G20 India: US-backed reforms can help allocate $200b within 10 years
ALBAWABA – New World Bank (WB) chief Ajay Banga warned Tuesday at a G20 India meeting that the growing gap between rich and poor nations may deepen poverty in the third world, news agencies reported.
At a meeting of Group of 20 (G20) finance ministers in India, Banga also unveiled a new long-term plan for the World Bank, according to Reuters. The plan entails stretching the bank’s balance sheets and helping countries tackle challenges.
The first of several steps under Banga’s new visions was earlier approved three months ago, which would boost the World Bank’s lending capacity by up to $50 billion over 10 years.
Other steps will come, still being discussed with shareholder countries, on top of the initial steps approved in April, he reaffirmed at the G20 India summit.
Meanwhile, many countries are still recovering from the double blow of the coronavirus pandemic and fallout from Russia's war in Ukraine – which hit global fuel and commodity prices. A crisis that Banga expects to be further exacerbated by Russia’s pulling out of the Black Sea Grain Initiative Monday, Agence France-Presse (AFP) reported.
The Black Sea Grain Initiative, also commonly referred to as Ukraine’s grain deal, was an agreement brokered in July 2022 by Turkey and United Nations (UN) officials. It enlists Russia in an effort to clear a route for bulk carriers (ships that carry grain) through the Black Sea to and from Ukrainian ports, to export Ukrainian grain.
In exchange, mediators agreed to multiple Russian demands, chief among which are that Ukrainian grains are exported to the most food-vulnerable countries and that Russian fertilizers and grains are also allowed access to global markets.
However, Western sanctions on Russia are impeding the implementation of the second demand. Whereas exported Ukrainian grain is not going to the intended target markets under the agreement, Russia claimed.
Both Russia and Ukraine are bread baskets that combined account for nearly one-quarter of the world’s supply of wheat and grains in general.
Under the grain initiative, Ukraine has exported more than 32 million metric tons of grain.
Suspension of the agreement risks disrupting the world’s supply of wheat and other grains and put more pressure on prices, further exhausting the world’s poorest and more vulnerable economies. Especially with Ukraine’s grain shipments not having made it to these countries, as was originally intended, according to Putin.
All the while, climate change is most painfully affecting some of the poorest countries least able to cope, according to Banga.
The World Bank said it is working to increase its financial capability – Including by raising hybrid capital from shareholders – to spur growth and jobs. However, the future economy cannot rely on expansion at the cost of the environment, the bank said.
"The simple truth is: We cannot endure another period of emission-intensive growth," Banga said.
Benga’s vision for the World Bank
Banga, a former Mastercard CEO who took over the helm of the World Bank on June 2, announced the new proposals at G20 India to "make our balance sheet work harder".
The United States (US), the bank's biggest shareholder, kicked off the push for reforms in October, then later nominated Banga to succeed former president David Malpass.
Benga was appointed with a specific mandate to accelerate the evolution of the nearly 70-year-old institution.
"We are making quick progress," Banga said in a prepared text of his remarks, as reported by Reuters. "We are building a better bank, but eventually we will need a bigger bank.”
Benga’s plans could generate tens of billions of additional lending by allowing shareholders to guarantee loans if countries cannot repay them. This would allow the bank to lend $6 for every $1 guaranteed over a 10-year period – or $30 billion for every $5 billion, according to Reuters.
"The thing that keeps me up at night is a mistrust that is quietly pulling the Global North and South apart at a time when we need to be uniting," Banga told the assembly of G20 finance leaders at the G20 India meeting.
"The Global South's frustration is understandable. In many ways they are paying the price for our prosperity," said Indian-born Banga.
"When they should be ascendant, they're concerned promised resources will be diverted to Ukraine's reconstruction, they feel energy rules aren't applied evenly, constraining ambition, and they're worried the grip of poverty will pull down another generation."
This is why Benga is hoping to expand the bank’s capacity to be able to meet the intensifying needs of underdeveloped countries.
Little progress on debt
The US says efforts to reform multilateral lenders such as the World Bank and other regional institutions could unlock $200 billion within 10 years.
Debt restructuring deals for low-income nations have been a key focus of The Group of 20 major economies, but officials suggest there has been little headway.
China, the world's second-largest economy and a major lender to several stressed, low-income countries in Asia and Africa, has not been as responsive to restructuring and reform efforts, AFP reported.
More than half of all low-income countries are near or in debt distress, double the case in 2015, US Treasury Secretary Janet Yellen said.
Finance ministers from India and China met Tuesday to discuss "their economies, inflation, trade and recognised the importance of a good business environment", India's finance ministry said.
The G20 talks have also focused on multilateral development banks' reform, cryptocurrency regulations, and easier access to financing to mitigate and adapt to the impact of climate change.
A newly agreed first step on a fairer distribution of tax revenues from multinational firms – agreed on by 138 countries last week – is also set to be delivered soon.
