11 nations pledge $11 billion to World Bank for climate, pandemic response

Hybrid Capital Commitment: The World Bank announced that 11 nations have committed more than $11 billion to novel hybrid capital and portfolio guarantee initiatives aimed at boosting the bank's financing capabilities by $70 billion over the span of a decade to address climate change, pandemics, and other global crises.

The voluntary pledges, revealed during the World Bank and International Monetary Fund spring meetings in Washington, represent the largest individual augmentation to the World Bank's financial resources since its mandate was expanded beyond poverty alleviation in 2022.

Lending capacity expansion

In April 2023, World Bank stakeholders approved a rise in the bank's leverage ratio to increase lending capacity by approximately $40 billion over the next 10 years, and broadened bilateral guarantees to unlock an additional $10 billion in funding.

The majority of the recent funding commitment, approximately $9 billion, was pledged by the United States to the new Portfolio Guarantee Platform, which supports private loans and equity investments in qualifying projects.

However, the US contribution will not be entirely in cash. It will be partly in the form of a US guarantee for the World Bank's platform, supported by a $750 million appropriation request to Congress, as stated by a US Treasury official. This will cap the leverage of the pledge at four times, facilitating an additional $36 billion in lending over the course of a decade, the official explained.

Japan announced it is contributing $1 billion to the guarantee programme, while France is anticipated to contribute $500 million and Belgium an undisclosed sum.

Contributions to the hybrid capital mechanism, an instrument combining elements of debt and equity to leverage loans, are coming from Britain, Denmark, Germany, Italy, Latvia, the Netherlands, and Norway. Britain announced a contribution of £100 million.

Sustainable impact criteria

Anshula Kant, the World Bank's chief financial officer, emphasised that the facilities will only finance projects with transboundary benefits, such as those reducing greenhouse gas emissions or aiding in pandemic prevention.

"These instruments encourage donors to contribute voluntarily to these causes and projects," Kant told Reuters. "On the other hand, it incentivises borrowing countries to invest in these kinds of projects, where the benefits are not limited to within their borders."

Additionally, Japan is the inaugural contributor to a new "Liveable Planet Fund," intended to gather contributions from governments, philanthropies, and the private sector to support a range of projects from energy transition initiatives to healthcare delivery.

The fund is named in accordance with the bank's revised mission statement, "to create a world free of poverty on a liveable planet," adopted last year to reflect its role in climate finance.

German Development Minister Svenja Schulze, who first disclosed the contribution pledges, asserted that further expansion of the bank's lending capacity was imperative because the needs of impoverished countries would persistently escalate.

"The reform of the World Bank will not end here," she informed reporters.

Financial resource expansion

World Bank President Ajay Banga, in office for nearly a year, is pursuing various other initiatives to enlarge the World Bank's financial resources, including tapping into callable capital—emergency funds committed by member governments but not yet disbursed—that could unlock hundreds of billions of dollars in additional lending capacity.

Last week, the World Bank released a report indicating that a capital call would be an "extremely remote" event. The bank has been endeavouring to persuade rating agencies that lending against such capital should not compromise its top-tier AAA rating, which enables it to borrow at favourable rates and pass on the savings to client countries.

(With Reuters Inputs)