AUGUST 15, 2023
On August 10, the White House submitted a $40.1 billion emergency supplemental request to Congress that includes $2.25 billion for the World Bank. The request for the Bank is well balanced: it would provide $1.25 billion to support “global challenges” (a more politically palatable term than climate change, which is nowhere to be found in the request) and $1 billion in emergency funding for the poorest countries reeling from the impacts of global interest rate hikes, rising debt burdens and the war in Ukraine. The $1 billion request would bolster crisis funding for IDA, the World Bank facility that supports the poorest countries. The inclusion of this request sends an important signal that the Administration is not going to seek funding for middle income countries (MICs) at the expense of low income countries—a concern that has emerged in the context of large assistance packages for Ukraine and negotiations over the World Bank reform agenda (and how to fund it) which have largely excluded IDA.
The $1.25 billion includes $494 million for loan guarantees for the World Bank and $756 million for the World Bank’s “Innovative Global Goods Solutions” trust fund, some of which could be used to offer project loans on reduced (or concessional) terms to middle income countries.
Notably, the rationale for this funding is not that it would support green energy transitions but that it would allow the World Bank “to provide a credible alternative to PRC financing” by leveraging an additional $25 billion in new lending to help countries respond to global challenges.
There is no firm agreement yet on what constitutes global challenges – the Bank’s evolution roadmap suggests these could include climate change, pandemic preparedness, fragility and regional development, but the bulk of the funding is likely to support climate programs because this is clearly a top Administration priority. Moreover, the Bank already has facilities dedicated to other global challenges, including a multil-donor pandemic fund, a concessional facility that enables MICs most affected by refugee movements to access financing on exceptional terms, a comparable refugee window in IDA for low income countries and a dedicated window in IDA for regional development projects.
If approved, this request would fulfill commitments made by President Joe Biden, Vice President Kamala Harris, and Secretary Janet Yellen over the last three months as conveyed in:
- the joint statement on the June 22 meeting between Biden and Indian Prime Minister Narendra Modi characterizing both leaders as “united in their determination” to advance the multilateral development bank (MDB) evolution agenda, including mobilizing new concessional financing at the World Bank to support all developing countries;
- Yellen’s July 17 statement on MDB reform which emphasized “the immediate need to boost the Bank’s concessional lending capacity for global challenges and support low-income countries;” and
- the press release from Harris’s June 5 meeting with World Bank President Ajay Banga, which promised to provide “significant” new concessional financing to incentivize action on global challenges and funding to address the “urgent needs of low-income countries.”
The package would also enable the United States to exert leadership on the MDB reform agenda during an exceptionally dynamic period, especially at the World Bank. But the recent congressional track record on MDB funding does not provide a basis for optimism. For example:
- Amid considerable uncertainty in the FY24 appropriations process, outstanding requests for guarantees appear unlikely to be met: World Bank guarantees are a good deal for donors (and taxpayers) because they only need to pay a fraction of the total amount, with the balance provided as a commitment to pay in the extremely unlikely event that the guarantee is called. In the administration’s FY24 budget request, Treasury sought $84 million to cover the subsidy cost for a $1 billion guarantee for a new climate facility at the Asian Development Bank and $26.8 million to enable $2 billion in new World Bank lending for Indonesia’s energy transition. These high leverage ratios should appeal to Congress. Unfortunately, neither the House nor the Senate versions of the Foreign Operations spending bill include dedicated funding for these programs. This—combined with more substantial disagreements over topline funding in the regular appropriations process—does not bode well for the much larger World Bank guarantee request in the supplemental.
- The “alternative to China” rationale is not compelling. In its transmission to Congress, the Administration asserts that expanded World Bank funding would help countries like Columbia, Peru, India, Indonesia, and Vietnam break reliance on funding from China. But while the rhetorical sleight of hand makes sense politically, these countries have ample access to markets and are not dependent on China. Moreover, there is no evidence to suggest that these countries are borrowing from China because they can’t access enough MDB funding (i.e., they could do both). Another complicating factor is that China still benefits indirectly from World Bank financing by winning the procurement bids under those contracts (e.g., for solar panels). In fact, a Government Accountability Office report found that China won 29 percent of World Bank contract dollars between FY2013 and FY2022. Finally, China could itself be eligible to borrow from the “global solutions” trust fund.
- Funding for the poorest is a hard sell: The $1 billion request would help replenish the crisis response window of IDA and provide fast-disbursing aid for countries most affected by external shocks (e.g., food insecurity stemming from the war in Ukraine and natural disasters). There is no doubt the funding is needed, but it is in addition to the FY24 IDA request, which has not yet been approved. This request includes $1.43 billion for IDA’s current replenishment and $48.7 million to cover arrears to IDA, which stand at about $338 million. The FY24 request is very unlikely to be met in full—neither the House nor Senate bill includes funding for arrears and only the Senate proposes to fully fund the $1.43 billion commitment. This compares to $1.097 billion in the House version. Getting lawmakers to provide additional funding for IDA is unlikely—it’s just too difficult to explain why this should matter to constituents.
All of this, of course, is against the background of a dysfunctional Congress, more urgent legislative priorities, and the risk of a government shutdown if a new budget or a continuing resolution is not passed by September 30.
This prognosis is unfortunate. The financial package could materially strengthen the impact of the World Bank’s climate change agenda at a relatively low cost to the American taxpayer, especially if matched by other donors, an outcome that is very much in our national interest. The fact that the Administration cannot make this case directly to the US Congress is a grim reminder of domestic political realities.
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.