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World Bank chief Ajay Banga unveils new plans to boost lending ‘firepower’

World Bank chief Ajay Banga noted that a capital increase will be required to implement these measures

Ajay Banga, the president of the World Bank, revealed new measures to strengthen the bank’s balance sheet and aid nations in addressing climate change and other issues. He also noted that a capital increase will be required to implement these measures.

The World Bank’s new initiatives to ‘make balance sheets work harder’ was announced at a gathering of financial officials from the Group of 20 major nations in Gandhinagar, India.

The further initiatives, which are currently being reviewed with shareholder countries, come in addition to the initial actions authorised in April, that will increase World Bank lending by up to USD 50 billion over the next ten years.

The bank’s largest shareholder, the US, launched the reform drive in October and later nominated Ajay Banga to succeed former president David Malpass with a particular directive to hasten the institution’s development.

Recently, US Treasury Secretary Janet Yellen urged further reform of the World Bank and other multilateral development banks, stating that capital increases would only be considered after these institutions made changes to increase their capacity to assist nations in addressing climate change and other issues.

“We are making quick progress. We are building a better bank, but eventually, we will need a bigger bank,” Ajay Banga said in a prepared text of his remarks.

The plans could generate tens of billions of additional loans by allowing shareholders to guarantee loans when countries can’t repay them, a move the World Bank said would allow it to generate six dollars in new credit for every one dollar in guarantees over 10 years — or USD 30 billion for every USD 5 billion.

In a further move, the bank could also issue a new hybrid capital vehicle that would allow shareholders to invest in bonds, thereby increasing lending by up to USD 6 billion.

It suggests extending the requirements for callable capital, or funds pledged by governments, in order to take on more risk and increase lending.

Image Credits: World Economic Forum

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