World Bank’s reform: almost a new pilot onboard

3 March 2023 - Foreword of the week - By : Claire ESCHALIER

After the sudden resignation of David Malpass, the World Bank’s Trump-appointed President, mid-February, Washington surprised the world again last Thursday, with the nomination of Ajay Banga, long-time Mastercard CEO, as his potential successor. Not only was the timing very rapid, but the controversial profile of the nominee also generated some sense of puzzlement. His limited experience both in public development projects and in contributing to tackling climate change has fuelled a large part of the scepticism. Reassuring however, is his understanding of the private sector in both the global North and global South.

 

With a CV such as Banga’s, mobilising more private finance to complement public funding (which is a major objective of the ongoing reform of the World Bank) should be a piece of cake. But again, this will only solve part of the problems: public resources are scarce and can’t always be substituted by private funding. With the appropriate conditions in place, any windmill or solar powerplant should find private sponsors. But no matter how hard we try, it is unlikely that we will get the private sector to fund the deep regulatory and institutional energy sector reform that is needed in many countries to guide the transition.

 

What does this imply for the reform? Of course, significant efforts should be dedicated to finding the One trillion per year estimated funding needs for a transition in developing countries other than China. But as much attention should be given to reshaping the way public development banks operate so that the impact of every public euro spent is carefully maximised. When reforming the World Bank and the broader financial architecture, all types of activities should thus be reconsidered to answer the countries’ investment needs for the transition. In their latest report, Alice Pauthier and Aki Kachi (NewClimate Institute) share some insight on how international public financial institutions can take this direction and progressively move from a project to a counterparty and system-level approach, and align financial systems in developing countries with global climate goals.

 

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