World Bank Group Exceeds 2020 Climate Finance Target for 3rd Consecutive Year – $21.4 Billion in Funding for Climate Action

For the third year in a row, Bank Group lending for climate-related investments exceeded the target of 28%, reaching 29% or $21.4 billion in Fiscal Year 2020. 

Photos: 1 – Anam Abbas/Lighting Pakistan; 2 – Dominic Chavez/World Bank; 3 – Bart Verweij/World Bank

During the 2020 fiscal year, the Bank Group identified opportunities for low-carbon, climate-resilient development, and provided supporting advisory services, technical expertise and financial resources.

The Group expanded its efforts beyond sectors more traditionally identified with climate action – such as climate-smart agriculture and renewable energy – to new frontiers.

This includes first-of-its kind innovation in the circular economy, targeted digital development interventions to improve climate resilience, macro-fiscal interventions strengthening regional trade and development with climate-relevant investments, and embedding climate considerations within COVID economic recovery packages.

Already, 2020 looks set to be the hottest year on record, potentially bringing more droughts, floods, and intense storms. All countries – particularly the poorest and most vulnerable – could face the compound impacts of climate change and COVID. Recently, India and Bangladesh were hit by the Category 5 Hurricane Amphan, forcing authorities to handle the competing goals of evacuation and social distancing to keep communities safe.

A Shock Like No Other: Coronavirus Rattles Commodity Markets

As countries around the world contend with the health emergency of the COVID-19 pandemic, the economic effects of suspending almost all activity have immediately impacted the world’s commodity markets and are likely to continue to affect them for months to come.

An engineer climbs a ladder at an oil and gas processing facility. © Oil and Gas Photographer/Shutterstock

The pandemic has affected both demand for and supply of commodities, the April edition of the Commodity Markets Outlook reports. Those effects are direct, resulting from shutdowns to mitigate the spread of the virus and disruptions to supply chains, and also indirect, as the global response slows growth and leads to what is anticipated to be the deepest global recession in decades.

The full impact of the pandemic on commodity markets will depend on how severe it is, how long it lasts, and how countries and the world community choose to respond to it. The pandemic has the potential to lead to permanent changes in the demand and supply of commodities, and especially to the supply chains that move those commodities from producers to consumers around the world.

The effects have already been dramatic, particularly for commodities related to transportation. Oil prices have plunged since January, and prices reached an historic low in April with some benchmarks trading at negative levels. Declines reflect a sharp drop in demand and have been exacerbated by uncertainty around production levels among major oil producers. Due to mitigation efforts that have limited most travel, oil demand is expected to fall by an unprecedented 9.3 million barrels per day this year from the 2019 level of 100 million barrels per day. Oil prices are expected to average $35 per barrel in 2020, a sharp downward revision from the October forecast and a 43 percent drop from the 2019 average of $61 per barrel. Prices for natural rubber and platinum, both heavily used by the transportation industry, have also tumbled.

Recent efforts by the Organization of the Petroleum Exporters and other oil producers to cut production in response to the plunge in demand will ease some of the pressure on oil markets. However, over the longer run, the current arrangement, to the extent it supports prices, will be subjected to the same forces—the emergence of new producers, as well as substitution and efficiency gains—that led to the collapse of previous OPEC arrangements and other commodity pacts. A section of the report looks at OPEC in the context of the history of previous coordinated efforts to manage the prices of certain commodities.

Energy prices overall—which also include natural gas and coal—are expected to average 40 percent lower in 2020 than in 2019, although a sizeable rebound is anticipated next year. Natural gas prices have fallen substantially this year but coal prices have been less affected, since the demand for electricity has been less affected by mitigation measures.

The halt in economic activity has taken a toll on industrial commodities such as copper and zinc, and metal prices overall are expected to fall this year. A deceleration of economic growth in China—which accounts for half of global metal demand—will weigh on industrial metal prices. Gold prices, on the other hand, have risen as buyers have sought safety amid financial market turbulence.

Agriculture prices are less tied to economic growth and have undergone only minor declines over the first months of the year, with the exception of rubber which fell sharply, and of rice, which rose due to worsening crop conditions and some trade restrictions. Overall global agricultural prices are expected to remain broadly stable in 2020 as production levels and stocks of most staple foods are at record highs.

