In a bid to enhance private financing opportunities for developing countries, the World Bank is actively exploring the expansion of its guarantees for commercial loans. This strategic move comes in response to escalating global interest rates and the uncertainty surrounding the conclusion of the U.S. Federal Reserve’s current tightening cycle.
Recent market turbulence led to a surge in yields on 10-year U.S. Treasury notes, reaching levels not seen in 16 years. This surge in yields has raised borrowing costs for emerging economies, prompting the World Bank to take proactive steps.
A key challenge the World Bank faces is the need for additional funding to support critical climate change initiatives. While specific figures and timelines were not disclosed, it’s worth noting that World Bank guarantees have successfully mobilized over $42 billion in commercial capital and private investments over the past two decades. These funds have been allocated to a wide range of projects, spanning from energy ventures to sovereign financing.
The World Bank has previously provided partial guarantees for sovereign bonds through its International Development Association (IDA). One noteworthy example is the $1 billion Eurobond issued by Ghana in 2015, which received support from the multilateral lender.
In April, U.S. Treasury Secretary Janet Yellen emphasized the importance of expanding the World Bank’s scope to allow its private sector and poor-country lending arms to extend loans to sub-sovereign entities, including cities and regional authorities. This move aims to diversify the reach of World Bank financing.
Presently, the bank is actively advocating for increased grants and fresh capital contributions from its member nations. Concurrently, it leverages its balance sheet to amplify lending for addressing critical issues such as climate change and other global crises.
The World Bank’s commitment to enhancing collaboration with the private sector is poised to play a pivotal role in bolstering the resilience and financial prospects of developing countries in light of the evolving global economic landscape.
Signage of the World Bank. FILE PHOTO | POOL
By: Montel Kamau
Serrari Financial Analyst
9th October, 2023
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