World Bank directors appointed David Malpass on Friday as its new president. Malpass – a former Treasury official and Trump campaign adviser – was the US pick for the World Bank’s top job. Though member countries can put nominations forward, traditionally the post is given to a US nominee. This time the US choice went unchallenged.
The new president has voiced strong criticism of the institution’s role and mission in the past, leaving many in the sector wondering what his appointment will mean for the World Bank. Here, five of our experts offer their insights and recommendations for the new president.
The new World Bank president arrives under a dark cloud – his lack of legitimacy. Without the merit-based selection process that I and others called for, Malpass risks being seen as a puppet of the US administration. The best way to shift that perception would be to push for low- and middle-income countries to have a much bigger say over how the institution is run.
There are two steps that he could take to show he is serious about pushing the Bank’s governors to make it more accountable to the countries it is meant to serve. First, he could support the idea low- and middle-income countries get at least 50% of the votes in all arms of the World Bank Group in the next round of governance reform. At the moment, for example, developing countries have just 31% of the vote at the International Finance Corporation (IFC), the Bank’s private sector lending arm.
Second, he could announce that he wants to be the last president appointed by the US administration and support the Board to put in place a transparent, merit-based selection process for his successor well in advance of his departure. These two things would help to shift perceptions of illegitimacy and show a sceptical world that the new president means to work in the interest of development.
Great leaders of organisations are able to set great targets. When the new president walks into his new HQ, he will see etched into the wall ‘our dream is a world free of poverty’ and he will face a career-defining choice: will the World Bank commit to ending extreme poverty by 2030 – in line with Sustainable Development Goal 1.1 – or will he stick with the institution’s own target of reducing world poverty to 3%?
His choice will determine whether the Bank just accepts that 200 million people will still be living in extreme poverty in the poorest, most fragile countries in the world or presses for the global changes that could end extreme poverty.
One pressing issue is that current SDG financing strategies focus on private finance and domestic taxation. But these are failing the poorest countries. Only 2% of private sector funding for infrastructure is reaching them. For all the dreams of turning billions into trillions, every dollar invested in development finance institutions yields them only 37 cents in new private sector funding. And while World Bank borrowers could raise an extra $2 trillion a year of taxation, only 1% of this would benefit the poorest countries.
The International Monetary Fund’s managing director has already called for the SDGs financing strategies to be changed to make sure the poorest are not left behind. Will the president commit himself – and his institution – to do the same?
Many countries are moving away from development aid and transitioning to middle-income country (MIC) status. This shift is good news: it reflects good economic performance and greater access to a more diverse set of financing options beside aid.
But transition and graduation from aid are not linear paths and we should not be complacent once a country has achieved middle-income status. In a recent ODI report we found that, in countries moving towards MIC status, external assistance and public finance are increasingly allocated towards infrastructure development, with falling shares to education and health.
These countries also experience the ‘missing middle’ of development finance – where the rise in tax revenues is not enough to compensate for the fall in external assistance as a share of gross domestic product. In some cases, this trend is even more severe, with both shares of external assistance and tax revenues falling.
The incoming president of the World Bank should first protect gains achieved in the social sectors by expanding assistance towards them and help governments ring-fence it. Second, he should prioritise tax revenue mobilisation as a key element of a government financing strategy and of donor support.
The new president of the World Bank should walk the talk and make labour migration a top priority of the Bank’s lending and operations, by putting in practice what its own research says:
While the Bank’s most eminent economists would agree that labour migration is one of the most effective poverty reduction strategies, to this date the Bank has mainly engaged in the debate on migration and development through research and data analysis, not through its influential lending and operational work.
The reason is political: migration is a polarising domestic issue in some of the Bank’s most influential donors or shareholders, including the US. The risk is that the institution is seen as promoting migration from poor to rich countries – something which requires careful political handling and messaging but can no longer be avoided altogether.
We know that most labour migration is regional and that many migrants move between low- and middle-income countries. There is much that the Bank can do in these contexts, such as facilitating or supporting innovation and experimentation to address labour skills gaps through partnerships for skills development and increasing access to labour markets to refugees and other migrants.
The process leading to the appointment of Malpass highlighted the need to improve accountability of the World Bank to all its shareholders: engaging with the reality of labour migration in the interest of all countries and humanity would be a promising first step.
Mixed results from international engagement in countries such as Afghanistan, Iraq and South Sudan have weakened support for development in fragile settings, particularly as bilateral funding shifts to humanitarian crisis response. As bilateral agencies scale back, the World Bank needs to step up.
Fragility is linked to global problems – forced migration, trafficking, transnational crime and terrorism. Climate change could well cause more migration and conflict. Industrialised countries are increasingly adopting security-centric approaches that address symptoms rather than causes of fragility. The World Bank has developed considerable expertise in addressing many drivers of fragility and conflict, and partnering with other multilaterals in areas outside its mandate.
Positive development outcomes take longer to achieve in fragile settings and as a multilateral organisation, the Bank is insulated from the whims of shareholder legislatures. As others graduate from the institution’s support, assistance will be increasingly concentrated in countries and regions at risk of violence. The Bank needs to be there for the long haul, adjust its policies and focus its assistance on preventing conflict and its consequences.
Fragility is the greatest obstacle to ending poverty for the bottom billion and requires sustained engagement by senior management from the president down. The Bank must also give special attention to Africa, where most fragile countries are located.
A clear lesson from more than two decades of international engagement in fragile situations is the futility of externally imposed solutions and how the transition to resilience depends on nurturing country-led initiatives. Developing legitimate and effective institutions is key to reducing the risk of violence. This takes time, patience and hands-on staff engagement with local partners that requires reallocation and possibly small increases to the administrative budget.