Good morning. I would like to thank Minister Sitharaman and Governor Das for their warm hospitality.
Let me express my deepest sympathy to Minister Nebati and Governor Kavcıoğlu and the people of Türkiye. Immediately after the earthquake, we deployed $780 million via Contingent Emergency Response Components (CERCs) from two existing projects in Türkiye and an additional $1 billion in new operations for the rehabilitation of schools and hospitals and basic service provision – transport, water, sanitation, and electricity. We are looking into ways to provide more support and invite contributions from the international community.
The developing world is facing a giant shortage of capital, energy, and growth potential. With interest rates rising and currency depreciation pushing prices up, the risk of financial stress is particularly acute among emerging and developing economies, especially those with large current account deficits and reliance on foreign capital inflows. Some face a full-blown financial crisis.
Global activity is expected to remain below its pre-pandemic trend for the foreseeable future, and the years between 2020 and 2024 are set to be the weakest five years for global growth since at least 1960 due to the multiple crises.
As you know, I’m especially concerned about debt. I’ve been working on this issue in this group since 2017. We must work to reduce the risk of debt crises by supporting timely debt restructurings. In this spirit, with the IMF and India as G20 President, we are co-chairing the Global Sovereign Debt Roundtable. The roundtable brings together representatives from debt countries, the private sector, and non-Paris club official creditors with the traditional Paris Club creditors. This provides a unique forum for discussing the barriers to debt restructurings and consider steps to break the impasse.
I was encouraged that the deputies met last week and engaged and that China attended. However, it will take substantial work and new positions to make meaningful progress. In particular, there needs to be a willingness to speed up the timeline, provide support for a broad standstill on debt payments, insist on early debt reconciliation and sharing of the Debt Sustainability Analysis, and discuss in detail the group’s views on penalty interest, interest on arrears, cut-off dates, and the perimeter of the debt to be restructured.
The candid discussion touched also upon the issues related to IFIs participation in debt relief. We have already provided data and information on how our grant and concessional financing provides relief to debt distressed countries. During the past two fiscal years, Chad, Zambia, and Ethiopia received $7.9 billion in World Bank’s commitments, of which $4.5 billion were on grant terms.
In the meantime, the restructuring processes in Zambia, Ghana, and Ethiopia have been stalled. Middle income countries are also facing a high risk of debt distress, including Sri Lanka, and need a path forward.
I urge creditors to agree and provide debt relief to Zambia, which is waiting for the MOU on debt restructuring that it has been working toward for over two years.
Ghana needs the creditors to form a creditors committee. It needs debt treatment soon and might benefit from swapping its Eurobond debt for a cash payment and a long maturity collateralized bond that would respond to creditors’ desire for comparability of treatment and burden sharing and also respond to Ghana’s need for medium-term debt sustainability in order to restart growth and investment.
For Ethiopia, another Common Framework country, there could be a near term debt rescheduling that would extend maturities and achieve sustainability. This opportunity exists because the debt burden is not large and is concentrated with a few creditors who have shown a track record of willingness to reschedule.
We will have an informal in-person meeting tomorrow to further the discussion towards the Spring Meetings where all principals will meet. I expect the Roundtable to take decisions that will bring a meaningful improvement to how debt restructurings are done.
I would also like to update you on progress on the Capital Adequacy Framework and the World Bank Group’s evolution.
As you know, we are working very hard with our Board and shareholders on the Evolution Roadmap. The timetable is on track, and we expect to have meaningful progress in time for the Spring Meetings. We are focused on options and pathways to evolve the World Bank Group’s mission, strengthen our operating model, and improve our financial model and capacity. This process is guided by the principles of serving all clients, achieving good development outcomes, preserving financial sustainability, and conducting a transparent and inclusive process.
I met with our Board on January 11 to discuss the Evolution Roadmap. We had a frank and constructive dialogue. The Board issued a statement reaffirming our commitment to the Twin Goals of ending extreme poverty and promoting shared prosperity in a sustainable way, while serving all clients and taking into account global challenges that negatively affect client countries’ opportunities to achieve the SDGs, such as climate change, pandemics, and fragility, conflict, and violence.
