What’s Behind the US-Driven Reforms Coming to the World Bank? 

Change is coming to the World Bank. While not expected to be formalized until October, it looks like the two big shifts will involve climate change and a bigger emphasis on middle income countries. It’s difficult to predict exactly how the new mission will play out, but one thing is clear: the efforts are being driven by the desire to counter/thwart Beijing’s expanding global influence. Both Treasury Secretary Janet Yellen and National Security Advisor Jake Sullivan devoted chunks of their big China speeches in April to the subject. And it looks like the reforms will go hand in hand with pushing the debunked narrative that Chinese lending is a debt trap while also trying to relegate China to the backseat in the growing number of distressed countries.

“Global Public Goods”

The buzzword behind most of the makeover efforts at the World Bank is “global public goods.” That’s a shift from the World Bank’s current mission of poverty eradication and economic growth, and it’s largely related to climate change. According to the Center for Global Development: 

…the World Bank can support the provision by client governments of private goods that have positive externalities towards the public good we seek—be that global public health or a lower-warming world.

The US, which is the bank’s largest shareholder, was the one who demanded in October that the bank come up with a plan to extend more lending to tackle climate change.

US Treasury Secretary Janet Yellen is an outspoken advocate for the reforms. According to her, “In today’s world, sustained progress on poverty alleviation and economic development is simply not possible without addressing the global challenges that face us all.”

Yellen has floated the idea of including securing private sector portfolios or piloting the issuance of subordinated debt instruments in efforts to do things like decommission coal plants and transition to green energy.

Should that come to pass, it could worsen countries’ debt. According to the Boston University Global Development Policy Center:

A new report by the Debt Relief for Green and Inclusive Recovery Project reveals [emerging markets and developing economies] external public and publicly-guaranteed (PPG) debt has more than doubled since the 2008 global financial crisis, jumping from $1.4 trillion in 2008, to $3.9 trillion in 2021.

Climate finance needs make this problem even worse. In Africa, for example, four countries currently have negative fiscal space, or are in need for immediate finance, of over 50 percent of gross domestic product (GDP). Once climate finance needs are incorporated, the number of countries with negative fiscal space more than doubles to nine countries.

According to Reuters, the World Bank “provided $100 billion from 2020-2022 for global public goods, but estimates that developing countries and the private sector would need to spend far more – $2.4 trillion a year – to address such needs.”

With that in mind, one could argue that these programs are counterproductive – especially considering the simultaneous deagrarianization and deindus­trialization that came with past efforts for development. Or maybe they’re working exactly as intended, as David Oks and Henry Williams write at American Affairs on the “slow death of global development:”

In Brazil, the household debt-to-income ratio rose from 18 percent in 2004 to 60 percent by late 2021. This “premature financialization” of poor-world economies often takes on a highly predatory character: pyramid schemes have enjoyed remark­able growth in African and Asian countries in recent years, with unemployed and underemployed youth a perfect target. One 2017 study found that 70 percent of Nigerian students had bought into at least one pyramid scheme. The popularity of cryptocurrencies like Bitcoin and Ethereum in these countries is a product of the same dysfunction: early Bitcoin adoption in Africa, in fact, was driven by the pyramid scheme company MMM—which had first found large numbers of victims in Russia during the agonies of the 1990s.

In these hollowed-out states state capacity is often replaced by what the Nigerien historian Rahmane Idrissa calls “government by means of the aid industry.”

Who Will the World Bank Reforms Primarily Affect? 

Recent changes at the bank boosted its middle-income (as opposed to low-income) lending arm by roughly 20 percent. According to E&E News, the bank came up with the extra money “mainly through a slight relaxation of the bank’s rules for how much risk it can assume. Specifically, it would lower the bank’s so-called equity-to-loan ratio from 20 percent to 19 percent, which would allow it to increase its lending with the same amount of shareholder money.

