New financial instruments designed to boost the World Bank Group (WBG)‘s lending capacity and enable it to take on more risk for shared global challenges have received significant endorsement. A set of 11 countries announced $11 billion in commitments today for the Portfolio Guarantee Platform, hybrid capital mechanism, and new Livable Planet Fund.
The World Bank Group’s leveraging capability allows the resources pledged to hybrid capital and the Portfolio Guarantee Platform to be multiplied six to eight times over 10 years. Under certain conditions, the leverage amount could reach tenfold. This means the $11 billion in pledged resources could provide up to $70 billion in urgently needed funds, which can be deployed to address cross-border challenges and advance development goals.
According to Ajay Banga, World Bank Group president, the group worked hard to develop new financial instruments that boost their lending capacity, multiply donor funds, and ultimately allow them to improve more lives. Banga stated that the generosity of the countries that provided funding is both an endorsement of the progress the World Bank has made to reform the institution, and a sign of their shared commitment to global development.
Belgium, France, Japan, and the United States pledged to the Portfolio Guarantee Platform, while Denmark, Germany, Italy, Latvia, the Netherlands, Norway, and the United Kingdom made commitments to hybrid capital. Japan will further provide the first contribution to the new Livable Planet Fund.
World Bank reforms and new financial instruments
The World Bank Group has implemented reforms and developed innovative financial instruments as part of the G20-recommended Capital Adequacy Framework review. Moreover, these include adjusting the loan-to-equity ratio, increasing the bilateral guarantee limit, maximizing callable capital benefits, introducing hybrid capital, creating the Portfolio Guarantee Platform, and launching the Livable Planet Fund. The Bank has also introduced 50-year IBRD loans at no additional cost for cross-border projects, and a system to reduce interest rates for projects addressing global challenges, partially funded through the Livable Planet Fund.
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