World Bank’s lending capacity could get a $100b boost from new pledges

World Bank’s lending capacity could get a $100b boost from new pledges

Subject :IR

Section: International Organisation

Key Points:

• World Bank Group President Ajay Banga proposed new contributions from wealthy countries combined with balance sheet changes could boost the bank’s lending capacity by $100 billion to $125 billion over a decade
• the contributions would come outside the bank’s normal shareholding structure and regular country contributions to the International Development Association fund for the poorest countries.
• China, India and Brazil got larger shareholding in the bank in a 2018 capital increase and would likely want more say in a future capital increase.
• World Bank Group (WBG) uses trust funds, a financing arrangement set up with contributions from one or more development partner, to complement core funding from the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), and the International Finance Corporation (IFC), in support of the World Bank Group’s goals.

Sources:

The Bank borrows the money it lends. It has good credit because it has large, well-managed financial reserves. This means it can borrow money at low interest rates from capital markets all over the world to then lend money to developing countries on very favorable terms.

The Bank’s financial reserves come from several sources – from funds raised in the financial markets, from earnings on its investments, from fees paid in by member countries, from contributions made by members (particularly the wealthier ones) and from borrowing countries themselves when they pay back their loans.

The Bank lends only a portion of the money needed for a project. The borrowing country must get the rest from other sources or use its own funds. Eventually, since the country has to pay back its loans, it ends up paying for most, if not all, of the project itself.