The "World Bank Group" inscription on the main building of the World Bank in Washington

World Bank Group reform

Global crises such as protracted drought, pandemics, floods and biodiversity loss are threatening the progress of human development. These crises have impacts that transcend borders; they threaten global public goods and lead to enormous costs, which developing countries and emerging economies often cannot shoulder on their own. The World Bank Group’s existing business model is not adequately equipped to respond to these new challenges effectively.

Development Minister Svenja Schulze and US Treasury Secretary Janet Yellen exchanged views on World Bank reform in a video conference.

In light of this, Development Minister Svenja Schulze and other World Bank Governors proposed concrete reforms to the World Bank management in October 2022. The aim is to make the World Bank fit to face the challenges of the future. With its substantial financial capacity, the World Bank is in a position to help drive a socially just transformation of the global economy. And it has the potential to become a front runner when it comes to fighting poverty whilst tackling global crises such as climate change, biodiversity loss and pandemics.

The World Bank Group presented its vision for changing the institution in the form of an “Evolution Roadmap” in December 2022. The reforms are to be defined in more specific terms before the World Bank Group Annual Meeting in autumn 2023. The BMZ is committed to making the World Bank Group a key supporter of a just, socially and environmentally sound transformation. This is vital to achieving sustainable development.

In order to be able to tackle global challenges and overlapping crises in a sustainable way, the World Bank needs to adapt its country-based business model and create incentives for investing in global public goods such as the climate, biodiversity and global health.
Federal Minister for Development Svenja Schulze October 2022

Concrete reform proposals for the World Bank Group

The World Bank Group needs a new kind of economic approach. It is not just about economic growth, it is also about the impact that this growth has on society and the environment. Sustainability and resilience need to become core goals of the Bank and guide its analysis and operations. Minister Schulze is working to establish a new way of measuring prosperity within the Bank and thus give a different quality to the Bank’s economic policy recommendations. Growth is good if it benefits everyone, for example via social protection systems.

Svenja Schulze, Federal Minister for Economic Cooperation and Development

17 February 2023 Financing Global Survival Internal link

“The scientific consensus about climate change and biodiversity loss is overwhelming. But we urgently need to translate this understanding into a new economic paradigm at the international financial institutions, so that they can reshape their lending practices accordingly.”

The Prime Minister of Barbados, Mia Amor Mottley, and German Development Minister Svenja Schulze in a joint contribution for Project Syndicate

The German government is advocating a new vision for the World Bank that better reflects today’s global challenges. This means expanding on the Bank’s previous goals of ending extreme poverty and reducing inequality.

Current global challenges need to be reflected more strongly in the World Bank’s business model, and the Bank’s activities in developing countries and emerging economies need to be adjusted accordingly. One suggestion in this direction is to take a project’s positive and negative cross-border impacts into account when allocating funding and deciding on the terms of loans. By doing that, the World Bank will be able to create greater incentives for borrowing countries to invest in the protection and provision of global public goods.

The World Bank needs to channel its financing instruments more towards policy reform in developing countries and emerging economies that are facing global challenges. This includes cutting back on climate-damaging subsidies and creating an enabling environment for a sustainable and socially responsible private sector.

The World Bank Group needs to seek recommendations for making more efficient, more risk-tolerant use of its capital in order to be able to provide more funding for climate action and tackling cross-border challenges. The crucial point is to make use of the available capital while maintaining the institutions’ current AAA rating.

In future, loan agreements should include clauses regarding natural disasters and pandemics, which would allow borrowers to temporarily reduce debt service payments in times of crisis. This will give affected countries financial flexibility when their need is greatest.

As at: 20/03/2023