A rice farmer works in the field

A rice farmer works in the field. © wanphen chawarung/Shutterstock

Most food markets are well supplied. However, concerns about food security have escalated as countries announce trade restrictions that include export bans on certain commodities and engage in excess buying.Similarly, agricultural commodity production, especially next season, could be affected by disruptions to the trade and distribution of inputs such as fertilizer, pesticides, and labor. Snags to supply chains have already affected to the exports from some emerging market and developing economies of perishable products such as flowers, fruits and vegetables.

Despite well supplied markets, export restrictions could hurt food security in importing countries. The World Bank has joined other organizations in calling for collective action to keep food trade flowing between countries.

The impact of the COVID-19 pandemic on commodity markets more broadly may result in longer-term changes. Transport costs may be higher due to additional border-crossing requirements. Higher trade costs will in particular affect agriculture and food commodities and textiles. Decisions to stockpile certain commodities could affect trade flows and have an effect on global prices.

Commodity-dependent emerging market and developing economies will be among the most vulnerable to the economic impacts of the pandemic. In addition to the health and human toll they face, and the effects of the global economic downturn, reduced demand for exports and disruption of supply chains will take a toll on the economies of these countries.

World Bank Group Increases COVID-19 Response to $14 Billion To Help Sustain Economies, Protect Jobs

The World Bank and IFC’s Boards of Directors approved today an increased $14 billion package of fast-track financing to assist companies and countries in their efforts to prevent, detect and respond to the rapid spread of COVID-19.

The package will strengthen national systems for public health preparedness, including for disease containment, diagnosis, and treatment, and support the private sector.

IFC, a member of the World Bank Group, will increase its COVID-19 related financing availability to $8 billion as part of the $14 billion package, up from an earlier $6 billion, to support private companies and their employees hurt by the economic downturn caused by the spread of COVID-19.

The bulk of the IFC financing will go to client financial institutions to enable them to continue to offer trade financing, working-capital support and medium-term financing to private companies struggling with disruptions in supply chains. IFC’s response will also help existing clients in economic sectors directly affected by the pandemic–such as tourism and manufacturing—to continue to pay their bills. The package will also benefit sectors involved in responding to the pandemic, including healthcare and related industries, which face increased demand for services, medical equipment and pharmaceuticals.

“It’s essential that we shorten the time to recovery.   This package provides urgent support to businesses and their workers to reduce the financial and economic impact of the spread of COVID-19,” said David Malpass, president of the World Bank Group“The World Bank Group is committed to a fast, flexible response based on the needs of developing countries. Support operations are already underway, and the expanded funding tools approved today will help sustain economies, companies and jobs.”

The additional $2 billion builds on the announcement of the original response package on March 3, which included $6 billion in financing by the World Bank to strengthen health systems and disease surveillance and $6 billion by IFC to help provide a lifeline for micro, small and medium sized enterprises, which are more vulnerable to economic shocks.

“Not only is this pandemic costing lives, but its impact on economies and living standards will likely outlive the health emergency phase. By ensuring our clients sustain their operations during this time, we hope the private sector in the developing world will be better equipped to help economies recover more quickly,” said Philippe Le Houérou, Chief Executive Officer of IFC“In turn, this will help vulnerable groups to more quickly recover their livelihoods and continue to invest in the future.”

Having mobilized quickly at the time of the 2008 global financial crisis and the Western African Ebola virus epidemic, IFC has a successful track record of implementing response initiatives to address global and regional crises hampering private-sector activity and economic growth in developing countries.

The IFC response has four components:

  • $2 billion from the Real Sector Crisis Response Facility, which will support existing clients in the infrastructure, manufacturing, agriculture and services industries vulnerable to the pandemic. IFC will offer loans to companies in need, and if necessary, make equity investments. This instrument will also help companies in the healthcare sector that are seeing an increase in demand.
  • $2 billion from the existing Global Trade Finance Program, which will cover the payment risks of financial institutions so they can provide trade financing to companies that import and export goods. IFC expects this will support small and medium-sized enterprises involved in global supply chains.
  • $2 billion from the Working Capital Solutions program, which will provide funding to emerging-market banks to extend credit to help businesses shore up their working capital, the pool of funds that firms use to pay their bills and compensate workers.
  • A new component initiated at the request of clients and approved on March 17: $2 billion from the Global Trade Liquidity Program, and the Critical Commodities Finance Program, both of which offer risk-sharing support to local banks so they can continue to finance companies in emerging markets.

