Support for innovative financial tools could generate up to $70 billion over 10 years
WASHINGTON, USA – New financial instruments designed to boost lending capacity and enable the World Bank Group to take on more risk for shared global challenges have received a significant endorsement.
A set of eleven countries announced commitments, Friday, for the Portfolio Guarantee Platform, hybrid capital mechanism, and new Livable Planet Fund totaling $11 billion.
“Belgium is delighted to provide a USD70 million Portfolio Guarantee to the World Bank’s Global Solutions Accelerator Platform. As Belgium strongly supports the World Bank Group’s new vision to create a world free of poverty on a livable planet, this contribution will help to expand the bank’s lending capacity to assist IBRD clients address Global Challenges such as Pandemic Prevention and Preparedness, including Health System Strengthening and Climate Change, as well as Biodiversity.”~ Vincent Van Peteghem, deputy prime minister and minister of finance, Belgium.
The World Bank Group’s unique leveraging capability enables the resources pledged to hybrid capital and the Portfolio Guarantee Platform to be multiplied six to eight times over ten years. Under certain conditions, the leverage amount could reach tenfold.
The resources pledged today could provide up to $70 billion in urgently needed funds, which can be deployed to address cross-border challenges and advance development goals.
“We worked hard to develop these new financial instruments that boost our lending capacity, multiply donor funds, and ultimately allow us to improve the lives of more people,” said Ajay Banga, World Bank Group President. “The generosity of these countries is both an endorsement of the progress we have made to reform the bank, and a sign of their shared commitment to development globally.”
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 is committed to providing the first contribution to the new Livable Planet Fund.
“Japan is proud to be part of the Framework for Financial Incentives, both as one of the first and the largest contributors to the Global Solutions Accelerator Platform with the amount of $1 billion through the Portfolio Guarantee Platform and as the very first country that is committed to contributing to the Livable Planet Fund. We hope our contribution will be used to help clients tackle global challenges, including pandemic prevention and preparedness.” ~ Shun’ichi Suzuki, minister of finance, Japan.
The World Bank Group has implemented a series of reforms and developed innovative financial instruments as part of the Capital Adequacy Framework review, which was recommended by the G20 Expert Group.
These reforms include:
Adjusting the loan-to-equity ratio to secure $40 billion over ten years from the IBRD’s balance sheet.
Increasing the bilateral guarantee limit by $10 billion.
Working to maximize callable capital benefits by publishing a detailed report for rating agencies to better assess its potential value and the Bank’s financial capacity.
Introducing hybrid capital, giving shareholders and partners an opportunity to invest in bonds with special leveraging potential.
Developing the Portfolio Guarantee Platform that provides a shared approach to risk that will make World Bank financing more widely available.
Launching a Livable Planet Fund that enables governments’, philanthropies’ and other partners’ contributions to incentivize cooperation across borders and tackle shared challenges.
The World Bank Group has taken the additional steps to develop IBRD 50-year loans at no additional cost for borrowers. These loans will be utilized for projects that provide cross-border benefits. Additionally, we created a system to reduce interest rates for projects that address global challenges, which will be partially funded through the Livable Planet Fund.
“The United States strongly welcomes the innovative financial instruments developed by the World Bank as part of the evolution agenda. We are proud to support this effort, including through president Biden’s request to Congress for a contribution to the Portfolio Guarantee Platform that would enable tens of billions of dollars in additional IBRD lending capacity for projects that address priority global challenges and funding of select trust funds and financial intermediary funds that would further incentivize projects with cross-border impacts.” ~Janet Yellen, Treasury Secretary, United States.
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