Published September 2023
World Bank reform and implications for development cooperation

Dr. Jürgen Zattler is the Director-General for International development policy, 2030 Agenda and climate at the German Federal Ministry for Economic Cooperation and Development where he started working 1986. Over this time, he held various roles including Director General for Multilateral and European Policy, Head of the Division on World Bank, the International Monetary Fund (IMF), debt related issues and as Deputy Head of the Division for the World Trade Organisation (WTO) and trade policy. Dr Jürgen Zattler is a development and macroeconomist with over 30 years of international experience. He served as World Bank Group Executive Director representing Germany between 2017 and 2020. Prior experience in the public and private sector includes the European Commission in Brussels, working on macroeconomic issues related to developing countries and at the Dresdner Bank in Berlin. He holds a PhD in economics from the University of Giessen

Interview by Marijana Markotić, Programme Officer at the Dag Hammarskjöld Foundation

Interview with Dr. Jürgen Zattler

1. The World Bank’s shareholder countries are putting the institution under increased pressure to make significant changes. In October 2022, Germany, the United States and other major funders called on the World Bank management to develop an ‘evolution roadmap’. Multiple plans are underway, including the World Bank’s reform roadmap. What are the World Bank’s reform trajectories and what are the related potential outcomes?

It was indeed last year that our Governor at the World Bank, Minister Svenja Schulze, together with the United States asked for a fundamental reform of the World Bank. During Germany’s presidency of the G7 in the same year, we managed to bring the G7 on board. At the Annual Meetings in October 2022, the World Bank Management was asked to present a roadmap with the understanding that comprehensive reforms will be decided upon at the 2023 Annual Meetings of the World Bank Group and the International Monetary Fund (IMF) in Marrakesh.

Our reform proposal is substantial and has the following elements: First, we would like to adjust the World Bank’s corporate goals. As you know, the Bank has two goals: ending extreme poverty and boosting shared prosperity. We would like to complement that in order to take into account that development progress more and more depends on successfully building resilience and tackling global challenges, in particular climate change, the loss of biodiversity, preventing future pandemics and countering fragility and conflicts. Secondly, we would like to see those goals systematically reflected in the World Bank’s business model and operational policies. We also want to see stronger incentives for action related to the above-mentioned global challenges. This means to better reconcile the Bank’s country based model with the provision of global public goods. How do we make the changes required operational? Presently, when asking for support from the World Bank, recipient countries do not take into account that investments in climate, pandemic prevention, protecting biodiversity and combatting fragility can not only have strong benefits for their own countries, but also for neighbouring countries and for the whole planet. Therefore, recipient countries have to receive special incentives by the World Bank for those investments, especially if national benefits are smaller than regional or global ones.

Thirdly, those reforms will have financing implications. We need to increase the Bank’s financial capacity, we need to mobilise more financing on concessional terms to set the right incentives – and we have to use all available financing in a more impactful and transformative way.

2. Will the reform process lead to delivery of higher financing volumes and easier terms for borrowers?

Indeed, this should be one of the objectives. The World Bank Board has already introduced measures aiming at a better use of the Bank’s capital. This led to mobilising some additional US$ 50 billion over the next 10 years. More should be done in that respect, as has been emphasised at the Paris Summit for a New Global Financing Pact. Besides, fresh donor and shareholder money might be needed. But many shareholders such as Germany first want to see the respective adjustments in the business model mentioned above before talking about additional funds.

Finally, I would like to stress that it is not about more money for ‘more of the same’; the objective of the reform is to do business in a different way in the future. For example, if a country wants to improve transport and logistics between two regions, it might go for a road or a railway. After taking into account the effects of the investment in terms of greenhouse gas emissions or on biodiversity, the railway might be the better decision both for the planet and possibly also against its national co-benefits. The Bank therefore has to systematically and transparently internalise those benefits when cooperating with countries – best by attaching a price tag to them in its analysis, strategies and project proposals. This will allow the client countries to take their decisions on an informed basis – and will also create solid ground for the World Bank to suggest incentives for investments in global public goods to pay off.

3. The World Bank recently released its Evolution Roadmap, proposing a dramatic expansion of the bank’s mandate and its lending capacity to address global challenges and deliver global public goods. How might this shift in mandate shape the relative attention and resources the Bank devotes to middle versus low-income countries?

This evolution should and will not shift attention and resources devoted to low- to middle income countries. It will also not play different countries against each other. First, low-income countries are often the ones most affected by climate change and biodiversity loss. A study, commissioned by Germany and released recently by Oxford Economics with the title ‘Multilateral Development Banks for Global Public Goods’1, demonstrates that the national benefits associated with investments in global public goods in many cases exceed the lending costs. Secondly, we need to continue and strengthen our financial support for low-income countries. IDA is a case in point. It is good to see that many countries at the Paris Summit underscored their commitment for a strong IDA replenishment. My country together with the most vulnerable countries (V20)

has suggested to build a ‘Global Shield’ against climate-related risks. The G7 and many other countries are on board for this. Low-income countries will benefit a great deal from this initiative as many of them are amongst the most vulnerable.

