Wanted: Harsh Realism at the World Bank

Hilton L. Root

economy, Americas

The World Bank must switch to a grant-based model that prioritizes interconnective projects for the global good.

The World Bank is recovering from one of the worst disasters in its history: the six-year (July 2012 to February 2019) tenure of Jim Yong Kim as its twelfth president. His newly-appointed replacement, President David Malpass, takes over an organization that has lost its focus on reducing extreme poverty and promoting shared prosperity, declined in esteem among global institutions, and seen massive demoralization among staff as a result of futile organizational restructures. These problems certainly give Malpass a mandate to change course.

For that, he will receive no shortage of suggestions. Few will be radical enough to create the bank needed for the twenty-first century.

The new World Bank president should begin his assessment with a strong dose of harsh realism. Other development organizations—like the Asian Infrastructure Investment Bank, BRICS New Development Bank, and Gates Foundation—have emerged with impressive resources, faster processing and more focused agendas. The World Bank has relatively fewer funds and multiple missions far beyond its means. Moreover, its operations should be refocused on something attainable and, most importantly, something for which it is uniquely capable.

There has been a huge push into sustainability lending, including mandates requiring a quarter of all lending target climate change and that every dollar spent must consider climatic impact. In spite of these ambitious commitments, the impact of the bank’s climate aid is yet to be documented and is, at best, indirect.

However, the bank does have a significant comparative advantage—its deep understanding of global economic trends makes it a credible advocate for investments that create public goods which are indispensable for global poverty reduction. However, the World Bank is dependent on the sovereign guarantees of borrowing countries for its business model, so it cannot do much more than hand-waving when performing this role.

Yet, there are two ways to surmount this limitation: move away from country lending and shift the balance from loans towards grants. This would make the bank have to go regularly for replenishments to its members, making it more accountable and relevant to the global community.