By Bodo Ellmers
The recent 2023 Annual Meetings of the World Bank and the International Monetary Fund (IMF) in Marrakesh received a lot of attention. It was only the second time that the two Bretton Woods Institutions met in Africa – the continent that is most dependent on their loans. Africa is also perhaps the continent that has suffered most from the policy conditionality and structural adjustment programmes associated with these loans. It was fitting then that World Bank reform was at the top of the agenda in Morocco.
The ongoing war in Ukraine and the escalation and internationalization of the Gaza conflict, following the terror attack on an international party crowd at the Supernova Techno Festival that coincided with the opening of the Annual Meetings, overshadowed the events. The war in Ukraine meant that neither of the decision-making bodies – the Development Committee (DC) or the International Monetary and Financial Committee (IMFC) – could adopt an outcome document by consensus. Just two Chair’s Summaries by the DC and the IMFC outline the agreements made. Both start with references to violent conflicts, which is unusual as such matters are not the usual focus of these bodies.
Despite geopolitical tensions, the G20 managed to release a negotiated communiqué, albeit without any substantial agreements. The group of developing and emerging economies, the Group of 24 also expressed their views and concerns in a joint communiqué.
World Bank reform vision adopted
The key topic on the World Bank side was the “evolution process”. According to the World Bank’s own public relations department, the process is supposed to result in a “better bank” first and eventually a “bigger bank”. This proposed reform featured in the official negotiations as well as in many plenary discussions and side events.
The process was initiated back in 2020 by a G20 initiative to review the World Bank’s capital adequacy, which resulted in a number of recommendations to boost the Bank’s lending capacity. This was followed in 2022 by a G7 initiative to expand the World Bank’s mandate and turn it from a development bank into a transformation bank.
World Bank staff presented a detailed proposal to its Governors on 28 September, just a week before the Annual Meetings started. This left little time for reflection by borrower countries or civil society organizations (CSOs). Their report – entitled “Ending Poverty on a Livable planet” – suggests that addressing global challenges could be added as a third goal to the existing twin goals of poverty eradication and reducing inequality.
Substantial gaps remain
However, hardly any of the reform proposals that smaller shareholders and CSOs have made over the years are reflected in the report. For example, there is no commitment to pursue governance reforms that would boost the vote and voice of the global South. And there are no steps towards a merit-based selection approach for the World Bank President, instead of the current passport-based approach (de facto, the US government nominates a President from among US citizens).
Neither is there a commitment to end fossil-fuel funding, a long-standing demand of environmental CSOs. This puts the credibility of the World Bank’s new livable planet goal at stake right from the start.
The operational reforms suggested in the Evolution Roadmap might even deepen the World Bank’s focus on private-sector solutions. According to many observers, these have led to a commercialization of the health and education sectors in borrowing countries, with devastating results for the poor, who cannot afford to pay user fees. There is a high risk that the mandate expansion will just extend this failed World Bank approach to new sectors – environmental actors working on climate and biodiversity.
The “bigger bank” issue remains unresolved. While the World Bank has already adopted some measures to boost lending by US $5 billion annually – less than 5 percent of the current volume – there was nothing new decided in Marrakesh about how to boost World Bank lending or grant-giving capacity .
Germany renewed the pledges already made at G20 and UN forums, to champion the new World Bank hybrid capital instruments, with a financial contribution worth €305 million. Whereas Germany wants to earmark these resources through a new rule nick-named “preferencing”, the G24 statement strongly rejects introducing such practices.
At the meetings, World Bank President Ajay Banga flagged that Member States can use Special Drawing Rights for financial contributions to the hybrid capital instrument. In light of stagnating or shrinking development budgets in many donor countries, scaled-up contributions to the World Bank will otherwise be hard to achieve, or may only be possible at the expense of other multi- or bilateral development cooperation channels.
The elephant in the room at the Annual Meetings was the dilemma that the Bretton Woods Institutions’ main instrument to address any problem is loans. At the same time, debt levels in many countries in the global South have surged massively over the past decade; many countries are in debt crisis and are no longer able to absorb additional loans. Rising interest rates have caused skyrocketing debt service costs. One independent report presented at the Annual Meetings found that African countries are now having to transfer 53 percent of their public revenue to their creditors in the form of debt service. The fiscal space for development spending and public service provision is shrinking accordingly. In developing countries overall, debt service accounts for 3.7 times the amount spent on health, the report finds.
Debt owed to multilateral creditors is becoming an increasing problem, demonstrated by another independent research study that was presented at the Annual Meetings. In 27 countries, more than half of external debt service must be transferred to multilateral creditors. The authors stress that substantial debt cancellation, including by the World Bank, is needed to create sufficient fiscal space for sustainable development.
With this in mind, perhaps the most serious flaw of the adopted reform plan is that there is no option for the World Bank to cancel debts in countries where debt reduction has become unavoidable. How to overcome the shortcomings of the debt architecture was discussed at a side-event organized by Global Policy Forum and international CSO partners. Creating an effective insolvency framework under the auspices of the UN was presented as an alternative to the G20’s dysfunctional Common Framework on Debt Treatments.
Stalemate at the IMF
On the IMF side of the Annual Meetings, meanwhile, there was no progress to report. A key issue remains the underrepresentation of countries from the global South. Moreover, as many bilateral borrowing arrangements with which the IMF raised resources from solvent Member States are set to expire, the Member States need to contribute more quota resources in order to preserve the IMF’s lending capacity. For the time being, however, the decision on quota reform has been deferred to December 2023.
During the Annual Meetings, the IMF once again convened its Global Sovereign Roundtable – a multistakeholder dialogue forum that is supposed to advance debt restructurings. Unrelated to this, Zambia finally announced a debt restructuring agreement in Marrakesh, after more than three years’ delay caused by the absence of effective debt workout constitutions. There was agreement in the hallways that the current debt architecture is completely dysfunctional.
Perhaps the only positive outcome on the IMF side was a vague agreement to discuss IMF surcharges. IMF Member States have to pay interest rates of more than 8 percent or more on crisis loans due to surcharges, which effectively means they cannot exit the debt trap they are caught in. This means that the IMF’s assistance is often more of a burden than a benefit. However, no timeline has been set to make any agreement on surcharges.
Inappropriate lack of urgency
The lack of urgency was a problem that permeated these Annual Meetings. When Heads of States convened at the UN’s Sustainable Development Goals (SDGs) Summit in September, it was mentioned over and over again that a defunct international financial architecture (IFA) is a key reason why SDG implementation has been failing almost across the board.
These Annual Meetings did not deliver reforms at the scale needed. Although there is increasing political pressure for reform, these latest deliberations have proven that the ability of central IFA institutions to reform themselves through their own ministerial-level governance bodies is limited. Countries in the global South in particular face challenges when it comes to steering the reform path in the desired direction. With the upcoming UN Summit of the Future in 2024 and the Fourth International Conference on Financing for Development in 2025, Heads of States face increasing pressure to deliver more effective and equitable reforms as soon as possible.