups have gotten their words into the document, that doesn't give enough guidance to the Country Director and the programmer--programming operations to say it's vital that this country achieve progress on X, and that's what we're looking for. Thanks.
MODERATOR: Thank you, David and Masood.
Let me go back to Philipp, please, if you can stand up, and your second question, that's fine.
QUESTION: Sorry to come again. Many fascinating topics.
Because you spoke of the G7 communique, I just want to quickly quote from the finance ministers' communique, which says, "We reemphasize our call for private sector involvement in all debt restructurings, in line with the comparability of treatment principle, and look forward to continue work with the international financial institutions and market participants on improving the architecture for such participation."
So, I just thought this is an interesting call on the Bank, as well, and curious how you interpret that statement.
MR. MALPASS: I like that a lot. So, it's very good, and the G7 has been supportive of what I've been trying to do on transparency--debt transparency and debt sustainability are critical, and they've been engaged in that. Each of the G7, in fact, has been engaged.
The problem--and not to pick apart those words. Those were great words, but as they say "comparability of treatment," you know, that's been vague. Over the last 20 years, there is a concept of comparability of treatment. I've suggested that it clarify the rules of how do you evaluate and implement, those are key words, how do you evaluate and implement comparability of treatment. Because if you simply call for comparability of treatment, that ends up giving lots of loopholes for many of the creditors to not actually reduce the debt burden for the country. That's giving you a nuance of this. I was very happy with the G7 discussion and the support on these topics. But as we push it forward, the details end up mattering. So if you talk about Zambia or you talk about Chad and you say comparability of treatment, everyone kind of agrees with that. But then, does that actually end up with a debt treatment that's beneficial for the people of those countries? That's a different question, and we're working--so, that's why we have so many people working closely with the IMF to get a good outcome.
MODERATOR: Thank you, David. I think we have enough time for perhaps just one question. And so, I would like to go back online, and this is from Esther [phonetic].
And she's asking, "How can high prices for fuel, commodities, and other products be lowered?" And she gives an example in Uganda, where she is from, the high prices are impacting low-income households and also middle-income households. So, perhaps let me start off with you, Masood, and then go back to David, if you have any thoughts on that question.
MR. AHMED: Well, I would just say that I think we need to recognize that prices are a reflection of what the market conditions are, and administratively you can't raise or lower prices, except by acting through taxes. So, sometimes you can have an impact, and many countries do have a mechanism built in, when the price of fuel energy goes up, they try to cut back on the taxes that are generally placed on those energy products. And that takes a hit on the budget, but it may ease off some of the price.
The more important thing to me is, can you scale up support for the low-income households--the question said, I think, that is particularly affecting low-income households.
MODERATOR: Low-income, yes.
MR. AHMED: Can you scale up the safety nets and support the households rather than the product? So, don't subsidize the product; provide help to the people who need extra resources to cope with the higher prices. That is what economists prefer, but it's also now more feasible, because one of the great--you know, one of the things that happened in the context of the COVID crisis, one of the better outcomes was that countries really worked on scaling up and improving their safety net mechanisms. Many more countries have functioning safety nets today than was the case two years ago, and so it's more feasible to use the safety nets to provide additional resources targeted to the people who need it.
Providing cheap gasoline for people to use, the top 20 percent of households, income-wise, are the largest users of gasoline in developing countries, and providing them with subsidies by subsidizing gasoline is not a good idea. On the other hand, using that money to help the low-income countries, low-income households deal with their costs is the better way to do it. And I think you and I, David, had a conversation, maybe I'm thinking 18 months ago, a year ago, in the middle of COVID, where you said, well, one of the things the World Bank can do actually is to say in five years we'll be helping 50 countries putting in place effective safety nets.
So, I would say that is the direction in which I would focus.
MODERATOR: Well, thank you, Masood. David, do you have further reflections on that?
MR. MALPASS: This is a huge, important topic that countries do it--help the people in the right way and not be tempted by some of the wrong ways to do it.
And gasoline is a great one. You've got to allow the price to go up and then subsidize households, poorer households. I happened to meet yesterday with our digitalization crew, which is large, and we're really pushing forward with social safety nets because they provide--technology is giving us now something new in the development community. There didn't used to be a way to get cash and benefits to targeted people, because you couldn't take physical suitcases of money to a village and distribute it in a fair way; it just didn't work. We now have, through technology, the ability to have someone's digital phone with money on it. And it means women can get money, which there used to not be a way to get money to women, and that's the most valuable money for people in developing countries, the woman getting the money.
