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World Bank chief to 'push' its balance sheet, vows to protect 'AAA' rating

[June 14, 2023] By David Lawder

KINGSTON, Jamaica (Reuters) - World Bank President Ajay Banga told Reuters that he will "push" the lender's balance sheet hard to help fight climate change and other crises, but this may only yield tens of billions of dollars in additional annual lending, not the hundreds of billions hoped for by some.

Banga said in an interview late on Tuesday that he will roll out steps in the coming weeks and months to evolve the World Bank beyond its traditional anti-poverty mission to fight climate change, pandemics and other global challenges and scale up its financial capacity.

On balance sheet leverage, he said he would "push it as hard as you can," but not to the point of threatening the bank's top-tier, "AAA" credit rating -- the source of its ability to borrow and lend at very low rates.

"My logic is that if you add up all these kinds of ideas together, annually, you're looking ... in the tens of billions, not in the hundreds of billions" of dollars, Banga told Reuters on his first foreign trip in the job to Jamaica and Peru.

"I just think we have to be a little careful and a little sensible, of just how much we do on this, but we should do as much as we possibly can," Banga said.

His comments inject a dose of reality into optimism from some in the development community that balance sheet alchemy at multilateral development banks can achieve a substantial part of the massive increase in lending to finance the clean energy transition -- a need that he and other experts estimate in the trillions of dollars annually.

The World Bank Group made total lending commitments of $104 billion last year.

OPTIONS WEIGHED

Finance ministers and non-profit groups alike are looking to Banga, the Indian-born former CEO of MasterCard, to devise ways to channel vast amounts of private capital into developing countries to help them cut carbon emissions and fund job-creating investments to make their economies more resilient.

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Incoming World Bank President Ajay Banga is welcomed by U.S. Treasury Secretary Janet Yellen (not pictured) at the Treasury Department in Washington, U.S. June 1, 2023. REUTERS/Jonathan Ernst

U.S. Treasury Secretary Janet Yellen told Banga as he took office on June 2 that she wanted him to "get the most" from the World Bank's balance sheet.

He said the bank is now talking to shareholders about using so-called "hybrid capital" or subordinated debt, which would allow more leverage because ratings agencies treat a portion of it like equity -- a technique used in the banking sector for decades.

Some economists have suggested that International Monetary Fund Special Drawing Rights monetary reserves could channeled by rich countries to the bank as capital to back new bond issues worth hundreds of billions of dollars. But Banga said he viewed the idea as largely unviable, because long-term project loans against liquid central bank assets could create a dangerous asset-liability maturity mismatch.

"I'm not signing on," he added.

Using "callable capital" -- funds pledged but not paid-in by rich countries that can be called on to back World Bank losses -- is another option, advocated in a G20 report on multilateral development bank capital adequacy.

But Banga said this step would take more time to develop because not all ratings agencies would allow callable capital to be used to increase lending, and some countries may have to change laws governing their World Bank shareholdings.

He said he hoped to be able to provide details on what the bank could do in this regard by the time of its annual meeting in October.

(Reporting by David Lawder; Editing by Kim Coghill)

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