The World Bank Group in the current geopolitical context

INTERVIEW – How do the World Bank and the other multilateral development banks adapt to the changing geopolitical context? Our compatriot Nathalie Francken – a director at the World Bank Group and a former employee of our FPS – gave us a detailed explanation (part 1).

Our compatriot Nathalie Francken – a former FPS Foreign Affairs employee – has been working at the World Bank since 2018. Today, she is a director of the EDS10 electoral group there, and as such, a member of the Board of Directors (see box with biography).

She is therefore the ideal person to give us some greater insight into the ins and outs of the World Bank and, by extension, all multilateral development banks or MDBs. After all, they play a role that cannot be underestimated in the implementation of the Sustainable Development Goals and contribute towards a more stable global economy. And that has a decidedly positive impact on the stability and prosperity of our country.

Francken was briefly in the country in early January. Among other things, she participated in a conference here at the Egmont Palace, organised by our FPS – the Directorate General for Development Cooperation – along with the FPS Finance and the regional trade agencies. Topic: how can Belgian companies better capitalise upon the business opportunities offered by the MDBs? Because this is also part of the duties for the Belgians working at the MDBs and of our FPS: supporting Belgian companies and other stakeholders to contribute to the projects that the MDBs commission. After the conference, Francken was able to speak to us.

The MDBs are said to still reflect the relationships in the post-WWII world too much. What about that exactly?

In the International Bank for Reconstruction and Development (IBRD), for example – part of the World Bank Group – a dynamic formula is used as a guide during the shareholding review: 80% is determined by a Member State's economic weight and 20% by its financial contributions made to the International Development Association (IDA). Founding members and Member States that contribute more to the institution - such as the US, the UK and Europe – have gained greater voting rights as a result.

Over the years, some voting rights have already been ceded and share ownership has been partially adjusted to economic and geopolitical realities. But it is true that some middle-income countries, such as China, are under-represented. However, rebalancing is geopolitically sensitive. For example, the rivalry between the US and China comes into play, but Japan would also lose its place as the second-largest shareholder. Some European countries are also somewhat over-represented.

A discussion on share ownership is currently taking place in the IBRD. Belgium absolutely supports a stronger voice and representation for low-income countries. But caution is needed. Because transparency and respect for values and standards are also included in the broader debate around share ownership. With Trump taking office as the new US President – and the uncertainty that comes with it – that promises to be a difficult discussion.

But the Pact for the Future concluded by the UN in September 2024 aims to reform the international financial institutions, yes?

Indeed, calls for a reform of the 'international financial architecture' are becoming louder and louder, especially from the UN corner. This involves the voice of the Global South around issues such as international taxation or debt rescheduling, including within the Bretton Woods institutions. As mentioned, we are constructively considering proposals for enhancing the influence of low-income countries. We are also stressing the importance of diversity and gender equality at institutions and in their policy-making bodies.

On the other hand, there is also a strong demand for additional financial resources to achieve the Sustainable Development Goals and the climate transition. For 2 years, a radical reform project by the bank – known as the WBG Evolution – has been underway, which may also answer the call from New York. Key objective: the mandate, operating model and available funding must be in line with today's challenges that are increasingly global in nature.

In addition to the development agendas for each country individually, the Bank will also focus on cross-border challenges that can only be addressed jointly. These include climate change, pandemics or biodiversity. To achieve this, measures have been taken that dramatically increase the bank's financial capacity. Belgium, as it happens, has played an important role in this through a guarantee mechanism that was recently developed.

Furthermore, we are very strongly committed to reforms that will make the bank work more efficiently and effectively. More than about the volume of resources, we want it to be about impact and results. By the way, this is not only in our interest as donors, but also in the interest of our partner countries.

The Pact for the Future also talks about revising the 'debt architecture'. What about that?

The global debt architecture has become much more complex in recent years. While traditional official creditors – such as members of the Paris Club – used to play a larger role, today China has also become an important bilateral creditor, in addition to private institutions. This makes it more complicated to negotiate debt restructurings, if necessary. This is why the G20 Common Framework was created.

The World Bank does it utmost to avoid future debt problems. For example, low-income countries will receive long-term financial support on favourable terms to achieve their development goals. And countries in debt distress are entitled to donations. Furthermore, the World Bank provides technical assistance to improve debt management, transparency and domestic funding mobilisation.

The BRICS countries aim to counterbalance the dominance of the West and have established their own development bank – the New Development Bank. What role does it play within the set of MDBs?

The BRICS organisation was originally formed with 5 countries: Brazil, Russia, India, China and South Africa. Since then, Egypt, Indonesia, Iran, the United Arab Emirates, Nigeria and Ethiopia have been added.

With their New Development Bank, they seek to do things differently. They put greater effort into developing local financial markets and using local currencies, while supporting financial stability. The bank focuses – in response to the Paris Climate Agreement – on sustainability and renewable energy, including through solar panels made in China. Each country contributes equally, consequently having equal weight and no veto power, although China seeks to chip away at that.

Unlike the World Bank, so far they have not really been focusing on advisory services and the development of a knowledge institution, although this is being adjusted in the meantime. After all, they noticed that when you provide advice like the World Bank, you get more global visibility and impact.

Moreover, the New Development Bank takes a somewhat more lenient approach to values and standards, such as labour rights. It also does not follow the sanctions imposed upon Russia. A recent independent evaluation of their work in Africa was not very positive about the sustainable impact of their interventions.

In any case, the World Bank seeks greater collaboration with all the MDBs, including the New Development Bank, but obviously wants to maintain its high environmental, social and governance standards.

Read also the part 2 of the interview: The World Bank Group: giant for development