Development banks need a bold new vision to tackle global crises
3 min read
Societies around the world are struggling to recover from the Covid-19 pandemic, the fallout of the Ukraine war and address climate-related events. People across the United Kingdom are also dealing with the impact these global events have had on inflation.
Given the global impact, the international community has struggled to respond to these challenges and to ensure the whole world is able to recover.
Recovering is especially difficult for developing countries which have few financing options to deal with unsustainable debt burdens and kickstart growth. Understandably, governments need to focus on pressing domestic challenges, but global challenges need global action.
For too long, the World Bank has been too slow and too timid to respond to the biggest global challenges
To rise to the challenges of climate change and future pandemics, deliver global growth and prosperity, we must find a way to finance global solutions. From Essex to East Africa, getting this right will help keep families safer and more secure. It can help to create jobs and opportunities around the UK and around the globe. It will help build a future which goes from strength to strength, rather than lurching from crisis to crisis.
The UK’s aid budget continues to do vital work. However, current economic realities combined with pressures across public spending make it unlikely we will see a surge in new public funding from governments to tackle global challenges.
Therefore, there is an increasing need to look beyond traditional forms of development spending. Since 2015, around four per cent of the UK’s aid budget has been injected into our Development Finance Institution (DFI), British International Investment (BII). DFIs can provide patient public capital to unlock investments and drive economic growth. BII is operating to direct investment towards areas of need and deliver real impact on the ground.
The UK also plays a role in helping developing countries to tackle their unsustainable debt burdens, using its unique position to lead and support meaningful reforms to the international debt relief system. Furthermore, the UK has led the way in creating new innovative financial instruments, such as the Room to Run Guarantee for the African Development Bank, enabling that organisation to increase its investments across the continent of Africa.
There is one other thing that Rishi Sunak can do this year, which will water many plants with one hose. With his background in finance and economics, the Prime Minister is well placed to champion a reform agenda for the multilateral development banks, starting with the World Bank, to urgently increase the funding they can mobilise.
Multilateral Development Banks, like the World Bank, have a huge capacity to make a difference. They should be stepping in at scale to help fund the infrastructure that resilient societies need.
The World Bank was set up to provide funding at cheaper rates than countries could get on the open market. But today, countries are increasingly turning to China or others to borrow more quickly at higher interest rates and with fewer protections.
For too long, the World Bank has been too slow and too timid to respond to the biggest global challenges. The Bank must be bold and recognise the need for investment in cross-border challenges and global public goods like reducing carbon emissions and pandemic preparedness.
As one of the largest shareholders of the World Bank, the UK has been leading a charge to encourage the Bank to increase its investment capacity and maximise the use of its balance sheet.
The UK now has a unique opportunity to convince the World Bank’s other shareholders to back these changes. It’s time for Multilateral Development Banks to share the burden in getting the world back on track, because rebuilding societies after crises is what these institutions were created for.
Vicky Ford, Conservative MP for Chelmsford
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