The Word Bank continues to finance fossil fuel energy and infrastructure, while transparency falls short in crucial areas of operation. Despite introducing the World Bank Group Scorecard, the Bank’s new silver bullet against all transparency woes, and other far-reaching decisions, our criticism persists.
The press release by the German Federal Ministry for Economic Cooperation and Development (BMZ) draws a positive interim conclusion. State Secretary Niels Annen is quoted as saying: “The World Bank is now bigger and better than ever, and has thus found the right answer to the G20’s call for a stronger role in financing sustainable transformation.” One argument in favor of this, he said, is the new “World Bank Group Scorecard,” which for the first time provides a unified system of objectives and indicators for all business areas (BMZ 2024).
We do not share the assessment that the World Bank has become a better bank. The definitions of a better bank differ fundamentally between some shareholders and Bank management on the one hand and civil society representatives on the other.
It is problematic that a better bank is primarily portrayed as bigger and faster. Under the pretext “development delayed is development denied” (DC-Paper 2024), President Ajay Banga and the World Bank management are promoting drastically reduced project preparation times of 12 months, shorter project documentation and the delegation of decision-making authority to management and their project teams (Banga 2024). In addition, funds are increasingly being provided through indirect financing instruments where developmental impact is difficult to track.
Even if well-intentioned, these changes bring additional risks for the people living in the areas where the projects and programs are implemented. The president fails to explain how institutional accountability and oversight will be strengthened to match the proposed project acceleration. On the contrary: Ajay Banga never tires of talking about poverty reduction when it comes to mobilizing scarce public funds to replenish the International Development Association (IDA). However, he does not see the World Bank as responsible for the impoverishment and human rights violations associated with many of the projects it supports.
For example, the private sector arm of the World Bank Group, the International Finance Corporation (IFC), is not held accountable for projects’ negative impacts. The IFC keeps blocking the demand to introduce a remedy framework to ensure that, in the event of negative impacts, remedial measures are also financially supported. The IFC management’s handling of the Bridge Academies case has shown that even in the most severe cases of negative impacts, there is currently no guarantee that people adversely affected by World Bank investments will receive quick and effective relief. So far, Ajay Banga has shown no interest in changing this state of affairs. This blatant hypocrisy on the part of the World Bank has led to great mistrust among civil society regarding the Bank’s stated mission of ending poverty on a livable planet.
In our opinion, the funding volume does not make a better bank. For decades, civil society has criticized the pressure to grant loans as the main shaping factor of the work culture at the World Bank. The “pressure to lend” hinders the functioning of the complaints mechanisms (Schäfer 2024). Moreover, this pressure reduces the likelihood of alternative proposals for decentralized project designs and incentivizes project leads to prioritize large-scale projects with big lending volumes. The ongoing preparations for lending for the world's largest planned dam, the Rogun Dam in Tajikistan, illustrate the problem well. Over 50,000 people will have to be resettled to make way for the dam’s construction. Viable alternatives to the dam are not considered. Despite acknowledging massive criticism of the project, the board of directors plans to approve this loan in December.
The scorecard could play a role in the transition to a better bank, provided that the right indicators are chosen to measure progress. However, it appears characteristic that one of the 22 indicators, out of over 150 originally, aims to measure the volume of mobilized private investment. Meanwhile, quality of the measurement of private capital mobilization is unsatisfactory – according to both civil society and the private sector (PWYF 2024). During the annual meeting, the lack of indicators for measuring economic transformation was criticized. While the scorecard should clarify the World Bank’s impact to taxpayers (Banga 2024), it is ineffective in tackling the structural transparency deficits in trade finance (Urgewald 2024) and climate finance (Oxfam 2024). In its current state, the scorecard provides an illusion of transparency.
The transparency deficits are particularly evident in the World Bank’s private sector arm, the International Finance Corporation (IFC). The IFC structures its trade finance activities into nine different programs. However, only two of these are listed in its annual report. Our research indicates that the IFC committed $16.1 billion to its trade finance programs in fiscal year 2023, of which an estimated 29%, or $4.7 billion, went to the oil and gas sector. Since 2019, IFC has doubled its trade finance commitments and has invested more than $60 billion in trade finance from 2019 to 2023. The $16.1 billion trade finance commitment represents 58% of IFC’s equity in fiscal year 2023 (Urgewald 2024). Despite this enormous sum, IFC management refuses to be transparent about its trade finance operations. Our figures are only internally assessed by IFC management and simply denounced as wrong. For over a year, we are waiting for a counterstatement or even a conversation to clarify this vital point. Trade finance, probably IFC’s most important financing instrument, will continue to grow in IFC’s portfolio without the chance of public scrutiny. Besides promoting the fossil fuel sector, its developmental added value is more than questionable.
With the aim of mobilizing private investment, scarce IDA resources are also used to facilitate trade financing in the poorest countries through the IDA private sector window (PSW). While the WBG can reduce financial risks for the private sector through the trade finance supported by the IDA-PSW, it increases its own portfolio’s reputational risk. Currently, the World Bank Group uses about a quarter of IDA-PSW funds for trade finance, which has very limited traceability, questionable development impact, and potentially significant investment in fossil fuel trade (Urgewald 2024). For almost all PSW-supported projects in the largest trade finance program (Global Trade Finance Program), the IFC website does not list even the receiving financial institutions or countries. We are therefore very critical of the use of scarce concessional IDA funds for trade finance and do not support the proposed increase in the PSW.
During the World Bank Annual Meetings, Congresswoman Maxine Waters introduced a proposal for how the World Bank could actually be transformed into a better bank. If implemented, Representatitve Waters’ bill could solve many of the structural problems outlined here. The bill aims to “improve the functioning and accountability of international financial institutions, increase support for low-income countries, and promote human rights and environmental standards in global financial projects” (Waters 2024).
Germany must also take more responsibility for supervising the World Bank Group. For the sake of development, far-reaching changes are currently being made to speed up and expand lending. Parliament must increase oversight of the World Bank to strengthen the rights of affected, increase institutional accountability, and improve transparency in lending. As a basis for effective parliamentary oversight, the Bundestag should advocate a comprehensive transparency initiative that encompasses all lending instruments. The Bundestag should require banks to expand their reporting to parliament to include representatives of the independent complaints mechanisms and civil society.