4. What is your view of the World Bank governance structures, and what should be done to improve the system? What challenges will the World Bank’s new leadership face?

All countries are represented within the World Bank’s governance structure. The Board has 25 members representing all member countries whereby many Board members represent constituencies with more than one country. Contrary to the UN where each country has one vote, in the World Bank economically more significant countries have relatively more votes, also depending on the Bank shares they hold. There has been some discussion which system is the fairer one with appealing arguments on both sides.

But there is another issue linked to your question. Over time, the economic weight of countries has changed. Some observers claim that the votes should be adjusted in order to better reflect these new economic realities. This issue may again come to the fore when debating a capital increase of the Bank in the future.

5. What is the European Union or Germany´s view about what the World Bank should be focusing on?

From a German perspective, we want to see a big adjustment in the mandate and operational policies of the World Bank. The Evolution Roadmap should not end in minor tweaks. The ambition should be to deliver the biggest reform since the establishment of the World Bank in 1944. I think this is possible if everybody recognises that we will all lose out by heading for the lowest common denominator. We are confident that the new World Bank President will steer the process skilfully.

How do we measure success of the reform process?

Let me highlight three points:

First, we have to clearly define the most relevant global public goods related to the World Bank’s work. According to the study by Oxford Economics quoted above, those are the protection of climate and of biodiversity, the prevention of pandemics and combatting fragility. We have to bear in mind that if everything were considered as a global public good this would imply that nothing is one in the end. A definition that is too broad would undermine our objective. Secondly, based on the definition of relevant global public goods, we have to define a framework for the allocation of resources and concessionality. This is to incentivise the most impactful and effective investments in areas related to GPGs.

Thirdly, there is a broad understanding that we need the private sector to come in and provide investments related to the Sustainable Development Goals (SDGs) and global public goods. This has not worked well in the past, and it is our understanding that the approach so far was not a good one. This is because it was a mainly transaction-based approach, where we tried to incentivise individual private sector investments. But we need to mobilise the private sector, in particular for climate-related investments, in a more systematic and transformative way. Our objective should be to move from that transaction-based to a market-creating approach. For example, in order to create a market for renewables, we need to look at it in a comprehensive way, in particular focusing on the regulatory policies needed to trigger private investments (such as feed in tariffs, the reduction of fossil fuel subsidies etc.) and on complementary public investments required to make it economically and socially viable (such as transmission lines).

6. The Bretton Woods institutions were established to help create a more stable and prosperous global economy. What are the implications of the relationship of the United Nations system to the Bretton Woods institutions? Would the reform weaken or strengthen the relationship to the United Nations system?

The World Bank in the past years has not sufficiently considered itself as part of the financial architecture and the international development architecture; the UN has largely kept unused its potential to orchestrate transformational change and to mobilise other institutions’ contributions.

But now, and with the evolution agenda, it becomes clearer that the World Bank is part of an international architecture along with the United Nations. In the future the World Bank has to consider itself more as part of the global architecture: how to maximise overall benefits? How to shape the Bank’s actions to synergise and catalyse what other actors are doing such as UNDP, WHO, ILO (with regard to social security) and the 80 climate-related international funds?

7. Can the World Bank address the global challenges of today and how can the [World] Bank best use its available resources to support this burgeoning agenda?

I think that the World Bank cannot achieve any of this on its own. It therefore must be understood – and perceive itself – as part of a broader system with the other multilateral institutions, bilateral actors and the private sector. The World Bank can play an important role in bringing all of them together and in mobilising the system. This has been lacking a little bit in the past.

To give one example, in order to make the climate agenda evolve we need a decarbonisation of all sectors, energy transport, agriculture (etc). But the World Bank in the past understood itself as contributor, with investment projects here and there. The World Bank has to steer the decarbonisation across sectors in its partner countries. This means a completely different approach. I strongly believe that with the ongoing evolution process and with the dynamic discussions in other international fora, we have a historic opportunity to make things right.

Endnotes

1

Johanna Neuhoff, Hannah Zick, Yann Girard, Helene Schüle, Jakob Schwab, Peter Wolff, Hanns-Peter Neuhoff, ’Multilateral Development Banks for Global Public Goods, Final Report March 2023’ (Berlin and Frankfurt: Oxford Economics Ltd, 2023), https://www.oxfordeconomics.com/resource/multilateral-development-banks….