Rancor and Reconciliation: The Latest on the World Bank’s Livable Planet Agenda

While there was no great fanfare coming out of the IMF/World Bank Spring Meetings, a closer look at the official statements reveals simmering tensions between major constituencies over the execution of the World Bank’s new “Livable Planet” agenda. These tensions were fueled by debates over the allocation of new resources, namely whether they should be added to the overall lending pot, dedicated to the Livable Planet agenda’s eight global challenges, or more narrowly earmarked for one or more of those global challenges (e.g., climate).

For borrowers newly contending with the 45 percent climate target, proposals to limit the scope of what could be funded out of new resources clearly rankled. Their core objection is that these initiatives are undermining the country-led platform at the heart of the World Bank model.

Ultimately shareholders agreed that new donor resources can be used to finance all eight global challenges but financial incentives (e.g., cheaper lending terms) will only go to projects that generate positive cross-border externalities.

The size of the financing envelope depends heavily on fulfillment of the US pledge, which accounts for more than 80 percent of donor commitments so far. For those following along, recall that President Biden’s previous ask to finance the global challenges agenda at the World Bank—included in the October 2023 supplemental request to Congress—failed to gain traction on Capitol Hill. Prospects for identifying resources needed to offer price incentives are mixed: the World Bank has offered to increase maturities as a sweetener but so far only Japan has come forward with funds to reduce lending terms.

The World Bank births two new mechanisms to house Livable Planet resources

During the Spring Meetings, shareholders agreed to a new financial framework to support the Livable Planet agenda, which, to recap, includes these global challenges: (i) Climate Change Adaptation and Mitigation; (ii) Fragility and Conflict; (iii) Pandemic Prevention and Preparedness; (iv) Energy Access; (v) Food and Nutrition Security; (vi) Water Security and Access; (vii) Enabling Digitalization; and (viii) Protecting Biodiversity and Nature. The financial framework includes a portfolio guarantee platform, hybrid capital mechanism, and the Livable Planet Fund (LPF). Resources from the guarantee and hybrid capital platforms will enable lending for global challenges through the Global Solutions Accelerator Platform (GSAP), while resources from the LPF will be blended with the GSAP to create concessional terms. This table should help familiarize readers with the newest members of the Bank’s large and growing family of acronyms.

Livable Planet Funding Framework

As an added incentive, the World Bank has agreed to extend loan maturities for qualifying projects (e.g., from 20 to 25 years for average maturities and final maturities from 35 to up to 50 years) and to remove the surcharge imposed on countries that have reached their single borrowing limit.

While all global challenges are eligible for financing on standard World Bank terms, price and maturity incentives will only be available for “projects that provide a positive cross-border externality” (italics mine). Expectations are that that these externalities will be highest for climate, nature, and pandemic preparedness.

In a nod to borrower concerns, the financial framework also establishes that any unlimited lending capacity from the guarantee platform will be made available for core lending after eight years.

Funding the Livable Planet agenda: The Global South sits this one out.

On April 19, the World Bank announced that it had received $11 billion in commitments which it estimates could leverage $70 billion over ten years. Here’s how it breaks down:

• Portfolio guarantee: $1 billion from Japan, $9 billion from the US, $70 million from Belgium. Note that the U.S. only needs to appropriate $750 million, which is enough to support a $9 billion portfolio guarantee at the World Bank because risk of non-payment is so low.

• Hybrid capital: $506 million from Germany, UK, Denmark, Italy, Lativa, the Netherlands, and Norway. 
• Livable Planet Fund: $20 million from Japan.

Noticeably absent were any commitments from borrower countries which would have helped convey a sense of solidarity around the new agreement. Instead, signs of discord popped up in several official statements.

First, China’s official statement asserted that new funds “be used in dealing with global challenges and poverty reduction and development on equal footing” and that “contributors to new funds should not be entitled to earmark the use of funds.”

The G24 (which represents major borrowers) issued a communique calling for the delivery of a lending platform designed to “strengthen country ownership and demand‑driven engagement…, while the statement on behalf of South Africa, Nigeria, and Angola said this: “We believe that a simple and transparent eligibility criterion, will allow for equal access to support all client countries without preferencing or earmarking.” (Italics mine)

But on a more positive note, the German and Indonesian representatives for the World Bank co-authored an article championing the compromise.

Is the second time the charm for the US?

Until more donors come forward, the success of the current funding effort depends heavily on the US because its pledge accounts for $9 of the $11 billion raised so far.

To recap, last fall the Administration included in its supplemental budget request $1.25 billion for the World Bank’s global challenge agenda: $494 million in loan guarantees and $756 million for what was then called the “Innovative Global Goods Solutions” trust fund (now the Livable Planet Fund). In my blog here, I assessed prospects of congressional approval as dim, and indeed the request languished.

The US pledge has now morphed into a $1 billion ask, which is included in the President’s FY25 budget request, and has two parts: $750 million for the guarantee platform and $250 million to support “a range of areas that address key global challenges” through trust funds and financial intermediary funds. I infer that the $250 could be used to sweeten lending terms to incentivize borrowing for climate, but the budget justification is maddeningly vague. For some reason, the Administration is only touting the $750 million and the $250 million is not counted in the World Bank’s tally of donor pledges.

The statement issued by Treasury Secretary Janet Yellen during the Spring Meetings did not reference the new US financial commitment, presumably to avoid drawing attention to the fate of the previous one.  But it did get a shoutout from Deputy National Security Advisor Daleep Singh in a speech at the Center for Strategic and International Studies. During this event, Singh flagged that the $750 guarantee would catalyze $36 billion in new lending headroom, providing a “staggering return” to taxpayers thanks to the magic of leverage.

I am still of the view that new financing for climate-related needs to support middle-income countries will be an extremely hard sell with Congress, especially in the House.

Conclusion

Shareholder contention over the vision and direction of the World Bank did not emerge as a headline after the Spring Meetings but borrowers are clearly worried that the fundamental principle of country ownership they value so highly is being undermined. The key to buy-in by borrowers is to provide significant new funding—especially on concessional terms—to finance the Livable Planet agenda. As a key driver of the agenda, there is a lot of pressure on the US to deliver but a lot of uncertainty over whether it can. In addition, prospects for raising funds to sweeten lending terms are highly uncertain.

There’s another reason the new financial framework may rankle. The G7 statement issued during the Spring Meetings affirmed that: “As G7, we are committed to contribute to these innovative instruments [hybrid capital/portfolio guarantees] that, once approved domestically, will collectively expand IBRD lending by around USD 68 billion over the next ten years.” It also noted that “these contributions are set to expand IBRD lending capacity by as much as the last General Capital Increase” (italics mine). Implicit in this comment is that the G7 will point to their latest commitments, combined with the World Bank’s own balance stretching measures, as a reason to reject borrower pressure for a general capital increase. We should get more clarity on this during the 2024 Annual Meetings this fall.