Thank you, Chair. I share your concern about the global outlook and in particular the prospects for developing countries.
The developing world is facing an extremely challenging outlook shaped by sharply higher food, fertilizer, and energy prices, rising interest rates and credit spreads, currency depreciation, capital outflows, and higher level of debts that adds to higher inflation, impacting especially the poor. With the current trends, the risks of a global recession in 2023 are high.
In this context, the World Bank Group stands ready to support you, both IDA and IBRD countries – as the availability and cost of financing are challenging, more so as global interest rates increase.
The world is not going to meet the goal of ending extreme poverty by 2030. COVID-19 impacts have been devastating and the impacts of the war in Ukraine increased the challenges. It’s a crisis facing development.
The COVID-19 pandemic pushed about 70 million people into extreme poverty in 2020 – the largest since our monitoring began. And the global median income declined by 4 percent in 2020 – the first decline since our measurements of median income began. Geopolitical conflicts, and extreme weather events have hurt countries and people worldwide, with the poor bearing the brunt, especially women and girls.
Navigating these challenges will require from you, policymakers to successfully walk a narrow path.
Pressures on fiscal space and increasing vulnerabilities also call for protecting essential basic services like education and health, especially for the poor and vulnerable.
To offset the damage to long-term growth reforms to improve business climates, strengthen human capital, and boost productivity are needed.
World Bank Group Response
The World Bank Group has provided unprecedented support, responding with scale, speed, and impact, with $196 billion in commitments since FY20. In the last fiscal year, IDA committed $38 billion and IBRD, $33 billion. Altogether, this was a 68% increase from the pre-pandemic average. We see a similar pattern with disbursements, with $28 billion disbursed by IBRD last fiscal year.
And in the current context of rising interest rates, I would like to reiterate that IBRD can be a good source of funding and support.
Let me update you on some of the priority challenges that you have been raising including, climate change, food security and debt.
First, on climate. Climate change could push up to 132 million people into poverty by 2030 and, without urgent action, it could drive 216 million people to migrate within their own countries by 2050.
Our financing to developing countries has expanded dramatically in recent years, especially for climate-related finance, which reached $31.7 billion in fiscal year 2022. That’s 36% of total World Bank Group financing.
We are now proposing a new initiative to pool funding from the global community and make it available for the most impactful and scalable projects to reduce greenhouse gas emissions.
The new multi-partner fund hosted by the World Bank – called Scaling Climate Action by Lowering Emissions, or SCALE – seeks to catalyze transformative climate action by deploying Results-Based Climate Finance at scale. Integrated within our climate change operations, this fund will provide grant payments to developing countries for achieving verified emissions reductions. Governments could use the funding for just transition, low carbon development, or to cover part of the interest payments of projects. This initiative builds on the Bank’s extensive experience in this area.
SCALE will support countries to build a track record of generating verified carbon credits that they can apply towards their national emission reduction targets (per their Nationally Determined Contributions) and yield excess credits that can be made available for carbon markets. This capacity strengthening can help bridge the gap between the supply of and demand for high quality emission reductions and unlock additional private sector finance from international carbon markets, including for areas such as coal decommissioning. In addition to emissions reductions, the projects will also have sustainable development benefits, enhancing the impact of the carbon credits. We are in the process of capitalizing the fund with the aim of launching it at COP27.
We are also stepping up our work on methane. We have a long record of engagement on methane emissions reduction across the sectors with largest emissions, such as agriculture, energy, and sanitation and waste. We have recently added a repository on our website with examples of our work in this area. We will deepen our engagement on methane, engaging with clients more systematically on fast mitigation issues, providing analytical and financial support to methane emission reduction projects, and working with partners such as development finance institutions (DFIs) and the private sector.
We look forward to working with Egypt towards a successful COP27.
Second, on food security, which was on the rise before the war in Ukraine, but the war has exacerbated these challenges.
We are deeply involved in the global and country response. The World Bank Group is already implementing a $30 billion response package and the IFC, our private sector arm just launched an additional $6 billion food security window to support food and agriculture private sector. We focus on supporting vulnerable households, farmers, and strengthening food systems for the long term.
We already supported 49 countries across all regions with $6.3 billion committed in operations that include food security and nutrition, only in the first months of the war, until June 2022. Including projects in many of your countries. For example, a $2.3 billion program for Eastern and Southern Africa, which will help 11 African countries increase the resilience of the region’s food systems, the sustainable development of natural resources, and their ability to tackle growing food insecurity. A $500 million project in Egypt to maintain uninterrupted access to bread for poor and vulnerable households, strengthen the country's resilience to food crises, and support reforms that will help improve nutritional outcomes. We also have ongoing projects in Guatemala to improve climate resilience and efficiency of key agricultural value chains. And in India, on women's self-help groups, that include community kitchens to restore fresh food supplies and provide food and support to vulnerable and high-risk families.
We recently issued a joint statement together with the IMF, FAO, WFP and WTO on food security. We highlighted the importance of open trade, transparency, innovation and joint planning, and investing in food systems transformation.
Third, on debt, we see the further pressure on debt service given currencies’ depreciation. For 2022, the 75 poorest countries in the world will have to pay $44 billion in debt service to their bilateral and private creditors. That's a very difficult situation because the dollar is so strong.
Also, there has been limited progress with the Common Framework (CF). In Chad and Zambia, no debt treatment could be agreed on, two years after the establishment of the CF. Debt restructurings outside of the CF, in Suriname or Sri Lanka, also face difficulties. Debt resolution processes are necessary to deliver quickly what is needed.
Meanwhile, debt sustainability has continued to deteriorate, including for MICs. We need to step up our efforts. More attention to debt transparency agenda would also help contain unsustainable lending practices.
We continue to support our clients actively have provided significant positive flows, including in the three CF country pilots. Chad, Zambia, and Ethiopia received altogether $7.9 billion in World Bank’s commitments, during the past three fiscal years (FY20-FY22), of which $4.5 billion were in grant terms.
The World Bank Group – together with the IMF – stands ready to continue working with the G20 to make progress in the debt agenda and we look forward to working with India’s upcoming G20 Presidency on this.
Finally, in this dire context for developing countries I mentioned, we agree that Multilateral Development Banks (MDBs) have a critical role to play.
It is our priority to continuously look for ways to increase our lending to support members.
For example, by taking IDA to the capital markets, we were able to significantly increase the leverage of donor resources for the poorest countries. IBRD has significantly leveraged shareholder equity, turning $20.5 billion of capital paid in by shareholders since inception into more than $820 billion of commitments to developing countries. And our increased use of shareholder guarantees has proven very valuable in augmenting our capacity for lending.
We welcome the discussion on capital adequacy framework. As I mentioned, we are actively working to expand donor guarantees, grant resources, and climate-related trust funds; and to increase the effectiveness of callable capital as we review the potential for increasing lending capacity for the World Bank and other MDBs with shareholders and credit rating agencies. We continue this work consistent with our financial sustainability.
We look forward to engaging with you during the Annual Meetings on ways we could further support you.