As the two so-called Bretton Woods institutions mark their 80-year anniversary, they are under growing pressure to reform and deal with the “polycrisis” enveloping the world.
Many developing nations are struggling with growing food insecurity, income inequality and massive debts that are taking up much of their resources.
All of this is making it harder than ever for them to invest in low-carbon energy or prepare their citizens for the growing threat of climate change. At the same time, some wealthy countries have been scaling back their foreign-aid spending.
While the two financial institutions are undergoing reforms, including changes designed to help them tackle climate change, progress so far has been slow.
Developed countries pledged US$11bn at the spring meetings to help boost the World Bank’s lending capacity. However, calls for new funds and debt relief for the world’s poorest countries remained largely unanswered.
In this Q&A, Carbon Brief explains the key outcomes from the spring meetings. The Q&A also looks ahead to the COP29 climate summit in Azerbaijan, where countries are due to agree on a new climate finance target.
Why are the World Bank and IMF spring meetings important for climate action?
Developing countries need large sums of money to address the climate and development challenges that they face.
An assessment by the Independent High-Level Expert Group on Climate Finance (IHLEG) in 2022 concluded that developing and emerging countries – excluding China – need to invest US$2.4tn every year, by 2030, to meet their climate goals. This amounts to a fourfold increase from current levels.
(In the report, China is considered alongside the “advanced economies” of Europe, North America and East Asia and the Pacific that see the majority of global climate investment.)
The same group stated that insufficient investment, particularly in emerging and developing economies, was the “primary reason” that the world was “badly off track” on the path to its Paris Agreement targets.
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What is happening today is that countries are defaulting on their development priorities and climate priorities instead of defaulting on their debt.…[They are] doing this because it’s very difficult to get your debt restructured within the common framework.
Marina Zucker-Marques, senior academic researcher, Boston University Global Development Policy Center
Meanwhile, the world’s poorest countries are facing what the World Bank has described as a “great reversal”, with surging debt distress, food insecurity and income inequality increasing since the Covid-19 pandemic. This “polycrisis” makes it harder for them to address climate change.
Multilateral development banks (MDBs) distribute billions of dollars to developing countries every year, largely as loans. These banks are widely viewed as vital for expanding international climate finance and, as the largest MDB, the World Bank is expected to play a key role.
MDBs provided a record US$60.9bn of climate finance to developing countries in 2022. However, IHLEG estimates that raising US$2.4tn of investment for such nations would require around US$250-300bn annually, by 2030, from MDBs and other development finance institutions.
Meanwhile, the IMF – which also lends money, but with a focus on financial stability rather than development – could play a vital role in aiding debt-laden countries that are also facing severe climate hazards.
Over the past year, the World Bank has been undertaking reforms as part of its “evolution roadmap” to increase its spending in developing countries, including more money for climate-related projects.
This came amid a broader push by a group of global-north and global-south nations for reforms to the international financial system – in part to scale up climate finance.
Progress has been slow. One review by the Centre for Global Development concluded that only one-fifth of the required reforms have been implemented by the World Bank so far and, in general, there has been uneven progress across the MDBs.
The spring meetings provided an opportunity for leaders to discuss the status of these activities and push for more progress.
Yet there remains a great deal of mistrust around the role of these institutions in addressing climate change from those who view them as complicit in many of the problems facing developing countries.
“The IMF, as well as the World Bank, contribute greatly to the economic entrapment of the global south,” Dr Fadhel Kaboub, a senior advisor at the thinktank Power Shift Africa, told a press briefing ahead of the spring meetings.
Issues highlighted by campaigners include what they regard as the IMF’s punitive policies for debt-laden countries and the World Bank’s continued financing of fossil-fuel projects.
Finally, the COP29 climate summit in Baku, Azerbaijan, at the end of this year is expected to be the “finance COP”, with nations set to agree on a new climate-finance target to support developing countries.
Writing ahead of the spring meetings, Danny Scull, senior policy advisor for public banks and development at the thinktank E3G, explained that the spring meetings “will set the tone for a key year of transforming the international finance system, which is not limited to these DC-based institutions”.
Are countries giving the World Bank more climate finance?
At the end of this year, wealthy countries are due to “replenish” the International Development Association (IDA) – the arm of the World Bank that provides concessional and grant-based finance to the world’s poorest nations.
Given the challenges ahead, World Bank president Ajay Banga has stated that this replenishment should be the “largest of all time”, calling for US$30bn in pledges. Such a commitment would allow IDA to lend more than US$100bn.
Much of this money would be climate finance, as the World Bank has pledged to spend 35 per cent of its funds on climate-related projects, rising to 45 per cent by 2025.
Country surveys suggest that IDA funding tends to be well received by developing nations, compared to other sources of funding. However, developed countries such as the US and Germany have reduced their IDA pledges in recent years. Many have cut the foreign aid budgets from which their IDA contributions are drawn.