We can target that now and Michal was on yesterday; he's the head of the social safety net efforts. And we're trying to expand, we haven't reached 50 countries, but he was talking yesterday about, we have sturdy systems now, and a lot. I did just notice the UK announced that they're going to--in order to respond to this much higher electricity price and gas price that people are facing, they're going to put money in people's bank account. They're using some kind of social safety net, which is better at-- economics is really clear that what you don't want to do is put a cap on the price of the price spike. You want to, in some way, let the price go up at least some, and then try to cushion the cost on people.
I need to mention other things. Countries need to avoid export controls that block the exports from leaving their country. The temptation by countries is to do that. They also need to avoid the temptation to buy heavily the imports so the government can hold down the inflation rate by putting a chunk of money into imports and blocking the price spike internally. That has bad economic consequences. And so, there needs to be a balancing country-by-country.
And final point, the energy transition--because energy is the starting point, then, for SDG 7, which is electricity access, which is so vital for the poor. It's also the starting point for fertilizer. And so, we need to, and the dependence on Russia had been huge on energy. I gave a speech a week-and-a-half ago, in Zurich, the Churchill Symposium. After World War II, Europe was facing the challenge of how to rebuild. Right now, Europe is facing the challenge of how to realign away from this dependence on energy—this huge dependence on Russian energy, and that means really having a frank discussion about a cleaner set of energy.
I think, you know, and the G7 communique, which was mentioned earlier, explicitly talks about the need for transition fuels, which means Africa being willing to have natural gas production, because it's so much cleaner than what's happening now. You know, today, day by day, we're seeing people shift from--as Europe absorbs the remaining available natural gas in the world, it cuts off developing countries, and their alternative, unless there's more production, their alternative is diesel, bunker fuel. Madagascar, the president was in two weeks ago. They burned bunker fuel to make electricity in this biodiverse, very fragile economy. We need to find a better way to do that. Europe has to be, I think, more explicit in the energy transition and realignment that they're going through. There's active discussion of nuclear, but they have to decide that; and then, active discussion of natural gas.
Poland is taking natural gas from Norway, a new pipeline. Morocco is putting natural gas through--I mean, Algeria is putting natural gas through Italy. The eastern Mediterranean has it, and the tradeoff is, while it's a fossil fuel, it's much cleaner than the alternatives. This is something that the world has to really discuss and be open enough to have the discussion, because the alternative is, I think, substantially worse in terms of carbon intensity. And it's already fully underway in the poorer countries. I mean, every day people should be feeling this--you know, the poorer countries--the rich people in the poorer countries buying diesel, disconnecting from the grid, the grid breaks down, and the carbon intensity of the countries, one by one, just goes through the roof, meaning they're using much more carbon dioxide as we go forward.
MODERATOR: David and Masood--
MR. AHMED: Can I just--one small footnote on that, Anna if you permit me--
MODERATOR: Just--and then we have to close.
MR. AHMED: -- I was just saying there's no conceptual difference between burning bunker fuel here or absorbing all the natural gas by taking it off the market and forcing somebody else who can no longer have access to that to burn that bunker fuel somewhere else.
That is what is called a planetary problem. So, you know, the notion that somehow—and this is a little bit of hypocrisy here which I feel strongly about that we need to call out. We cannot say that natural gas is a clean fuel when it comes to our own needs in the U.S. and in Europe, but then be very reluctant to support natural gas projects in developing countries, because we see that as a fossil fuel. So, it's either clean or it's fossil, and it's both, but we have to be honest about it. So, I'm very much supporting this point that you just made, David, and I do want us to push that in our own conversations. Sometimes, it's hard. I find that it's hard sometimes, if my friends, who will push back on it and say, well, you know, are you now in favor of every fossil fuel? No, I'm not in favor of every fossil fuel, but I do think that, as a transition fuel, natural gas has a role to play, and it has a role everywhere, you know.
MODERATOR: Well, thank you very much. I will give you the last word, David--
MR. MALPASS: I'd just like to end on a broader topic, because we--
MODERATOR: Please, go ahead. Yes, yes.
MR. MALPASS: --got into a specific. on the broad topic, the world is facing these massive crises. It's really important to have discussion of the solutions, and the World Bank's in the middle of that and wants to be in the middle of that, in many of these fields--from education, health, debt to how can countries grow and to climate.
Thanks very much. Thanks, everybody.
MODERATOR: Yes, thank you very much.
MR. MALPASS: Thanks, everybody. Masood, thank you very much.
MR. AHMED: Thank you for this opportunity.