IFC is already working to deploy its response financing. For example, we recently expanded trade-financing limits for four banks in Vietnam by $294 million so they could continue lending to companies in need, especially small and medium-sized enterprises.

IFC will maintain its high standards of accountability, while bearing in mind the need to provide support for companies as quickly as possible. IFC management will approve projects based on credit, environmental and social governance and compliance criteria, as applied in past crisis responses.

Words not enough to improve health outcomes – says World Bank President

World Bank Group President David Malpass’ has said at the 2019 UN High-Level Meeting on Universal Health Coverage (UHC) that accelerating progress toward Universal Health Coverage is critical to alleviating extreme poverty and boosting shared prosperity.

“Health is also an economic imperative as it is one of the global economy’s largest sectors, providing 50 million jobs—and the majority for women,” he said in his remarks.

Malpass said The World Bank latest figures show that every year, people pay over half a trillion dollars out-of-pocket for health care. This causes financial hardship for more than 925 million people and pushes nearly 90 million people into extreme poverty every year.

“Improving health outcomes is a key focus at the World Bank Group. Words are not sufficient – improved funding and health systems are vital. IDA – our fund for the poorest countries – is one of the most important tools to finance healthcare in lower income countries”.

He said over the last decade, IDA has provided US$13.5 billion to fund essential health interventions for 770 million people, and immunizations for 330 million children and that the share of IDA funding for health and nutrition has increased by 60% over the last decade, reflecting rising demand from countries.  

Malpass also said, “IDA funding is critical, but it is not nearly enough. Even in the most optimistic scenarios, we estimate that thefinancing gap to achieve UHC in the 54 poorest countries – home to 1.5 billion people – will be around $176 billion annually.

“To close that gap, we are focusing relentlessly on delivering good outcomes. I propose four priority areas where we can do more, and most importantly, where there is strong evidence on what works”.

Global growth to weaken to 2.6% in 2019 as risks remain

Global economic growth is forecast to ease to a weaker-than-expected 2.6% in 2019 before inching up to 2.7% in 2020. Growth in emerging market and developing economies is expected to stabilize next year as some countries move past periods of financial strain, but economic momentum remains weak.

“It is urgent that countries make significant structural reforms that improve the business climate and attract investment. They also need to make debt management and transparency a high priority so that new debt adds to growth and investment,” said David R. Malpass. World Bank Group president.

International trade and investment have been weaker than expected at the start of the year, and economic activity in major advanced economies, particularly the Euro Area, and some large emerging market and developing economies has been softer than previously anticipated.

Growth in the emerging and developing world is expected to pick up next year as the turbulence and uncertainty that afflicted a number of countries late last year and this year recedes, the World Bank’s June 2019 Global Economic Prospects: Heightened Tensions, Subdued Investment reports.

The World Bank report notes that a number of risks could disrupt that delicate momentum: a further escalation of trade disputes between the world’s largest economies, renewed financial turmoil in emerging and developing economies, or a more abrupt deceleration of economic growth among major economies than is currently envisioned.

Of particular concern is a slowdown in global trade growth to the lowest level since the financial crisis ten years ago and a tumble in business confidence.

The report also notes that a further troubling aspect of the tepid economic pace is what it means for the poorest economies. Rapid economic growth in some low-income countries since the turn of the century reduced poverty, and many climbed to middle-income status. But what are the prospects for those countries that are still classified as low-income, based on having a per capita income of $995 or less in 2017?  

The number of low-income countries has declined since 2001 from 64 to 34 in 2019, driven by the end of conflicts in several countries, debt relief, and trade integration with larger, economically more vibrant countries. However, the challenges to the remaining low-income countries are steeper than for those that have moved up. 

Many of today’s low-income countries are starting from particularly weak income positions. Also, more than half of today’s low-income countries are affected by fragility, conflict and violence. And most of them are geographically disadvantaged by being isolated or landlocked, making trade integration tougher. 

African countries call for collaborative solutions to indebtedness

Representatives from four African countries today called for a balanced approach to growing debt vulnerabilities to help low-income African countries meet their commitments to lenders.

