By Andrea Shalal
WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen said she is insisting that next steps in the World Bank’s evolution be taken in coming months, including potential changes to allow the bank’s private sector and poor country lending arms to lend to sub-sovereign entities like cities and regional authorities.
Yellen told Reuters World Bank shareholders had “extremely productive” discussions last week after approving an initial round of reforms to ensure the bank can better tackle issues such as climate change, pandemics and conflict, alongside its work to reduce poverty. Now they expected the bank to take further actions on a “rolling basis,” in the run up to the October annual meetings in Morocco, she said.
“There is momentum that we are eager to seize for the next phase of this work because these challenges are not going away; they are only growing by the day. Expectations are also very high,” Yellen said in written answers to emailed questions.
“We need to focus and prioritize to get work done. We will not solve all the problems but I am steadfast in insisting that we deliver better and more,” she added.
Yellen kicked off efforts to retool the bank in October after an independent report prepared for the Group of 20 economies last July concluded the World Bank and other development banks could free up hundreds of billions of dollars by adjusting their balance sheets and accepting a bit more risk.
The World Bank’s steering committee last week endorsed a more ambitious set of reforms than those initially proposed by the bank’s management, including an updated mission statement and balance sheet changes that will boost the bank’s lending by $50 billion over 10 years while maintaining its top-tier AAA credit rating, and focusing more on private capital.
Yellen said private sector executives told her they were upbeat that new incentives and reforms at the World Bank could free up more private capital for development goals.
That will be a key area of focus for ex-Mastercard CEO Ajay Banga, the U.S. nominee to head the bank after the departure of current chief David Malpass on June 1, would deliver on the reform agenda, Yellen said.
In addition to subnational loans, shareholders are also urging the bank to allow its middle-income lending arm, the International Bank for Reconstruction and Development, to lend to supranational institutions like COVAX, a facility backed by the World Health Organization and the Global Alliance for Vaccines and Immunization, Yellen said.
And they want the bank to establish principles for concessionality and resource allocation, including more strategic utilization of existing pools of grant and low-interest resources, while adopting process improvements to increase its “speed and agility while maintaining quality.”
Malpass told Reuters the bank would draft a work plan for reforms to continue over the summer. “The needs of the countries are immense, both for development and for global public goods,” he said. “We’ll explore additional avenues to provide resources directly from the MDBs and enable private sector capital.”
A senior U.S. Treasury official said additional financial gains were possible, including through further changes to the bank’s equity to loan ratio, which was just lowered to 19% from 20%, and by developing a “safe, prudent” way to incorporate some callable capital into the bank’s capital adequacy framework.
“We do think there is a potential to derive more value from callable capital that we have been,” the official said, adding that doing so would require “hard, very technical work.”
(Reporting by Andrea Shalal; editing by Diane Craft)
