The executive directors of the World Bank have selected Ajay Banga as president of the World Bank for a five-year term, beginning on June 2.
Having received the endorsement of the United States in February, Indian-born US business executive Banga was all but certain to replace outgoing president David Malpass, who departs after a curtailed term marked by controversy over his views on climate change.
One of Banga’s major challenges will be developing new funding mechanisms for Africa, whose representatives have long argued is underserved by the global multilateral institution.
As part of his campaign for leadership of the bank, Banga visited the African Development Bank (AfDB) in Abidjan, Côte d’Ivoire, in March in his first stop on a global tour as he looked to shore up the continent’s support.
During his visit, Banga highlighted three major issues of significance to his leadership campaign – inequality, tension between humanity and nature, and “the tendency to apply short-term solutions to long-term problems.”
But for many African leaders, his principal challenge is to increase development flows to the continent. Last July, the G20 published an independent report which found multilateral development banks, including the World Bank, were overly cautious in their approach to lending and could unlock hundreds of billions of dollars in new loans for lower-income nations without endangering their stability or their credit ratings.
At the World Bank Group / International Monetary Fund Spring Meetings in April, it was agreed that the World Bank’s International Bank for Reconstruction and Development (IBRD) will relax of lending restrictions to unlock an additional $4bn in loans to middle-income countries that are not eligible for concessional finance. But while the IBRD lends to governments of middle-income and creditworthy low-income countries (including Angola, Botswana, and some other African countries), much of Africa remains reliant on the Bank’s other lending arm, the International Development Association (IDA).The IDA lends to the poorest countries on more favourable terms than the borrower could obtain in the marketplace, and has been issuing loans to African governments at faster rates in recent years to deal with debt, food security and Covid-19. However, shareholders have not yet agreed to replenish it and massive demand looms for bank loan refinancings by borrowers in 2024.
“There’s a realisation that there will be a drop in IDA financing next year and we need to do something about it,” said Martin Kessler, the executive director of Paris-based think-tank Finance for Development Lab, adding that such a decision might be taken at the Summit for a New Global Financial Pact in Paris in June or the World Bank/IMF Annual Meetings in October.
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.
Need for reform
African analysts warn that he has a huge job to reform the institution.
“The incoming leadership of the World Bank will need to better mobilise the muscle power that the Bank has in terms of resources and influence,” wrote Faten Aggad, senior climate diplomacy advisor at the Africa Climate Foundation.
“It can indeed play a transformational role. But it will need to also recognise the important role played by regional development banks. They have played a key role in responding to the needs of their borrowers. Banga should strive to make it a more collaborative development finance institution open to partnering with like-minded regional DFIs, by leveraging or co-financing, in tackling modern-day challenges and accelerating the growth of green infrastructure across the global south.”
“The message coming out of Africa is in this sense clear: reforms of the World Bank should not focus on supercharging its mandate and turning it into a “superbank”. Rather the focus is on making sure that the Bank’s funding is accessible, appropriately structured and delivered in a timely manner. The success of Banga as World Bank’s next president rests on many factors, but none is perhaps more important than how he relates to developing economies and how he handles climate,” Aggad added.
Hannah Ryder, CEO of Development Reimagined, wrote in February that Banga must learn from other multilateral lenders.
“Over the 2019-20 fiscal year (mostly before the Covid-19 pandemic), the Bank disbursed $14.5bn to Africa, but only a small proportion of this went to building new infrastructure. In comparison, the AfDB disbursed $5.1bn, the vast majority of which went to infrastructure. In the same year, the then five-year-old AIIB, the newest MDB on the block, disbursed $6.23bn to its Asian members for green infrastructure projects in sectors from energy to water and urban development, while also creating a special facility to deliver emergency Covid-19 support.”
“The challenge that will face Banga, whatever he decides to do, is that turning a big, almost 80-year-old ship around will not be easy. The world overall has changed since the Bank was created, but for the countries that seek loans from it, including India, very little has changed. Collectively they retain the same proportion of global GDP as they did back in 1944, pre-independence. Will Banga be able to direct the Bank to make a greater contribution to finally growing that proportion? Learning from the regional banks will make that possibility more feasible.”
But speaking after the Spring Meetings, Ryder expressed scepticism around the appetite for change at the institution.
“I think it still remains to be seen whether Banga will want to make a big shift in the Bank. Right now, I think people are not necessarily preparing for that. I did not hear any noises that he will be different,” Hannah Ryder, CEO of international development consultancy Development Reimagined, tells African Business.
Banga has had a long and prominent career in major international businesses. He most recently served as vice chairman at General Atlantic, and was previously president and CEO of Mastercard. During his time at 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.
He was honorary chairman of the International Chamber of Commerce from 2020-2022, became an advisor to General Atlantic’s climate-focused fund, BeyondNetZero, at its inception in 2021, and served as co-chair of the Partnership for Central America, a coalition of private organisations that works to advance economic opportunity across underserved populations in El Salvador, Guatemala, and Honduras.
As president of the World Bank Group, Banga also becomes the chair of the Board of the Executive Directors of the International Bank for Reconstruction and Development; and ex officio chair of the Board of Directors of the International Development Association , International Finance Corporation, the Multilateral Investment Guarantee Agency, and of the Administrative Council of the International Centre for Settlement of Investment Disputes.
Additional reporting by Shoshana Kedem
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