“During Malpass’s tenure, he focused on seeking stronger policies to increase economic growth, alleviate poverty, improve living standards, and reduce government debt burdens,” the World Bank (WB) said in a statement released on 16 February.
Although the reasons for his resignation were not specified, Malpass’s departure from the WB certainly comes at a very particular time: the debt of developing countries is exploding, the poverty rate has worsened, and the world is facing unprecedented stagflation, against a backdrop of fallout from the Covid-19 pandemic and the war in Ukraine.
The institution’s inaction and lack of involvement on the ground have been criticised by many officials, starting with US Treasury Secretary Janet Yellen.
Speaking in Washington at an event organised by the Centre for Strategic and International Studies (CSIS), the New York economist said the WB, whose majority shareholder is the US, should “expand its vision to include addressing global challenges as an integral part of achieving its twin goals, poverty reduction and shared prosperity […] This does not mean shifting the Bank away from its traditional work; it means expanding the work of the Bank…”
‘Overly cautious’
A recent report by a G20 expert panel also suggested that the WB is “overly cautious in its lending given its AAA status”. In other words, the Bank avoids risky financing to maintain its favourable rating.
In his last official statement, Malpass said: “The Bank Group is fundamentally strong, financially sustainable, and well positioned to increase its development impact in the face of urgent global crises”.
His assertion was backed up by an internal report – published despite misgivings within the Bank itself – in which the multilateral institution suggested that it was able to lend an extra $10bn a year. But, for Janet Yellen, the extra $10bn would “still not be commensurate with the Bank’s real capacity”.
A broader debate on the reforms to be carried out within the WB in order to better respond to the financing needs of developing countries is scheduled for April 2023.
Crisis management
It’s the right time for this debate, occurring as it does during a period of economic uncertainty. Even though the WB has deployed a whole arsenal to mitigate the numerous consequences of the Covid-19 pandemic, the efforts are insufficient in light of the global economic situation, which remains unfavourable.
In closer detail, the Bretton Woods institution approved $12bn in aid by 31 December 2021 and $4.68bn by 31 December 2022 (loans, grants and guarantees) to support health systems, social safety nets and the most vulnerable households, as well as to build economic resilience in vulnerable countries.
More than 30 African countries were included in this programme. These include Benin ($150m loan in 2021), Côte d’Ivoire ($100m grant in 2020 from the International Development Association, a subsidiary of the WB), Guinea ($23.5m loan in 2020), Mali ($125m grant in 2021), Ghana ($315m loan) and Togo ($70m IDA grant in 2020).
Alongside these efforts, the Bank launched a $5bn programme to support African small and medium-sized enterprises (SMEs). The funds were shared with SMEs in Burkina Faso ($60m in 2020), Ghana ($100m in 2019), Mauritania ($22m in 2019), Rwanda ($50m in 2019), and most recently Tunisia ($120m loan in 2023).
According to the latest data, the multilateral institution will devote more than two-thirds of its $65bn financing envelope to the countries of the continent for the period 2022-2025.
Multilateral cooperation
Of 54 African countries, 29 are dealing with a “food security crisis” and 17 are experiencing double-digit inflation, according to an 18 May 2022 statement by Malpass, in which he said, “Food price increases are having devastating effects on the poorest and most vulnerable”. These consequences of distorted value chains, the war in Ukraine, shortages and the soaring dollar led the WB and IMF to intensify their collaboration.
In 2021, the two entities set up a high-level advisory group to propose action plans to promote growth. The IMF and WB had already worked together in 2020 to encourage creditor countries (Paris Club) to suspend debt repayments by the poorest nations so that the latter could conserve liquidity and better withstand the consequences of crises. About 77 countries were eligible for this assistance, 41 of which were in Africa.
‘Doing Business’
The World Bank made some structural changes under the tenure of Malpass, who was a former US Under Secretary of the Treasury for International Affairs. It strengthened its digital capabilities by creating a specialised division, signalled a commitment to double its climate financing to $200bn over five years, and in 2021, cancelled the infamous ‘Doing Business’ report.
This institutional study served as a benchmark for economic and business analysis in 190 countries. It was a key tool for investors who wanted to know more about the business climate in Africa. Officially, the report was suspended due to data irregularities for the 2018 and 2020 editions.
In addition to these structural changes, real institutional work is planned through April 2023. On the reforms menu: better allocation of funds. According to Martin Kessler, Executive Director of the Paris-based think tank Finance for Development Lab, the debate around how aggressive the Bank’s new stance will be, and what any new money might be spent on, “will be an important part of the recruitment process” for a new World Bank president.
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