Much bigger announcements are expected at the October meetings, including a Yellen-prescribed “stronger mobilization of private capital and domestic resources,” as well as a strong move away from low-income countries to middle income due to the heightened focus on climate change. The Center for Global Development: 

And the places where poverty-reducing goods are most in demand and will have most impact are not the places where goods supporting climate change mitigation will have the biggest impact.

The idea is to do more with less as the US is unlikely to fork over more money for climate action, especially with a divided Congress, and Europe is struggling to pay for the fallout from the Ukraine fiasco.

The reforms, coming during a global pandemic, energy crunch and higher borrowing costs, could force the poor deeper into distress. And that’s not to mention how devastating it could be for climate change preparations in those nations:

Africa would be hit particularly hard (and likely drive them closer to China) as explained by Ken Opalo at An Africanist Perspective:

Washington would be deluded if it concludes, like many American analysts publicly have, that the recent slowdown in financial flows from Beijing (and bailouts of BRI countries) means declining Chinese influence in low-income states. While the “debt-trap diplomacy” narrative in the West is misplaced, it is also true that China’s debtors have strong incentives to stay closer to Beijing — if only to ensure they get bailouts when needed and timely funding for more projects. Developing countries’ financial flows are already in the red vis-á-vis China. In this regard, China has joined high-income countries in Europe and North America as destinations of both licit and illicit net outflows from low-income countries.

​​It is instructive that African states basically disengaged from any serious discussion of the World Bank’s proposed roadmap for reforms. Many find the proposed reforms to be at variance with their real development priorities, which at the moment are debt (SDR reallocation, rethinking the G-20 Common Framework, global sovereign credit rating reforms, expanded IDA) and surviving the current multiple global crises without eroding the hard-won socio-economic gains of the last 30 years (with targeted infrastructure and social spending). However, their concerns are yet to be taken seriously by the Bank’s leading shareholders. This despite the fact that African countries, who constitute the largest share of iDA lending, would stand to lose the most from a Bank that focused away from poverty alleviation to global public goods and policy in middle-income countries.

The US, which essentially controls the World Bank, is fully behind the reforms despite the fact they would almost certainly reduce World Bank/US influence in low-income countries and allow China to play a larger role there through its lending.

Why? It’s unclear if the US thinks it can influence low-income countries by other means or if Washington believes it is more important to influence middle-income countries during the New Cold War. There is also the possibility that the focus on “global public goods” is simply an effort to secure critical minerals for the US/West.

What’s the Lender of Last Resort Been Up To?

While the World Bank continues to hammer out its reforms, the International Monetary Fund is helping impose the largest shift to austerity undertaken in this century. While this is the organization’s modus operandi, Kate MacKenzie and Tim Sahay have a piece on this at Phenomenal World where they break down just how extensive it is becoming:

Since the pandemic began in 2020, the IMF has provided nearly $300 billion in financing to ninety-six countries, in many cases via rapid response facilities. By mid-2021, ninety-one of the 107 Covid-19 IMF loans either recommended or required countries to adopt austerity as a policy. By 2024, Oxfam researchers found that, “Fifty-nine out of 125 low- and middle-income countries (LMICs) are expected to spend less than during the 2010s, exposing a total of 2 billion people to the harmful consequences of budget cuts.”

Oxfam researchers also looked at the “unconditional” lending to the seventeen countries in traditional IMF programs in 2020 and 2021, and found that they were unsurprisingly, not unconditional. What was promised as emergency lending has now turned into a gigantic austerity drive.

The austerity that the IMF peddled in the 2010s devastated 600 million people in the North Atlantic. Over 6 billion people now live in the grip of austerity across all country income categories, according to an analysis by economists Isabel Ortiz and Matthew Cummins.

They identified government austerity policies such as targeting social protection (in 120 countries); cutting or capping the public-sector wage bill (in ninety-one countries); privatizing public services/reform of State-Owned Enterprises (SOEs) (in seventy-nine countries); pension reforms (in seventy-four countries); labor flexibilization reforms (in sixty countries); and cutting health expenditures (in sixteen countries). Many of those people live in countries outside of IMF lending programs or any program at all—but the Fund’s influence extends to those countries through signaling via its own pronouncements, precautionary programs and country monitoring.

