World Bank's Equity Ratio Change Could Boost Lending
By Andrea Shalal
WASHINGTON (Reuters) -Given big cuts in development aid by Europe and the United States, think tanks and other groups are urging the World Bank to reduce the equity-to-lending ratio of its main lending arm to free up billions in additional lending capacity.
Reducing the equity to lending ratio of the International Bank for Reconstruction and Development to 17% from 18% would allow the bank to boost its lending capacity by $30 billion to $40 billion without burdening taxpayers or shareholders, or jeopardizing its capital reserves, said Eric Pelofsky, vice president of the Rockefeller Foundation.
He said a large portion of these new resources could be used to provide loans to help governments rapidly address actual or anticipated budget gaps and shore up health-care networks, water and sanitation systems, or other critical public systems impacted by foreign aid cuts.
The bank could also offer short-term, low-interest loans to non-governmental organizations facing program cancellations, layoffs, and even bankruptcy that would help them bridge to new long-term funding models, Pelofsky said.
The World Bank voted last year to change its internal lending guidelines and lower its equity-to-lending ratio by 1 percentage point as part of reforms recommended by an independent commission for the Group of 20 major economies. It took a similar step in 2023, dropping the ratio to 19% from 20%.
Since U.S. President Donald Trump returned to office in January for a second term, his administration has cut billions of dollars in foreign assistance in a review that aimed to ensure programs align with his "America First" foreign policy. European governments have also cut their foreign aid budgets.
"Inaction will have concrete consequences," Pelofsky said, citing studies which say U.S. foreign aid cuts could put millions of lives at risk.
Jubilee USA Network, a religious development group, said it backs the push, and it urged the World Bank to act quickly.
"The World Bank can and should make this decision as soon as possible," said Eric LeCompte, the group's executive director and a United Nations adviser. "With the significant cuts we've seen from the U.S. and Europe on development aid, this action by the World Bank can fill this aid gap."
(Reporting by Andrea Shalal; Editing by Leslie Adler)
