Meeting Words with Action? The 2023 IMF/World Bank Group Annual Meetings in Review
From October 9-15, thousands of finance ministry representatives, policymakers, researchers and academics, civil society advocates, press and other stakeholders convened in Marrakech, Morocco for the 2023 International Monetary Fund (IMF)/World Bank Group Annual Meetings. These meetings, the first time an African member state has hosted them in 50 years, came at a pivotal moment for the Bretton Woods institutions. A polycrisis of climate change, rising interest rates, debt, war and lingering COVID-19 impacts have underscored the need for a New Bretton Woods system. This is a call that has been echoed by Barbados Prime Minister Mia Mottley and other developing countries in the Bridgetown Agenda, and by world leaders at twin climate summits in Paris and Nairobi earlier this year.
Both the World Bank and IMF have adopted rhetoric in line with such ambitious reform—from the Evolution Roadmap to efforts to mainstream climate into the IMF’s operations—and this critical convening put their rhetoric to the test. Did both institutions meet words with action? So far, progress remains lackluster. Here are four takeaways from the 2023 Annual Meetings.
The World Bank’s evolution continues, financing questions remain
The recognition that multilateral development banks (MDBs) need to be better and bigger to address converging crises provided the impetus for the World Bank’s evolution process. The international community is falling behind on meeting the United Nations 2030 Sustainable Development Goals (SDGs), and in a highly interconnected world, the World Bank has a role in promoting global public goods, such as responding to climate change, protecting biodiversity and preventing future pandemics. In a marked step at the meetings, the World Bank officially updated its mission to read, “To end extreme poverty and boost shared prosperity on a livable planet.”
The World Bank has made progress since the start of its evolution process last year by stretching its balance sheet to increase lending capacity, most notably through reducing its equity-to-loan ratio from 20 percent to 19 percent. And a portfolio guarantee program with other hybrid capital options will further increase its lending capacity, if shareholders can agree.
What unites all these reforms is that they do not require shareholder countries to commit new funding, raising significant questions about whether the World Bank will be able to rise to the occasion. The new balance sheet optimization only increases the World Bank’s lending capacity by up to $15.7 billion per year over the next 10 years—a tiny fraction of the $390 billion annual financing MDBs must provide by 2030, according to the Group of 20 (G20) Independent Expert Group (IEG) (The IEG also released Volume 2 of its report during the Annual Meetings). The upcoming replenishment of the Bank’s International Development Association (IDA) will provide a test of shareholders’ commitments to low-income countries and proved a key talking point among Bank officials at the meetings. The doubts over the availability of increased public financing likely contributed to the World Bank’s push to mobilize more private investment—but given the World Bank’s troubling record of mobilizing private finance and doubts about whether many necessary investments will provide adequate returns, it is far from clear that private capital could fill the financing gap left by spending-averse shareholders.
Rebalancing IMF quotas made to wait again
The IMF’s 16th General Review of Quotas, currently underway and slated to conclude in mid-December, occupied an important place in this week’s negotiations, and with good reason. IMF quotas determine the power of member states’ votes in the IMF, how much they can borrow and the size of their allocations of Special Drawing Rights (SDRs), the Fund’s reserve asset. The IMF’s Articles of Agreement mandate that the review of its quota system happens every five years to ensure its alignment with the world economy. Global South countries have long protested that Global North countries receive an outsized share of quotas. For example, recent research shows that the Group of 7 (G7) has 43 percent of quotas while only accounting for 30 percent of global gross domestic product (GDP) and 10 percent of the world’s population. The lack of movement in the 15th General Review of Quotas in 2020 ended with a promise for a more comprehensive rebalance in the 16th Review, and the G20 Leaders’ Declaration reiterated this in September.
However, it has become clear that quota rebalancing will once again be made to wait. The emerging position—driven by the United States, whose 16.5 percent of votes provides it a veto over IMF decisions like quota reform—is that the 16th Review will conclude with an “equi-proportional” increase. This change will boost the IMF’s permanent lending resources, a positive step given that a majority of IMF resources now come from borrowed resources, even though the Fund is meant to be a quota-based institution. However, while total permanent resources will increase, the existing distribution of quotas—and its imbalances—will be perpetuated. As a partial concession, the 16th Review will grant sub-Saharan African countries a new chair on the IMF Executive Board (without an increase in voting power), and the IMF’s controversial surcharge policy may be reconsidered.
