Capital Increases At Mdbs Should Be Targeted Towards Africa

The International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC) had a Capital Increase Package (CIP) approved by the World Bank’s Board of Governors in 2018. The agreement featured a US$7.5 billion paid-in capital increase for the IBRD and a US$5.5 billion paid-in capital increase for the IFC. Further, the package included a US$52.6 billion increase in callable capital for the IBRD, coupled with an extension of the subscription period for the general and selective capital increase until October 2025. This paper critically examines the outcomes of this capital increase, particularly focused on African countries, drawing attention to four reasons that raise skepticism about its effectiveness. Firstly, among the 54 African countries in the World Bank, only 14 can borrow from the IBRD, and 34 can only access resources from the International Development Association (IDA). Secondly, while IDA offers concessional rates, IBRD lends at market rates, presenting a second-best outcome for eligible countries, and the financing model inadvertently penalizes growth. Moreover, transfers from the IBRD to the IDA have witnessed a steady decline over the past decade. The last capital increase for the IBRD in 2018 coincided with a reduction in transfers to the IDA, impacting its ability to support African nations, especially during periods of fiscal contraction. Lastly, the capital increase did not result in a significant upsurge in lending to African countries, as their share of IBRD’s total assets remained meager over the last five years. Recognizing the above deficiencies, our paper urges immediate and long-term actions. The African Union, through the briefs recommendations, should call upon the G20 to endorse a proportional increase in funding tied to an IBRD capital increase, an enhancement in African representation in the World Bank, reforms addressing perverse incentives in the IDA-IBRD system, and increased contributions to the IDA. These measures are crucial for ensuring that capital increases lead to meaningful development for African nations and contribute to fostering a more inclusive World Bank.