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The World Bank is the world's largest institution for development cooperation. Objective: (1) to eradicate extreme poverty by 2030 (objective 3%) and (2) to ensure sustainable growth that also benefits the poorest 40% of the population.
It aims to achieve this goal with the help of its 5 institutions (see box below). Through the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), it provides technical assistance and (low-cost) loans and grants to public institutions in developing countries. The International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) provide support for private companies.
The World Bank estimates that the COVID-19 pandemic will cause a global recession of unprecedented depth and duration. ‘Preliminary calculations show that the global economy will fall from $87 trillion to $83 trillion by 2020,’ our compatriot and Deputy Director of the World Bank, Nathalie Francken, tells us from Washington. ‘That means a drop of 4 trillion dollars, or an amount higher than the combined GDP of the whole of Latin America! This severe contraction of the world economy will translate into an increase in global poverty.’
The pandemic therefore undermines the very objectives of the World Bank: to eradicate extreme poverty and promote inclusive growth. ‘Global extreme poverty – i.e. the proportion of the world's population living on less than $1.90 a day – will rise to 8.6% in 2020 compared to 8.2% in 2019,’ says Francken. ‘That means 40 to 60 million more people in extreme poverty.’
This is why the World Bank is adjusting its strategy. In the initial phase, it intends to allocate 14 billion dollars to help contain the pandemic. Primary goal: to save lives. Francken: 'This will enable us to support countries in the short term in order to be able to detect the virus quickly, to prevent its spread and to purchase medical supplies such as gloves, masks and portable ventilators. The health sector in general will also be supported, for example by building or expanding clinical care facilities and by training primary care providers. There will also be support for social protection.’
Social and economic recovery
In the second phase, 150-160 billion dollars will be spent over the next 15 months and a total of 330-350 billion dollars for the period up to the end of June 2023. The funds will be used for social and economic recovery. ‘We want to protect the poorest and most vulnerable. But support from the private sector (especially SMEs) and from job creation will also be crucial. The recovery must also be resilient and sustainable.’
The World Bank is also helping countries gain access to urgently needed medical supplies. It is doing this by contacting suppliers on behalf of governments and by helping with public tenders. ‘By purchasing medical equipment for a number of countries at the same time, the World Bank can play to the advantage of scale.
Finally, the World Bank is exploring ways of reducing the debt burden for poor countries. ‘The World Bank does indeed provide (cheap) loans, but many of the poorest countries still receive 50% to 100% of their funding as gifts,’ says Francken. ‘In total, IDA will be providing 51 billion dollars in grants for the 76 poorest countries over the next 15 months. This amounts to 12 times the repayment of those countries' debts to IDA.’
‘We think we can put together a solid total package,’ Francken concludes. ‘Along with the efforts of the other development partners, we hope to be able to reduce the impact on poverty. Will is be enough? Only time will tell. In the short term, we want to ensure that timely and adequate financing is available.’
The European Union contributes more than 22% to the capital of the World Bank institutions and is therefore a major shareholder.
What is the World Bank (group) and what does it do?
The World Bank consists of 5 institutions:
- International Bank for Reconstruction and Development (IBRD)
- International Development Association (IDA)
IBRD and IDA together constitute the World Bank proper, in particular the component of it which provides (low-interest) loans or grants, technical assistance and other aid to public institutions in developing countries. This mainly concerns large infrastructure projects, such as rural electrification in Mali, improvement of public transport in Abidjan (Ivory Coast) and access to water and improvement of agricultural services in Somalia.
- International Finance Corporation (IFC)
IFC provides loans to private companies investing in developing countries, and can also participate in the capital itself.
- Multilateral Investment Guarantee Agency (MIGA)
MIGA – the global counterpart to Belgium's Credendo – provides investment guarantees against political risks to private investors. Goal: to stimulate foreign investment in developing countries.
- International Centre for the Settlement of Investment Disputes (ICSID)
ICSID is the world's leading institution for settling disputes around international investments.