Still, the continued limitations on borrowing countries’ voice and representation in the IMF and the divergence between the quota system and the state of today’s global economy have spurred questions about the IMF’s legitimacy. The Intergovenmental Group of 24 (G24) released a statement saying that an equi-proportional increase in the 16th Review would “weaken, rather than strengthen the IMF, because it will be a very bad precedent that sends a clear but negative signal to the international community about the IMF’s commitment to multilateralism and governance reform.” IMF Managing Director Kristalina Georgieva has noted these legitimacy concerns, and at a townhall with civil society at the Annual Meetings, called for a deadline to agree on a new formula to rebalance quotas prior to the end of the 17th General Review of Quotas. This idea of an intermediate deadline made it into the International Monetary and Financial Committee (IMFC) Chair’s Statement, which called on the IMF Executive Board to develop approaches for quota realignment by June 2025.
Despite small steps, a comprehensive solution on debt remains far from reach
The consistent line from the IMF throughout the Annual Meetings was that the global debt crisis is worrying but not systemic, though recent research identifies 61 countries as being in or at high risk of debt distress. At the Annual Meetings, various statements hailed progress on debt restructuring under the G20 Common Framework in Zambia, Ghana and Ethiopia. Also, the Export-Import Bank of China reached a preliminary debt restructuring deal with Sri Lanka during the week, though they did not disclose details. The Global Sovereign Debt Roundtable—a forum composed of bilateral creditors, private creditors and borrowing countries co-chaired by the IMF, World Bank and G20—released a progress report but had few new solutions to offer, with private creditor participation in debt relief remaining a largely unaddressed challenge. The World Bank has also remained firmly opposed to participating in debt relief efforts, even as multilateral creditors hold a majority of sovereign debt in 27 countries.
Some progress came on debt pause clauses, which would allow countries time to recover after climate disasters or other shocks. The World Bank has launched Climate Resilient Debt Clauses to provide such pauses, though it is only applying these clauses to new loans with a subset of vulnerable countries. Although Georgieva praised the World Bank for this move in a joint seminar on debt, the IMF has yet to adopt climate debt pause clauses.
The IMF will address climate change – but how?
Throughout the week, Georgieva repeatedly underlined that climate change is macro-critical to countries’ economies, placing it firmly within the IMF’s mandate. The IMFC Chair’s Statement reaffirmed this perspective. The IMF cited high demand for the Resilience and Sustainability Trust (RST), a recently created source of long-term financing for countries affected by external shocks including climate change. The RST will undergo an interim review next year. However, the IMF’s other major climate-related financing vehicle—the Catastrophe Containment Relief Trust (CCRT), which provides grant funding to poor and vulnerable low-income countries facing natural disasters or pandemics—is nearly out of funding.
Mitigating climate change, adapting to its effects and addressing loss and damage creates huge investment needs. Central banks’ decisions to rise interest rates to fight inflation already complicates this task, and at the Annual Meetings, the IMF’s staff resisted arguments that its continued focus on fiscal consolidation is inconsistent with the need for green investment and that the IMF overlooks the growth benefits of public investment. The IMF repeatedly emphasized its preference for carbon pricing throughout the Annual Meetings, including in its Fiscal Monitor report. Although carbon pricing can sometimes play a useful role, research shows that poorly designed pricing mechanisms can harm, rather than help, developing countries. A more flexible menu of climate policy solutions is needed. That said, the IMF needs shareholders to boost its ability to provide concessional financing to provide governments with more fiscal space—the progress on Poverty Reduction and Growth Trust (PRGT) pledges at the Annual Meetings is a step in the right direction.
Looking ahead
While progress remains tepid, it should not be ignored that there is now a resounding, collective agreement that the current system is not fit-for-purpose. It is true that modest reforms will not be enough to meet the moment, and pressure on these key issues must remain high – particularly as attention turns to Dubai for the 28th UN Climate Change Conference (COP28) in late November.
The door for global financial architecture reform remains very much open—the question is whether those in power will cross the threshold.
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