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The United States Uses the Annual Meetings as a Legacy-Framing Moment

Biden Administration officials used the final World Bank/IMF Annual Meetings before the U.S. election to shape their legacy on multilateral development bank (MDB) reform. 

After taking office amid COVID-19 and increasingly urgent alarms about the threat of climate change, Treasury Secretary Janet Yellen started making the case for MDB reform underscoring that these institutions, while vital, were no longer fit for purpose. Her priority was to support the evolution of the World Bank’s missions, incentives, financing capacity and operational structures. 

Yellen defended the results of that reform effort last week, touting the World Bank’s new vision and mission-- “to create a world free of poverty on a livable planet”-- which prioritizes climate change and other global challenges. She also pointed to a substantial boost in MDB lending capacity through internal reforms of up to $200 billion over ten years (with another $160 billion possible with additional reforms) and heralded the increase in MDB climate finance to $75 billion annually, up 45 percent from 2021. Finally, she emphasized U.S. support for capital increases for the European Bank for Reconstruction and Development and Inter-American Development Bank Invest, and callable capital increase for the African Development Bank. 

Over at the Brookings Institution, National Security Advisor Jake Sullivan also took a victory lap, affirming the U.S. role in making the MDBs “bigger and more effective,” and unlocking “hundreds of billions of dollars in new lending capacity, at no cost to the United States.” 

In addition, Sullivan made his case for the $750 million pledge to support the World Bank’s new mission—currently awaiting congressional action-- a financial promise that strengthened the Administration’s hand during the reform negotiations. Thanks to the magic of leverage, this funding could boost the World Bank’s lending capacity by another $9 billion. Unfortunately, the pending ask, like the one for the World Bank in 2023, is certain to languish (See Table 1). Indeed, one disappointing outcome of the Administration’s MDB reform ambitions is that many pledges have gone unmet, especially those that explicitly or implicitly were intended to increase access to climate financing for middle income countries. 

Table 1. MDB climate-related funding requests in $US millions

MDB account

FY2023 Request

FY2023 Funded

FY2024 Request

FY2024 Funded

FY2025 Request

FY2025 Expected Outcome*

World Bank Global Challenges 

N/A 

N/A 

$1250 

$1000 

Asian Development Bank Climate Guarantee  

N/A 

N/A 

$84.38  

$84.38 

Green Climate Fund (GCF) 

$1600 

0** 

$1600 

$3000*** 

Clean Tech Fund 

$550 

$125 

$425 

$125 

$150 

$0-$150 

* Based on what is included in the House and Senate versions of the FY2025 State and Foreign Operations spending bill. 

** In FY23, the Biden administration successfully reallocated $1 billion from unused FY22 and FY23 funding to support the GCF. 

***In FY25, the Biden administration requested $3.0 billion in mandatory funding over four years to support the Second Replenishment of GCF. 

Failure to deliver on the pledges to the World Bank is having a financial impact on the Livable Planet Fund, which was set up at the behest of the U..S and others to support the new global challenges agenda. Earlier this year, the World Bank announced that new donor commitments would support $11 billion in funding. This included three portfolio guarantees ($1 billion from Japan, $9 billion from the US, and $70 million from Belgium) and over $500 million in hybrid capital from several European countries.

The announcement was misleading because it reported on the financing totals that could be leveraged, not the actual commitments, which for the U.S. was $750 million. Without going into the complex leveraging mechanisms behind the math, the bottom line is this: without the U.S., donor-supported financing capacity for the Livable Planet Fund has shrunk from $9 billion to $2 billion and change. While $7 billion is a significant shortfall, the World Bank still has excess lending capacity thanks to its internal financial reforms. As a result, the real casualty is U.S. credibility, not climate finance.

There is one more opportunity for the Biden Administration to make its mark, which is to pledge generously to support the replenishment of IDA, the World Bank’s concessional lending arm, in December. This fundraising effort is vastly more consequential than the Livable Planet endeavor because IDA provides highly concessional loans and grants to the world’s poorest countries, many of which have limited alternative recourse to financing and are mired in debt. By contrast, the Livable Planet Fund supports middle-income countries, many of whom have other funding sources and may not want to borrow more from the World Bank. The Livable Planet Fund is also limited to eight issue areas (climate, fragility, pandemic prevention, energy, food security, water, digitalization, and biodiversity) that can instead be funded from the Bank’s regular balance sheet.  

Ajay Banga has set a $100 billion target for IDA, which as my colleague explains here will be tough to meet. The U.S. has historically been the largest IDA donor, except for a few times when it ceded that title to the UK. For the last replenishment, the US pledged $3.5 billion.  

At last week’s Annual Meetings press event, Secretary Yellen said that “we now intend to do all we can to deliver a robust policy and financial package for the upcoming IDA replenishment.” IDA shareholders are meeting this week to negotiate the policy package ahead of the pledging session in December. Fingers are crossed that the U.S. is working to extract strong policy commitments that would enable them to justify a record IDA pledge.  

Disclaimer

CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.


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