By David Lawder
KINGSTON, Jamaica (Reuters) – World Bank President Ajay Banga told Reuters he would “push” the lender’s balance sheet to help tackle climate change and other crises, but it could not pay off only tens of billions of dollars in additional annual loans, not the hundreds of billions hoped for by some.
Banga said in an interview on Tuesday evening that he will put in place measures in the coming weeks and months to move the World Bank beyond its traditional mission of fighting poverty to fight climate change, pandemics and other global challenges and increase its financial capacity.
Regarding balance sheet leverage, he said he “could make it as hard as possible”, but not so much as to threaten the bank’s top-tier ‘AAA’ credit rating – the source its ability to borrow and lend at very low rates.
“My logic is that if you add all these types of ideas together, every year you’re looking at … tens of billions, not hundreds of billions” of dollars, Banga told Reuters on his first trip abroad. in the work in Jamaica and Peru.
“I just think we have to be a little careful and a little sensitive about everything we do about it, but we should do everything we can,” Banga said.
His comments inject a dose of reality into the optimism of some in the development community that the balance sheet alchemy of multilateral development banks can achieve a substantial share of the massive increase in lending to finance the energy transition. clean – a need he and other experts estimate in the trillions of dollars a year.
The World Bank Group made loan commitments totaling $104 billion last year.
WEIGHED OPTIONS
Finance ministers and non-profit groups are looking to Banga, the Indian-born former MasterCard CEO, to find ways to channel large amounts of private capital to developing countries to help them reduce carbon emissions and finance job-creating investments to make their economies more resilient.
US Treasury Secretary Janet Yellen told Banga when he took office on June 2 that she wanted him to “get the most out of” the World Bank’s balance sheet.
He said the bank was now discussing with shareholders the use of so-called “hybrid capital” or subordinated debt, which would allow more leverage as rating agencies process some of it. as equity – a technique used in banking for decades.
Some economists have suggested that currency reserves from the International Monetary Fund’s Special Drawing Rights could be funneled by rich countries to the bank as capital to back new bond issues worth hundreds of billions of dollars. But Banga said he viewed the idea as largely unviable because long-term project loans against liquid central bank assets could create a dangerous maturity mismatch between assets and liabilities.
“I’m not signing,” he added.
The use of “callable capital” – funds pledged but not paid by rich countries that can be called upon to cover World Bank losses – is another option, advocated in a G20 report on the capital adequacy of multilateral development banks.
But Banga said this step would take longer to develop because not all rating agencies would allow callable capital to be used to increase lending, and some countries might have to change laws governing their holdings at the World Bank. .
He said he hoped to be able to provide details on what the bank could do in this regard when it comes to its annual meeting in October.
(Reporting by David Lawder; Editing by Kim Coghill)