Our Board held retreats on February 6 and 16, and will have two more retreats next week. These cover the building blocks of our evolution and put all the options on the table. The Development Committee paper for our Spring Meetings will focus on the specific proposals arising from these discussions. Our goal is to act immediately on items where there is general agreement, while we continue working on more complex proposals in parallel.
A key issue in the evolution is the financing of global public goods. This is already an important focus, and our financing for GPGs has expanded dramatically. It more than tripled over the past decade, and doubled during my presidency, reaching over $100 billion in the three-year period FY20-22, with over half of this amount in climate finance. Our upcoming report on the Enablers of Inclusive Cities, a G20 request for the Infrastructure G20 agenda, will review policy instruments for urban resilience and sustainability.
Addressing public goods will require contributions from all, including concessional resources and public action. Private capital enabling and mobilization and domestic resource mobilization are major avenues for World Bank Group participation in GPGs in order to scale international development assistance and concessional financing, and improving domestic resource mobilization.
Regarding the evolution of our financial model, the World Bank has leveraged effectively over the decades and can increase that leverage. With only $21 billion paid in by shareholders since 1945, we have been able to provide over $800 billion of financing. While cash contributions to IDA have been stagnating at under $25 billion in nominal terms per three-year replenishment, IDA commitments have doubled over the past decade to reach over $90 billion in IDA20, the most recent three-year replenishment. This was possible through financial innovations, including the issuance of well-received IDA bonds.
We are exploring options to increase our leverage and financial capacity, taking into account the recommendations made in the Capital Adequacy Framework Review of the G20. Our mid-year review in December 2022 showed that we could add $2 billion more per year to IBRD’s commitment potential beginning in FY2024. We also held a seminar in December with our Board on balance sheet optimization and financial innovations, including risk transfers, hybrid capital, callable capital, and options to alleviate the constraint imposed by the Statutory Lending Limit (SLL).
At the request of the Board, last week we did a deep dive on the SLL and the Equity-to-Loan ratio. Reducing the E/L ratio limit from 20% to 19%, in effect raising our leverage above 5 to 1, could help free up $4 billion more in IBRD commitment potential per year beginning in FY2024. We are now working on this proposal for our Audit Committee, together with options to alleviate the constraint imposed by the SLL. We are also fleshing out other options with technical notes for discussion, including a potential guarantee platform and a pilot hybrid capital proposal.
We are also working with other MDBs for issues that require coordinated actions, for example further enhancements to the GEMs (Global Emerging Markets Risk Database Consortium). We submitted a proposal to the MDB Challenge Fund with other MDBs for GEMs 2.0. This is a project we have been working on that will broaden access to the GEMs statistics, while ensuring appropriate protection of data quality, confidentiality, and security, as well as independent legal status, appropriate governance, and sufficient resourcing.
Finally, I’d like to highlight the importance of non-fragmented concessional resources. IDA is the largest single source of concessional credits and grants to the poorest countries. We leverage every dollar of partner contribution to mobilize three-to-four dollars in IDA commitments. Low-income and middle-income countries would benefit from higher share of MDB financing in development assistance, with the country-based model and long-term engagement with recipient countries. The current complex aid landscape with fragmentation, proliferation and verticalization has a real cost for client countries. If the $19.6 billion contributed to the five largest vertical funds over the last decade would have instead been allocated to MDB concessional arms such as IDA, even with a conservative 2.5 times leverage, that would have resulted in $50 billion for global development instead of only $19.6 billion. That’s $30 billion of impact lost.
It’s a real challenge to inject sufficient grant funds to enable projects that are replicable and scalable. To progress on this front, at COP27 I presented our new fund called SCALE, which stands for Scaling Climate Action by Lowering Emissions. This fund will provide grant inflows to help achieve verified GHG emission reductions. It is a direct, transparent approach that avoids greenwashing. This results-based climate finance approach of SCALE sets it apart from climate Financial Intermediary Funds. The fund will also help countries build a track record of projects that can lead to unlocking private sector funding through international carbon markets. We are focused on significantly capitalizing SCALE for climate action and enabling the private sector.
To close, the World Bank Group is fully committed to and focused on the Bank’s evolution and count on your engagement and support. Thank you.