September 29, 2009 / 8:24 PM / 10 years ago

Zoellick - World Bank faces financing constraints


By Lesley Wroughton

ISTANBUL, Sept 29 (Reuters) - World Bank President Robert Zoellick warned on Tuesday the poverty-fighting institution could face serious financing constraints by the middle of next year if lending to developing countries continues at its current record pace.

Zoellick will press member countries at a meeting of the World Bank and International Monetary Fund in Istanbul starting this week to agree on ways to raise resources for the World Bank to ensure it is properly funded, and will lay out proposals for how it can be done.

"By the middle of next year we will start to face serious constraints so these discussions are important," Zoellick told a conference call with reporters.

While Group of 20 countries ponied up $500 billion for the IMF in April, World Bank lending has increased sharply as the global economic turmoil spread to developing countries, which at first looked like they may escape the worst of the crisis.

In spring last year, World Bank member countries asked the institution to scale up lending by $100 billion over three years to help developing countries weather the downturn.

Now Zoellick said demand would far exceed that amount, not only as developing countries are forced to deal with ramifications from the global economic crisis, but also with new development challenges such as climate change.

He said the World Bank’s private-sector lender, the International Financial Corp, also faced capital constraints that could curb its support for businesses in developing countries at a time when private-sector growth will be key to the recovery.

"Given the uncertainty, it is a judgment for shareholders how close they want to run us to the line," he told Reuters.

In the last fiscal year, the World Bank tripled lending to middle-income countries to $33 billion and increased loans and grant handouts by 25 percent to $14 billion for poorer ones.

A World Bank document prepared for the Istanbul meeting estimates in the first quarter of the current 2010 fiscal year lending to middle income countries will reach a record $8 billion to $11 billion. For the full year, demand is projected to be in a range centered above $40 billion, with another $55 billion to $60 billion expected over the following two years.

Meanwhile, a fund for the Bank’s poorest clients has enough funding for commitments of $42 billion over fiscal 2009-11. Just this year alone, commitments are projected to reach $12.4 billion to $16.4 billion, the paper said.

TOO EARLY TO DECLARE SUCCESS

Zoellick said there were signs of improvements in the world economy but warned that 2010 will be an uncertain year as major economies begin to withdraw monetary and fiscal crutches, and in poorer countries the economic crisis continues to crimp credit, trade, tourism and worker remittances.

"It is much too early to declare success," Zoellick. "We have broken the fall but 2009 will continue to be a difficult year, and 2010, when much of the stimulus support runs out, remains highly uncertain."

The Bank has said growth for many low- and middle-income countries will have regained its trend rate by 2011 but several years of below-trend growth will mean unemployment, poverty and government deficits are likely to remain very high.

As it mulls ways to increase capital, the World Bank has proposed raising resources through a general capital increase, hiking loan prices, charging for longer loan maturities and increasing the subscriptions, or quotas, of developing countries in exchange for a greater say in the institution.

Emerging economic powers have long called for a bigger stake in both the IMF and World Bank. A summit last week in Pittsburgh of the Group of 20 developed and developing countries backed a 3 percentage point shift in voting power from developed countries to developing countries in the World Bank. (Editing by James Dalgleish)




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