Ministers of finance and economy and representatives from several African countries attended the consultation along with development partners

The calls were made at a high-level consultative meeting to discuss debt vulnerabilities in Africa, jointly convened by the African Development Bank and the World Bank, in Abidjan, Cote d’Ivoire.

Adama Koné, Minister of Finance, Cote d’Ivoire, praised the World Bank and the International Monetary Fund for their assistance but appealed for more “innovative and strategic sources of funding”.

“We want to have CFA-denominated bonds on markets … Since we are not known, we have to pay a premium. If we have a guarantee mechanism, this will allow us to issue those bonds at a lower price,” he said during a panel discussion.

Representatives from Zambia and Senegal said they were taking steps to address their debt situation, while Richard Evina Obam, Minister Finance, Cameroon, supported the call for broader sources of financing, including the Islamic world.

Charles Boamah, Senior Vice-President of the African Development Bank, said the dialogue around debt sustainability “couldn’t come at a better time”.

“It is at the center of many conversations taking place currently … We here at the African Development Bank are engaged in a couple of very important discussions … a 7th GCI [General Capital Increase] and the 15threplenishment of the AFD [African Development Fund],” Boamah said in his opening remarks.

He said debt management had to take into account investment and development needs.

To reach the SDGs [Sustainable Development Goals] such as health, education and infrastructure, “you need half a trillion US dollars to do that,” Boamah said.

“The World Bank Group’s International Development Association (IDA) and the African Development Fund (ADF) are working together with a common mission to better address debt vulnerabilities in IDA and ADF countries,” said Akihiko Nishio, World Bank Vice President of Development Finance.  “We need to provide our clients with the resources and support needed to achieve the Sustainable Development Goals,” he added.

Over the past seven years, the public debt profile of most low and low middle-income African countries has deteriorated substantially. Twice as many countries are now regarded as facing severe debt challenges.

As of January 2019, 17 borrowing countries from the International Development Association and the African Development Fund (IDA and ADF) are deemed at high risk of external debt distress or are viewed as being in debt distress. That is double the number of countries who were in these categories in 2013.

World Bank Group Announces $50 billion over Five Years for Climate Adaptation and Resilience

The World Bank Group has launched its Action Plan on Climate Change Adaptation and Resilience. Under the plan, the World Bank Group will ramp up direct adaptation climate finance to reach $50 billion over FY21–25.

This financing level—an average of $10 billion a year—is more than double what was achieved during FY15-18. The World Bank Group will also pilot new approaches to increasing private finance for adaptation and resilience.

“Our new plan will put climate resilience on an equal footing with our investment in a low carbon future for the first time. We do this because, simply put, the climate is changing so we must mitigate and adapt at the same time,” said World Bank Chief Executive Officer Kristalina Georgieva. “We will ramp up our funding to help people build a more resilient future, especially the poorest and most vulnerable who are most affected.”

The increase in adaptation financing will support activities that include:

· Delivering higher quality forecasts, early warning systems and climate information services to better prepare 250 million people in at least 30 countries for climate risks;

· Supporting 100 river basins with climate-informed management plans and/or improved river basin management governance;

· Building more climate-responsive social protection systems; and

· Supporting efforts in at least 20 countries to respond early to, and recover faster from, climate and disaster shocks through additional financial protection instruments.

In addition to boosting finance, the Plan will also support countries to mainstream approaches to systematically manage climate risks at every phase of policy planning, investment design, and implementation.

“This Action Plan is a welcome step from the World Bank,” said Ban Ki-moon, former Secretary-General of the United Nations and co-chair of the Global Commission on Adaptation. “The world’s poorest and most climate vulnerable countries stand to benefit from its increased finance and support for longer term policy change.”

The Action Plan builds on the link between adaptation and development by promoting effective and early actions that also provide positive development outcomes. For example, investing in mangrove replanting may protect a local community against sea level rise and storm surges, while also creating new opportunities for eco-tourism and fisheries. Early and proactive adaptation and resilience-building actions are more cost-effective than addressing impacts after they occur.

The Action Plan also includes the development of a new rating system to create incentives for, and improve the tracking of, global progress on adaptation and resilience. The new system will be piloted by the World Bank in FY19-20 and rolled out to projects in relevant sectors by FY21.

The Action Plan on Climate Change Adaptation and Resilience forms part of the World Bank Group’s 2025 Targets to Step Up Climate Action which were launched in December 2018, during the UN’s COP24 in Poland.