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CGD maintains an active program of research and analysis of the World Bank, the world’s largest development institution and a leading source of funds, ideas, and expertise for development. The Center’s work in this area offers new ideas and practical suggestions for making the World Bank more effective, accountable, and legitimate in a rapidly changing global economy. Recent work includes the High Level Panel on Future of Multilateral Development Banking: Exploring a New Policy Agenda, building on past work on the future of the World Bank. That work focused on priorities for incoming World Bank presidents, improvements to the leadership selection process, and work on the future of IDA, the Bank’s concessional lending arm.
With Jim Kim’s abrupt departure from the World Bank, there has been a swirl of commentary on questions of legacy, the best of which aim to answer the question, “how is the bank doing?” For large multilateral institutions like the World Bank, that’s a frustratingly difficult question to answer. Seemingly objective measures like volume of financing or sectoral targets are simplistic and bring their own value judgements about what the institution should be doing. Annual reports give us a narrative about institutional performance, but a heavily biased one.
In 2019/2020 donor governments are anticipated to pledge up to $170 billion to various multilateral organisations as part of their replenishment cycles. This unusual bunching of replenishments of some of the largest organisations in 2019 provides an opportunity to think more coherently about multilateral funding and to address key systemic problems, such as overlapping mandates and under-funding of some parts of the system.
World Bank Still Loans an Average of $2 Billion a Year to China
Jeremy Gaines, firstname.lastname@example.org
Holly Shulman, email@example.com
Washington – China continues to borrow billions of dollars a year from the World Bank, making it one of the bank’s top borrowers—despite being the world’s second-largest economy and itself a major global lender, according to a study released today.
Researchers at the Center for Global Development (CGD) found that the World Bank’s International Bank for Reconstruction and Development—which offers loans to middle-income and credit-worthy lower-income countries—has loaned more than $7.8 billion to China since the country surpassed the bank’s “graduation” income threshold for lending in 2016. According to the World Bank’s guidelines, $6,895 in gross national income per capita is the current threshold. The researchers reviewed and analyzed all World Bank projects in China since the country crossed the income threshold.
Lending to countries above this threshold has been a controversial subject with the United States, as well as with some in Europe, who are pushing for strict graduation standards that would make wealthier borrowers ineligible for bank loans (i.e., “graduation”). In 2018, World Bank shareholders agreed to limit loans to countries above the threshold to only projects that focus on building long-term capacity and help the countries “graduate” away from World Bank lending, or projects that benefit the world at large. The agreement also requires wealthier borrowers to pay more in interest charges on their loans.
China’s World Bank borrowing continues apace with the country’s trillion dollar lending program under the Belt and Road initiative.
“The fact that China is one of the World Bank’s largest borrowers at the same time that it lends billions of dollars to developing countries under Belt and Road has become a political thorn in the side of the bank and has raised the ire of countries like the United States,” said Scott Morris, a senior fellow at CGD and the lead author of the study. “Borrowing on this scale certainly deserves scrutiny. But a fair-minded appraisal suggests that we shouldn’t be too quick to shut China off at the bank.”
The Center for Global Development’s study found that $3 billion of the World Bank’s loans to China—about 38% of the total—went to fighting climate change, controlling air pollution, and other efforts that have benefits beyond China’s own borders.
“A substantial portion of bank lending to China is aimed at reducing carbon emissions. As the world’s largest polluter, China has to be at the forefront of any meaningful progress on climate change, and if the World Bank can help provide the right incentives for that, we all stand to gain,” said Morris.
Outside of climate finance, $4.9 billion of loans went toward development projects in domestic-focused sectors, such as transportation infrastructure and education. Roughly one-third of these projects were allocated to China’s wealthier provinces, with no clear justification for World Bank lending. The study recommends greater clarity around all project lending in China according to the criteria established in the 2018 agreement and greater discipline in lending decisions aligned with these criteria.
“The world has a lot to gain from the World Bank’s relationship with China, so the conversation should be more about modulation and less about graduation,” Morris said. “A more focused relationship, and one that frankly asks more from China in terms of interest charges on loans, can help lower the political heat and put things on a sustainable and productive path.”
You can read the full study at https://www.cgdev.org/publication/examining-world-bank-lending-china-graduation-or-modulation.
In this week’s Wonkcast, recorded in the run-up to the institutions’ Spring Meetings, we consider these questions. My guests are Nancy Birdsall, founding president of CGD, and Todd Moss, vice president of programs and senior fellow.
Many obstacles to development transcend national borders and therefore cannot be adequately addressed within a single country. These include issues such as drug resistance and other cross-border health risks, financial crises contagion, money laundering, water scarcity, fisheries collapse and, of course, climate change. Economists call efforts to address these problems Global Public Goods (GPGs). Like other public goods, funding for GPGs is chronically in short supply: of $125 billion in annual official development assistance (ODA ) only about $3 billion goes to GPGs.
This week saw the release of the World Bank’s updated global poverty counts. There is new country-level data on poverty and inequality underlying these revisions. But the big change is that the numbers are now anchored to the 2011 Purchasing Power Parity (PPP) rates for consumption from the International Comparisons Program (ICP). Previously the numbers were based on the prior ICP round for 2005.
In response to our August 5 blog criticizing the World Bank’s current reorganization plans, a few readers wrote to ask us if we could come up with a better idea. This is a daunting challenge. We’ve heard that the Bank has spent millions over more than a year to generate more than 40 ideas about how to tweak the Bank’s organization and has intensively discussed three overarching ideas, for none of which we have actually seen a background paper – or even a PowerPoint. So with brains unfettered by facts, uncluttered by concept papers, bereft of briefings and emboldened by ignorance, here goes…
The new World Bank Group Strategy posted this week for discussion by the Development Committee, the ministerial-level forum that oversees the World Bank and the IMF, provides a solid analytical foundation for what has so far been a messy and disjointed re-organization effort. The release of the paper coincided with a speech by bank president Jim Kim that covered much of the same ground, but the strategy paper digs deeper. For those of us who believe that the World Bank has a crucial role to play in addressing the problems of the 21st Century, there is much to applaud.