The last IDA contribution by the UK for example, was less than half its previous one. The government stated in 2022 that it planned to spend more on direct country programmes in order to “control how exactly taxpayers’ money is used to support our priorities”.
Some nations, such as the US, have stressed the need for the World Bank to do more with its existing resources, rather than relying on new investments from donor countries. (See: What is the World Bank doing to ‘unlock’ more money?)
According to the thinktank E3G, an “ambitious” IDA replenishment by wealthy nations would go some way to “re-establish[ing] trust with developing countries” – particularly those in Africa, where more than half of the IDA-eligible states are located.
A report released by the G20 Independent Expert Group last year describes IDA as “the largest source of long-term, cheap financing to low-income countries”, but adds that it is currently “too small to properly address the needs for [climate] adaptation, resilience and mitigation”.
The group therefore recommends a tripling of finance from IDA. This would require a “sharp” increase in contributions from donor countries.
The spring meetings provided a space for discussion of IDA replenishment, which Banga made clear was one of his priorities. A replenishment meeting taking place the week after the event is expected to provide more clarity on how much countries will donate.
What is the World Bank doing to ‘unlock’ more money?
The World Bank is under pressure to change the way it operates and assesses risk in its lending, in order to “unlock” more money from existing funds.
In 2022, an influential report for G20 finance ministers into “capital adequacy frameworks” highlighted measures that it said could unlock “several hundreds of billions of dollars” in extra lending from MDBs.
Crucially, the expert group said this could be done without threatening the financial stability or credit ratings of these banks.
The World Bank has already announced various measures over the past few months to boost lending. However, observers say further steps are needed.
A study by the consultancy Risk Control, which assessed the impact of the G20 report’s proposals, concluded that they could unlock an extra US$162bn in lending over a decade from the International Bank for Reconstruction and Development (IBRD) – the arm of the World Bank that focuses on middle-income countries.
It also concluded that the reforms could free up an extra US$27bn in lending from the IDA.
Speaking to journalists during the spring meetings, Banga said that the World Bank was working through 27 recommendations from the G20 report that apply to the institution.
Franklin Steves, a senior policy adviser in sustainable finance at E3G, tells Carbon Brief that rapid progress was not expected at the meetings:
“There are lots and lots of political, but also legal and technocratic, issues around how the bank and also the other MDBs can implement those measures. They are going to take a lot of time to work through.”
Nevertheless, the spring meetings did see some progress in the World Bank’s reforms programme. Rich countries pledged a total of US$11bn towards new instruments that the World Bank has set up as part of its effort to increase lending capacity.
The US, France, Japan and Belgium committed funds to the portfolio guarantee platform. This money will be available to pay off borrowers’ debts if necessary, allowing the World Bank to lend money more freely.
Separately, a group of countries including Germany, Denmark and the UK contributed to the World Bank’s hybrid capital mechanism. This allows shareholders to raise new funds by investing in special bonds from the bank.
According to the World Bank, in total these additional funds will allow it to lend an extra US$70bn over the next 10 years.
Generally, the spring meetings also highlighted the World Bank’s interest in working more with the private sector to mobilise finance for renewable energy and other key investments. In an interview with Agence France-Presse, Banga said:
“The reality is that that gap between tens and hundreds of billions to trillions is not a number that the bank can fill…That’s why you do eventually need the private sector.”
The World Bank president’s language mirrors that of other leaders, such as former US climate envoy John Kerry, who has stated repeatedly that “no government in the world” has enough funds to address climate change on its own.
Banga said the bank was working to address regulatory uncertainties in developing countries, foreign currency risk and protecting private investors from war and other unrest.
At the spring meetings, the bank also launched a new partnership with the African Development Bank and private partners to provide 300 million people in Africa with access to electricity by 2030.
This approach has faced criticism from campaigners, who argue that the private sector has so far failed to mobilise significant climate finance for developing countries.
A report from the Bretton Woods Project launched just before the spring meetings concluded that creating “bankable” low-carbon projects in developing countries is “far from straightforward”. It also noted that ensuring such bankability can clash with the interests of citizens in those countries and jeopardise a “just energy transition”.
Did the spring meeting provide any debt relief for climate-vulnerable countries?
Just ahead of the meetings, Bulgarian economist Kristalina Georgieva was chosen for another five-year term as the IMF managing director. Her reappointment comes at a fraught time for the institution, as the world faces a mounting global debt crisis.
This issue is rising up the global agenda, with newspaper editorials and prominent figures calling for action to help debt-laden developing countries.
Around 60 per cent of low-income nations are trapped in a cycle of paying off debt, which was exacerbated by borrowing during the Covid-19 pandemic and a surge in interest rates.
Developing countries spent US$443.5bn on servicing their debts in 2022. Analysis by the ONE campaign concluded that, as of 2024, more money is flowing out of developed countries to service their debts than is flowing into their governments from external sources.
Many countries, particularly in Africa, are spending more on interest payments than on healthcare, education or climate action. This is particularly problematic for debt-laden nations – such as Malawi – which are dealing with climate-driven disasters and need to spend money on recovery and adaptation.
