While the overall financial performance of the world’s economy is not as poor as it was in 2008, the World Bank’s rate of lending is almost as high as it was in those darker days. As a result, finance ministers and central bankers from around the globe will meet in Washington this week for the spring World Bank / International Monetary Fund (IMF) spring conference.
In addition to discussing the slowing growth of emerging economies, poor export performance, and the highly topical issue of international tax havens, the two institutions must also grapple with a sizable surge in funding requests. If lending continues at current levels, the World Bank will have lent somewhere between $25 and $35 billion (US) by June.
Following the global economic meltdown in 2008, the Bank’s lending reached a high of $44.2 billion in 2010, but had settled substantially from that number in the following years.
According to World Bank President, Jim Yong Kim, “It is our highest lending in a non-crisis period ever.” In response, the Bank is now seeking to raise additional capital in order to cover the increased demand for funding.
Kim indicated that part of the surge was from a range of crises, including Ebola, refugees fleeing Syria; and other areas in conflict; the biggest culprit: diminishing oil export profits. While emergency funding needs have caused much of the problem, almost half of this year’s lending to date (approximately 45%), has come from “development policy lending.”
“Development policy lending” goes directly to a nation’s budget, and is not tied to a specific project or need. These loans have been necessitated by the collapse in oil prices (and several other export commodities), leaving nations like Nigeria, Indonesia, and Peru with huge gaps in their budgets. Nigeria alone has been forced to turn to the World Bank for over $11 billion in budget deficit funding this year thanks to these conditions.
This rate of lending has caused some to criticize the World Bank for usurping the role of the IMF in crisis-response funding. Many feel that this may be enabling governments to engage in irresponsible fiscal policy making, because it allows them to avoid the difficult political processes these nations would otherwise be forced to experience if they turned to the IMF for assistance.
For its part, the World Bank rejects this criticism, insisting that its lending policies are almost as stringent as the IMF’s and that it is not trying to step on the other agency’s territory. “I think you would be hard-pressed to find a country that sees us as an easy mark compared to the IMF,” Kim said.