World Bank to create catastrophe toolkit in response to calls for financial system reform

The World Bank President, Ajay Banga, on Friday, said the bank would create a catastrophe toolkit in response to the calls for a reform of the current global financial architecture.

Global debt profiles especially of countries in the global south are constantly on the rise with many countries now adjudged high-risk countries thereby keeping investors and investments far from them. Some of these countries are the worst hit by the changing climate and to cater for their disaster-prone population and communities, they continue to borrow at relatively high interest rates.

These debts are some of the many development questions that brought about the just concluded summit for a new financial pact and a transformation of the Bretton Wood initiative which birthed the World Bank.

Mr Banga, who recently assumed office as the president of the World Bank, attended the summit in Paris where he listened to the arguments made from Thursday morning through Friday. He, at a Friday press conference, said the toolkit will be comprehensive such that it addresses crisis preparedness, response and recovery.

The World Bank will achieve this in five ways, Mr Banga said.

The multilateral bank will help governments build advanced emergency systems so they can be ready to respond immediately when an emergency hits. This will allow more countries to build emergency systems and have quick-disbursing finance available in times of crisis.

Additionally, it will provide new types of insurance that will backstop development projects allowing work to get back on track quickly.

“We actually have these bonds out now in Peru and Jamaica and the idea is to scale and replicate them to other parts of the world,” he said.

According to the bank, this approach will enable businesses to sustain operations and protect jobs, building resilience and long-term sustainability.

The bank also plans to give countries new flexibility to quickly redirect a portion of their funds for an emergency response so cash is immediately accessible; allowing countries to immediately be able to repurpose a portion of their lending portfolio for emergency needs when a crisis occurs including redeploying un-disbursed funds in longer-term infrastructure projects for immediate disaster response.

Perhaps the most important to countries in the global south is the plan to offer a pause on debt repayments so countries can focus on what matters and not worry about the bill.

Also, there will be catastrophe insurance, which will be embedded in the World Bank’s lending products with the intent that those insurance premiums and interest will be covered through the generosity of others and that would ultimately give countries recovery resources without adding to their debts.

What does this mean for Africa?

Dan Kunle, an energy and business consultant, said Africa needs to see the criteria the World Bank is adopting to grant the reliefs, as he is certain these criteria will differ from country to country because smaller countries with huge debts and climate hazards will get urgent attention and possible generous interventions than some bigger countries who are less exposed.

Acknowledging that Africa is faced with poverty and several instabilities including climate change, he noted that “each country in Africa may have to develop their framework for the World Bank offerings because of the peculiarities from region to region.

“Carbon emissions and reductions are paradoxes that national leaders must confront as is the case in China and Germany. Can African countries meet the minimum requirements of the developed countries who are the major inducers of both emissions and reductions now?” Mr Kunle asked, adding that this delicate process of balancing will attract experts and a sustainable period to attain the desired equilibriums.

For Nigeria to key into this, he said the government needs to rapidly study the World Bank’s criteria for such reliefs, and quickly develop her framework to capture all the dynamics surrounding climate change and Poverty.

“Nigeria must exhibit transparency in her poverty reduction programme and energy transitions from fossils to clean power,” if it must access these reliefs, he said.

A private-sector investment lab

Mr Banga said trillions are required for the cocktail of challenges confronting the world today. Development banks, governments and philanthropies alone cannot address the challenges, and “so we need the private sector,” he said.

However, “our efforts over the years have not come nowhere near what we need to be showing as an output.”

This has led the bank to try a new approach called the private sector investment lab, a concrete step which is designed to identify and remove the barriers preventing private investment in emerging markets.

“The lab will put an emphasis on scaling transition finance; the initial focus is renewable energy and sustainable energy infrastructure,” Mr Banga said.