In the 1990s, as he breaded chicken at a Kentucky Fried Chicken restaurant in Delhi, Ajay Banga may not have believed that he would one day lead the world’s largest development institution, the World Bank.
At the time the Sikh, born in Pune city in the state of Maharashtra, was serving as PepsiCo’s marketing director in India and working in the kitchen to get a sense of what running a restaurant was like. Now 63, he “has spent more than three decades building and managing successful, global companies that create jobs and bring investment to developing economies, and guiding organisations through periods of fundamental change,” as US President Joe Biden said when announcing Banga’s nomination to the post on 23 February.
His Indian upbringing and exposure to developing countries has primed him well on the opportunities and challenges facing developing countries – and on the questions around how the World Bank can achieve its main aim of eradicating global poverty, Biden added.
The economist must now be confirmed by the World Bank’s executive board, in a process that is expected to last until May.
The anointed successor
Banga steps into the role at a time when poverty rates, debt and stagflation are exploding around the developing world. But this is also a moment when the World Bank is undergoing a critical structural change. The previous president, David Malpass, resigned abruptly on 15 February after being denounced by environmental groups as a “climate denier”.
Malpass was not expected to be offered a second term. He had survived calls for his resignation in September after a fumbled response on whether he believed the scientific consensus surrounding climate change. He clashed repeatedly with US treasury secretary Janet Yellen over the pace of reforms to change the way the World Bank responds to the needs of countries facing overlapping challenges.
Malpass had also dragged his feet on financing Covid-19 vaccines for low-income countries, through the Covid-vaccine equity scheme COVAX. But his reign was not all doom and gloom, says Amanda Glassman, executive vice president and senior fellow at the Center for Global Development in Washington DC.
“Malpass oversaw a huge scale-up of disbursements to meet a rapid succession of crises, from Covid-19 to food security,” she says.
“During the pandemic, the World Bank supported countries in reaching unprecedented billions of people with cash transfers to mitigate against labour income losses, schooling interruptions, and more.
“He also brought needed attention to the lack of transparency in sovereign debt in developing countries and its role in generating the current debt crisis around the world.”
Banga’s profile is also seen as a departure from the kind of “money man” that has previously run the institution.
Malpass was a former chief economist at Bear Stearns and presided over the investment bank’s collapse at the start of the global financial crisis. This triggered a widespread liquidity crisis, in which banks became reluctant to lend to each other because of all the bad debt found to be buried in the portfolios of one of Wall Street’s most respectable banks.
“It didn’t seem like the best background,” says Chris Humphrey, who works in Switzerland with the UK’s ODI think-tank, formerly the Overseas Development Institute. “Before that we had Paul Wolfowitz, who was the architect of the Iraq War.”
What Banga means for Africa
As someone from the developing world, Banga’s nomination has raised hopes that he will be better attuned than his predecessors to respond to the needs of developing countries.
“A lot of policy decisions and operational decisions in the World Bank are unfortunately decided from the supply side view, from the view of Washington DC, and of the major non-borrower Bank shareholders on what they want the World Bank to do,” says Humphrey. “And I think the view of the recipient is sometimes a little less strongly taken into account.”
During his time as president and CEO of Mastercard, Banga made sweeping investments in Africa. At the peak of the pandemic he spearheaded one of the largest private endeavours to help the continent fight the pandemic – $1.3bn over three years to vaccinate 50m people in Africa.
But as World Bank president his investment decisions will have to be balanced according to the different interests of the Bank’s shareholders – which are the governments of member nations.
Many African countries are eligible for the World Bank’s fund for the poorest countries, the International Development Association (IDA). The IDA lends on more favourable terms than the borrower could obtain in the marketplace. It has been issuing loans to African governments at faster rates in recent years to deal with debt, food security and Covid-19. And its coffers are due for replenishment.
Massive demand looms for bank loan refinancings by borrowers in 2024, says Glassman: “It would be unacceptable if the Bank undertook a major reform to address global challenges like climate and pandemic risks, while allowing IDA to go without a significant replenishment – and so far the wealthier shareholders have not agreed on a new package of financing.”
How debt distress will be handled is also a major interest. Almost 60% of Africa’s low-income countries are either in debt distress or at high risk. Twenty years ago many countries in sub-Saharan Africa benefited from the heavily indebted poor countries (HIPC) debt forgiveness initiative. But times and debt-holders have changed, leaving governments no choice but to borrow at high interest rates from countries such as China.
“There is little appetite for outright debt forgiveness – so the role of the World Bank and other multilateral development banks will be absolutely central in closing fiscal gaps,” Glassman says.
A time for reform
The Bank also faces a critical moment in its history, as shareholder member countries call for radical changes in how it operates, to ensure broader lending to combat climate change and other global crises.
In July, the Group of 20 major economies published a report, the “G20 Capital Adequacy Framework Review”, which found that multilateral development banks like the World Bank could unleash hundreds of billions of dollars in new lending for lower-income nations – if they were to take on calculated new risk.
In the past the World Bank has been accused of being overly conservative with its lending and risk-taking, to safeguard its Triple-A credit rating.
Of the two institutions making up the World Bank, the International Bank for Reconstruction and Development (IBRD) lends to governments of middle-income and creditworthy low-income countries; and the International Development Association (IDA) to others. Much of Africa has traditionally been more heavily reliant on the IDA.
But the Capital Adequacy Framework Review finds that the IBRD could in fact play a greater role, by expanding lending hundreds of billions of dollars over current levels, says Humphrey, who is one of the report’s authors.
“What we’re arguing is that, in fact, the IBRD could be lending more safely based on the amount of capital it has, and that would translate into more lending” for Africa, he tells African Business.
With the scale of the task ahead, it will take more than a new leader to push the kind of reforms needed at the Bank, says Hannah Ryder, CEO of Development Reimagined.
“There’s so much to unravel with the organisation that only a new leader who had the mandate for some quite radical reform would really be able to deliver. They could make a big difference, but they need to be somebody who’s ready for significant internal reforms. And it’s not just about climate change. It’s also about these other issues, too.”