Analysis by the Debt Relief for Green and Inclusive Recovery (DRGR) project found that among 66 of the world’s most economically vulnerable nations, 47 will likely face insolvency in the next five years if they invest the amounts required to meet their climate and development goals.
Many civil society groups blame the IMF for contributing to these issues. Its approach of encouraging austerity policies so that countries can pay off debts has been responsible for “keep[ing] developing countries in a cycle of crisis”, according to a statement released by ActionAid USA country director Niranjali Amerasinghe.
Moreover, according to E3G, the role of the US Federal Reserve in increasing borrowing costs and the failure of wealthy countries to provide debt relief has been “tremendously corrosive to trust” with developing countries.
Ahead of the spring meetings, civil society groups and academics called for major interventions to address these issues, such as the immediate cancellation of public debt payments for African countries and the “urgent reform” of the G20 “common framework”.
Wealthy creditor nations in the G20 established the common framework in 2020 to help coordinate the restructuring of debts. However, despite the high demand, only four developing countries have used it so far and it has been widely dismissed as inadequate.
Marina Zucker-Marques, a senior academic researcher in global economic governance at the Boston University Global Development Policy Center, tells Carbon Brief:
“What is happening today is that countries are defaulting on their development priorities and climate priorities instead of defaulting on their debt.…[They are] doing this because it’s very difficult to get your debt restructured within the common framework.”
One issue is debt sustainability analysis, which is meant to guide the borrowing decisions of low-income countries. As it stands, this calculation of how much money countries can pay towards their debt obligations does not account for their social, development and climate needs.
At the spring meetings, the IMF and the World Bank started discussions of how to reform this analysis to account for climate action and other issues. “This is a welcome path, but it’s something that is going to take two or three years to have a result,” Zucker-Marques explains.
The meetings also saw the launch of an independent review into the links between sovereign debt, nature and climate change, which will consider potential solutions such as debt for nature or climate swaps.
Did leaders decide on ‘innovative’ new sources of climate finance?
Raising the large sums of money required to tackle climate change is expected to involve tapping new sources of finance. Some of these sources were discussed during the spring meetings.
Representatives from a small group of global-north and global-south countries met on the sidelines of the event in the second ever in-person meeting of the international tax task force.
The goal of this initiative is to analyse and design new forms of taxation that could be used to raise money for climate and development needs. Options being considered include taxes on fossil-fuel producers, shipping fuel, air travel and financial transactions.
The group, co-chaired by France, Barbados and Kenya, was joined by Colombia at the event, bringing its total membership up to eight.
Kenyan climate change envoy Ali Mohamed said in a statement that their goal was to “raise much needed financing to tackle climate change while having minimal impact on ordinary people”.
The task force’s ambition is to present one or more options for taxes at COP30 in 2025, with the goal of gathering a coalition of nations that would be willing to implement them. It will present its initial findings at COP29 in Baku.
Meanwhile, there was growing momentum around the idea of a global tax on billionaires, in part to pay for climate action. A “wealth tax” of 2 per cent, which could raise US$250bn each year, was initially proposed by G20 chair Brazil in February, but received support from other leaders at the spring meetings, including IMF head Georgieva.
The concept will be developed further and presented at a G20 meeting of finance ministers and central bankers in July.
Finally, there was a lot of pressure from NGOs at the spring meetings to shift World Bank finance away from fossil fuels and into low-carbon energy sources. Three US senators also issued a public letter to Banga asking him to commit to ending fossil-fuel financing.
Oil Change International analysis shows that the bank was providing roughly US$1.2bn a year to fossil fuel projects in developing countries, between 2020 and 2022. This is in spite of the World Bank committing to “align” all of its lending with the Paris Agreement as of July 2023.
Paola Yanguas Parra, a policy advisor at the International Institute for Sustainable Development, tells Carbon Brief that current geopolitics are making calls to end fossil-fuel financing harder. “There is a lot of ‘gas as transition fuel’ and ‘gas as development’ being supported [by the World Bank],” she says.
In the end, there was no commitment from the World Bank to change its policies on fossil-fuel financing.
What comes next for global financial system reform?
This year is set to be a critical milestone for international climate finance.
When nations gather in Baku for COP29 in November, they will decide on a “new collective quantified goal” for providing climate finance to developing countries. This will replace the US$100bn annual goal, which developed countries may finally have met in 2022, two years after the 2020 deadline.
The COP29 presidency hosted a “dialogue on enabling global action for climate finance” at the spring meetings, which saw president-designate Mukhtar Babayev sketch out broad priorities for the new climate-finance goal.
Other international events will feed into the climate summit and give a sense of progress towards international financial system reforms. In particular, G20 host Brazil will oversee continued discussions around finance at a meeting in July.
The World Bank and IMF annual meetings will then take place in October, shortly before COP29.
This story was published with permission from Carbon Brief.