Here’s another look at it:

Oddly enough, the IMF austerity drive holds back the green push that the World Bank is now so desperately trying to fund. And the IMF’s recently-created Resilience and Sustainability Trust, which currently holds $40 billion, has only dispersed a few billion. In order to be eligible, countries have to already be part of an IMF program.

Russian Foreign Minister Sergey Lavrov clearly stated Russia’s thoughts on these loans recently at the UN:

Whether intentionally or not, because all of these loans can be yanked at a moment’s notice, they often help lead to instability and chaos. For example, the U.S. removed Sudan from its list of state sponsors of terrorism after the government in Khartoum agreed to forge ties with Israel in 2020, and the money started flowing to Khartoum.

But that was all quickly put on hold after the 2021 military coup, including $700 million in US economic assistance since the coup and $2 billion in grants from the World Bank. That helped lead to an economic collapse, which arguably helped pave the way for the situation in Sudan today.

Print Friendly, PDF & Email


  1. Bugs

    This looks like Lambert’s 2nd rule of neoliberalism hard at work. The blowback from this short term thinking is going to be rough. More waves of refugees across Europe, for a start.

  2. Ignacio

    NOTE TO THE AUTHOR: every time I read one of your posts i become more depressed. This is not to say you aren’t doing an excellent job. On the contrary. As a matter of fact all this reflects the need for lively debate and search for different solutions. Nothing useful will come from PMC institutions particularly from finance PMC institutions except further debt-slavering. And finance, this should be clear, is not the solution for climate issues it is rather an obstacle. IMO, the World Bank focusing on climate change will probably result in a worsening situation. Because “the portfolios of the investors have to be protected”.

    Thank you very much for this post.

  3. The Rev Kev

    I was originally going to say that this sounded like they were re-arranging the deck chairs on the Titanic but maybe not so. It sounds more like they are trying to squeeze every bit of profit that they can from the world’s economic system. Kicking down on poorer countries is part of the play to make sure that they never develop much less prosper. It’s harder to take advantage of prosperous countries but poorer countries you can force to do what you want and give you what you demand by using the IMF. The best part? It’s all legal.

  4. JLiam

    I wonder if this shift reflects an understanding that the IMF/World Bank have lost legitimacy in the countries they have tormented; Tunisia rejected a deal this year, and the decision by the IMF to disregard their own rules on lending to countries at war with their Ukraine deal belied the conceit that these institutions are anything but arms of American foreign policy. Interestingly, here (https://blogs.worldbank.org/opendata/new-world-bank-country-classifications-income-level-2022-2023) we can see which countries the World Bank considers middle income; we might overlay this with a map of mineral deposits vital to the energy transition (lithium, cobalt, REE, etc.)

  5. Isla White

    Would be interesting to learn more; for example overlaying World Bank / IMF loans to low income countries that have high value but elsewhere scarce mineral resources with restrictions imposed by the lender on any state control over their extraction.
    Forcing ‘open multi-national tendering’ (to non-Chinese enterprises!)

    And … then bundle in Musk’s infamous “We will coup whoever we want! Deal with it.”

    ‘We will coup whoever we want’: Elon Musk and the overthrow of democracy in Bolivia

    What role did billionaire Elon Musk and his thirst for lithium play in the coup in Bolivia?


  6. Jorge

    negative fiscal space

    There’s a bit in “Annie Hall” where Woody Allen makes fun of Diane Keaton for saying a sculpture has a “negative capability” (sorry, can’t find a clip). This is a thousand times worse.

  7. Altandmain

    There’s a reason why the Chinese are gaining so much influence.

    Contrary to what the Western world says, the West with the World Bank and IMF are the ones using predatory lending to force a debt trap.

    I’m not saying that the Chinese are perfect, but the terms are far better.

Comments are closed.