On 14 October (at 17.00) we will be joined by Crystal Simeoni (NAWI Afrifem Macroeconomics Collective), Daniela Gabor (UWE Bristol) and Luiz Vieira (Bretton Woods Project) for a panel discussion on the shortcomings of the World Bank Group strategies in response to the pandemic and beyond. We hope to see you there!
The Covid-19 pandemic has triggered a health, economic and social crisis of unprecedented proportion. This has the potential to undermine seriously developing countries’ (already slow) progress toward achieving the Sustainable Development Goals (SDGs). The pandemic has resulted in calls for ambitious responses, both in terms of scale and policies, under the broad headline of “building back better”. Against this background, we have put together a joint Eurodad/SOAS Economics briefing paper that analyses the response of the World Bank Group (WBG) to the Covid-19 pandemic. It will be launched on 14 October at 17:00.
Our analysis reveals a persistent prioritisation of private over public interests both in the immediate pandemic response and beyond. Indeed, the World Bank Group has seized the current crisis as an opportunity to intensify its “maximising finance for development” (MFD) approach.
The MFD approach, which has been implemented by the Bank since 2017, builds on previous strategies and represents a systematic and comprehensive approach to promote private sector development across the WBG. The approach seeks to place the private sector at the heart of development, including in public service provision. The idea is for traditional Official Development Assistance (ODA or aid) to take on a catalytic role in the mobilisation of private finance for development, including in the poorest countries. The approach deploys various instruments, many of which have come to be referred to as “blended finance”. They range from offering technical advice on how to reform policies and institutions in a particular country and/or sector, to taking “first equity loss” positions in private investment deals or providing loans to private sector agents at subsidised rates.
This agenda reveals the unwillingness of the donor community to take concrete steps to scale up and strengthen public financing of development sufficiently, to agree on a multilateral resolution to unsustainable debts, or to create a global body through which tax issues could be resolved to tackle massive tax avoidance and evasion strongly detrimental to countries in the Global South. This combines with the failure of major donors and international institutions to respond to a growing body of literature and evidence that calls into question the approach’s effectiveness and highlights its considerable negative consequences. And, finally, it reflects a fundamental underlying prejudice against the public sector, which has been fuelled by austerity policies that have undermined the ability of the public sector to deliver.
In the context of the Covid-19 pandemic our analysis highlights five points:
First, in the immediate emergency response, the WBG earmarked a larger share of resources to be allocated through its private sector arm, the International Finance Corporation (IFC), as compared to its public sector arms, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Such a distribution is out of line with previous trends of WBG commitments and sits awkwardly with multiple calls across the policy spectrum for stronger public systems.
Second, IFC financial sector clients and multinational companies have particularly benefited from the pandemic response. According to publicly available information, by the end of June 2020, about 68 per cent (in value terms) of committed IFC Covid-19 projects targeted financial institutions. This seeks allegedly to assist Micro, Small and Medium Enterprises (MSMEs) in navigating the fallout from the pandemic, but is yet to produce results. In addition, around 50 per cent of IFC supported companies are either majority-owned by multinational companies or are themselves international conglomerates.
Third, increased pressure to “get money out the door” has raised clear implementation challenges. In particular, the IFC’s focus on financial institutions has fallen short with regard to transparency and accountability, while on the WB’s side there have been questions with regard to very limited (if any) stakeholder engagement as projects are rolled out. This comes on top of shrinking space for civil society organisations to actively participate and increased reprisals against human rights activist.
Fourth, in its relationship with governments, the WB remains set on structural reforms in support of liberalisation and deregulation. Indeed, while most of the WB loans and grants to government that have been approved in the emergency response period have aimed at addressing the health crisis, others have a broader scope and include more traditional reforms in support of the private sector. This indicates a strong and continuing commitment by the WBG to a market-driven approach which, among other things, has resulted in adverse health outcomes and negative impacts on women.
And finally, and moving forward beyond the immediate emergency response, the WBG aims to “build back better” by accelerating and scaling-up its support for private sector solutions. This includes an enhanced focus on public-private partnerships (PPPs) to deliver ostensibly public services, despite well-documented evidence regarding the multiple risks and implications of PPPs, including their high cost, fiscal risks, questionable effectiveness, and equity implications.
Ourania Dimakou is a lecturer in Economics at SOAS and has been working on the role and policies of International Financial Institutions.
Maria Jose Romero is third year Bloomsbury PhD student working with Dr Elisa Van Waeyenberge (SOAS Economics Department), Dr Jasmine Gideon (BBK) and Professor Elaine Unterhalter (UCL-IOE) on the global promotion of PPPs. She has worked for several years as Policy and Advocacy Manager for the European Network on Debt and Development (Eurodad).
Elisa Van Waeyenberge is the co-Head of the Economics Department at SOAS and has a longstanding research interest in the policies and paradigms promoted by the World Bank.