By David Lawder and Christian Kraemer
WASHINGTON (Reuters) -The World Bank on Friday said that 11 countries have pledged to contribute over $11 billion to new hybrid capital and portfolio guarantee instruments designed to expand the bank’s financing capacity by $70 billion over a decade to tackle climate change, pandemics and other global challenges.
The voluntary contributions, announced at World Bank and International Monetary Fund spring meetings in Washington, form the largest single enhancement to the World Bank’s balance sheet since the U.S. and other shareholders expanded its mission beyond fighting poverty in 2022.
In April 2023, World Bank shareholders endorsed an increase in the bank’s leverage ratio to boost lending capacity by some $40 billion over 10 years and expanded bilateral guarantees to unlock another $10 billion in financing.
The bulk of the latest funding pledge, around $9 billion, was made by the U.S. to the new Portfolio Guarantee Platform which backs private loans and equity investments in qualifying projects.
But Washington’s contribution will not be all cash. It will come partly as a U.S. guarantee for the World Bank’s platform, backed by a $750 million appropriation request to Congress, a U.S. Treasury official said. This will limit the pledge’s leverage to four times, enabling $36 billion of additional lending over a decade, the official added.
Japan said it is contributing $1 billion to the guarantee program, France is expected to contribute $500 million and Belgium an undisclosed amount.
Contributing to the mechanism for hybrid capital – an instrument that includes features of both debt and equity to leverage loans – are Britain, Denmark, Germany, Italy, Latvia, the Netherlands, and Norway. Britain said it is contributing 100 million pounds
Anshula Kant, World Bank chief financial officer, said the facilities will finance only projects that have cross-border benefits, such as those that reduce greenhouse gas emissions, or help prevent pandemics.
“These instruments encourage donors to contribute on a voluntary basis for these causes and projects,” Kant told Reuters. “On the other side, it incentivizes borrowing countries to invest in these kinds of projects, where the benefits are not limited to within their borders.”
DONOR FUND
In addition, Japan is the first contributor to a new “Livable Planet Fund” designed to capture contributions from governments, philanthropies and the private sector to help finance projects from energy transition investments to healthcare delivery.
The fund is named after the bank’s new, expanded mission statement, “to create a world free of poverty on a livable planet,” endorsed last year to partly reflect its climate finance role.
German Development Minister Svenja Schulze, who first broke the news of the contribution pledges, said that further expansion of the bank’s lending capacity was needed because the needs of poor countries would continue to grow.
The World Bank’s “reform will not stop here,” she told reporters.
World Bank President Ajay Banga, who took office nearly a year ago, is working on a number of other initiatives to expand the World Bank’s balance sheet, including harnessing callable capital – emergency funds pledged by shareholding governments but not paid in – that could unlock hundreds of billions of dollars in additional lending capacity.
The World Bank last week published a report showing that a capital call would be an “extremely remote” event. The bank has been at pains to convince rating agencies that lending against such capital should not affect its top-tier AAA rating, which allows it to borrow at cheap rates and pass the savings on to its client countries.
(Reporting by Christian Kraemer; Writing by David Lawder; Editing by Chris Reese and Andrea Ricci)
