The World Bank, committed to expanding support for developing economies, has taken a significant step by boosting its lending capacity by a whopping 50%. This move positions the Bank to offer a record-breaking $150 billion over the next decade to various countries, with a strong focus on green projects. This strategic increase, achieved through balance sheet optimization, signifies a significant boon for India, the Bank’s largest client, as new funds will be directed towards crucial areas such as climate resilience and rural development.
“India is the biggest client and will have a bigger share of funding available from the World Bank,” Auguste Tano Kouames, the World Bank’s country director for India, revealed in an interview. The annual lending to India has already experienced a surge, reaching $5 billion, supporting projects across a diverse range of critical sectors including energy, healthcare, and digital education.
The Washington DC-headquartered multilateral development bank (MDB), which has recently undergone a successful balance sheet optimization process to enhance its lending capabilities, will now make available approximately $150 billion over the next 10 years to nations worldwide. A substantial portion of these funds will be dedicated to green projects, demonstrating the Bank’s commitment to sustainable development.
In a move designed to further support middle-income countries like India, the World Bank has also approved a measure to waive commitment fees on loan balances for a period of four years. This initiative effectively reduces annual borrowing costs by 0.25%, translating to a cumulative savings of nearly 1%, according to Kouame.
The World Bank finances its projects through its lending arm, the International Bank for Reconstruction and Development (IBRD), which provides financial assistance to developing and middle-income countries. The recent World Bank Group annual meetings centered on two key areas: internal reforms within the organization and broader reforms across the MDB landscape. The latter, guided by recommendations from the G20-backed international expert group (IEG), aims to enhance the effectiveness and sustainability of MDBs.
“We (the WBG) have made several reforms to be a better bank, in the sense of being faster, collaborating better, as well as mobilising financing with the private sector, and by being closer to the client countries by being more strategic and engaging in operations and projects that are transformational,” Kouame explained. “We have also worked on the bigger bank agenda by making internal reforms to expand our ability to lend more to countries, especially to middle-income countries like India.”
The G20-backed IEG report, released last year, presented a comprehensive triple agenda for reforms to strengthen the potential of MDBs. This agenda calls for an increase in MDBs’ annual spending by $3 trillion by 2030, with a significant portion allocated to climate action ($1.8 trillion) and achieving other sustainable development goals (SDGs) ($1.2 trillion). The report also emphasized the need for MDBs to mobilize $240 billion in private capital by transitioning from risk avoidance to informed risk-taking, and introducing innovative lending instruments such as pooled portfolio guarantees and hybrid capital.
“For us at the World Bank, we cannot reach the triple agenda without more injection of capital. To reach the 50% increase in funding, one way is to reduce our equity-to-loan ratio so that with the same equity we can give out more loans,” Kouame outlined. “The second way is to use hybrid capital, with member countries increasing capital (contribution) without increasing their voting share. The member countries can share this guarantee as a part of the portfolio so that it can free up space to give out more loans without stretching our balance sheet.”
As the WBG relies on funding from member countries and serves sovereign clients, it must strategically manage its balance sheet to optimize its lending capacity. By adjusting the equity-to-capital ratio, the WBG can increase loan sizes without requiring additional capital, maximizing its impact.
Kouame noted that the outcome of the recent US presidential elections is unlikely to have a significant impact on World Bank operations, despite the US being its largest contributor. He expressed confidence that India will achieve its ambitious 8% GDP growth target, despite a slowdown to 6.7% in the first quarter of FY25, attributed to reduced government capital expenditure in the lead-up to the general election. “We expect a pickup in private investment in the coming quarters. Our high-frequency data shows signs of interest from the private sector to make new investments,” he stated. “The high cost of money will not change their mind if they can get a high return on their investments.”
The World Bank’s commitment to green projects, coupled with its increased lending capacity, represents a significant opportunity for developing countries, particularly India, to accelerate their progress toward sustainable development and economic prosperity. The Bank’s strategic approach to balance sheet management and its focus on collaborative partnerships with the private sector positions it to play a pivotal role in driving positive change and shaping a more sustainable future for the global community.
