Interview “A storm is brewing”

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Federal Minister Svenja Schulze and World Bank President Ajay Banga

Interview by Marcus Gatzke and Petra Pinzler, published in German on the website of the weekly newspaper ZEIT ONLINE (External link) on 2 December 2023, you can find the German version of the interview here.

ZEIT ONLINE: Mr. Banga, the World Bank no longer just wants to fight global poverty. It is now also to ensure that the world remains a “liveable place”. What does that mean in concrete terms?

Banga: The fight against poverty and inequality will remain one of our central concerns. But we will not be successful if we do not at the same time take other problems much more seriously than we have done so far. If you want to reduce inequality, you have to fight pandemics and protect the climate at the same time, and you have to consider local conflicts and food security in a country.

ZEIT ONLINE: Do you have an example?

Banga: If you live in a country in the global South, you invariably experience multiple crises at the same time. Droughts mean that less grain is grown. Local farmers have to reduce the size of their herds and lay off workers, maybe even take the children out of school to help in the fields. And this will render all our efforts to get children off the fields and into school futile. Climate change and inequality are very closely linked.

ZEIT ONLINE: Ms. Schulze, you are one of the governors of the World Bank, in other words Mr. Banga's “boss”. What does the world need the World Bank for?

Schulze: One example. I have just spoken to the Minister of Economy and the Minister of Finance from Mauritania. They both told me that they not only want the World Bank's money, but also its expertise on how to successfully develop a country and protect the climate.

ZEIT ONLINE: In the past, the World Bank would have recommended more economic growth alone as a solution for a poor country...

Banga: ...and today we know that in the fight against inequality we also have to look at the climate crisis. Because everything is connected.

ZEIT ONLINE: Can the World Bank take care of all of this equally?

Schulze: If you want progress, you have to tackle all the problems at the same time. The Bank must change and take a broad approach, as Ajay Banga has just described. The new strategy must become part of the institution's DNA, it must become part of the lending process and what counts as success for the bank must be redefined.

ZEIT ONLINE: Is the bank really the best organization for this? Its track record is not exactly good: it was supposed to fight poverty, but poverty is increasing worldwide.

Banga: That's not true. The number of poor people worldwide has fallen over the past three decades - until COVID struck. And that shows: A storm is brewing due to the many different crises and we need to arm ourselves against it. And for this we need a place where knowledge can be collected and passed on. That's what we want to be, a knowledge bank and a bank that provides money.

ZEIT ONLINE: Doesn't the World Bank need a lot more money for its new approach?

Schulze: Yes, absolutely. We need a better and then a bigger bank. Germany is supporting this with 300 million euros in so-called hybrid capital. With this backing, the World Bank can then grant 2.4 billion euros in new loans.

ZEIT ONLINE: Wouldn't it make much more sense to increase the contributions of all members in order to significantly increase the World Bank's equity in the long term?

Schulze: Yes, but experience shows that it takes a lot of time to agree on this, which we don't have at the moment. That is why we must now do whatever it takes to strengthen the Bank. This also includes mobilizing private capital to help poor countries.

ZEIT ONLINE: Private investors want to see returns. But you don't necessarily get that when the World Bank invests in schools.

Banga: Of course, not everything can be financed with private capital. But take solar or wind power plants, for example. Both are significantly cheaper today than building a fossil fuel power plant. That was different five years ago. Nevertheless, many investors are holding back because there are risks in many developing countries that have nothing to do with the economic return on their investment. They fear, for example, that the government will suddenly change its rules or regulations, rendering the investment worthless.

ZEIT ONLINE: And the World Bank can change that?

Banga: Absolutely. In India, for example, we worked with the government to develop a ten-year plan for the expansion of renewable energies. This has given investors the necessary confidence, which in turn has led to the expansion target for 2030 being achieved by 2023.

Schulze: Let me give you another example: We want countries to phase out coal more quickly. But if they do this, they need social security for the people who lose their jobs. They need to provide new, green jobs and the necessary retraining. The German Development Ministry can help with this, but so can the World Bank with its expertise. We have lost trust in the past. Projects like this help to rebuild it.

ZEIT ONLINE: The “we” refers to the industrialized countries, because our wealth is based on the exploitation of poor countries?

Schulze: Yes, it's about the West and the industrialized countries. And indeed, the reproach that I hear from many governments in the South sounds exactly the same or similar.

ZEIT ONLINE: Mr. Banga, you have repeatedly expressed your understanding for the frustration of the global South. A member of the government of a rich country is sitting next to you. What expectations do you have of Germany?

Banga: We need to appreciate the concerns of the Global South. Many poorer countries believe that they have a right to the highest possible economic growth because that's what the rich North has done. And now they get the feeling that they are no longer allowed to do so. We have to think about how to change the growth path.

ZEIT ONLINE: How much understanding do you meet with? Don't you often just hear: Better give us loans with good conditions and that's that?

Banga: No, let me explain using the example of Zambia. We are currently talking to the president about his priorities for his country. Perhaps he wants to extract rare earths, in which case we have ideas on how he can not only exploit and ship them, but also how some of the added value can remain in the country and the environment does not suffer too much as a result. Perhaps he also wants to strengthen tourism in the country, in which case we can help and explain to him what a sustainable strategy might look like. But the final decision lies with the country itself, we will not force it to do anything.

Schulze: This is where the reform of the World Bank comes into play: unlike in the past, in future the Bank will not only calculate the return on investment, but also the potential carbon footprint of investments.

ZEIT ONLINE: Many countries are already heavily indebted today, while interest rates are rising and economic growth is rather weak. How are they supposed to protect the climate?

Banga: The pandemic did indeed hit many developing countries hard. Many are heavily indebted, they took out loans before the coronavirus pandemic and now have to pay them back. And this in a situation in which the dollar and the euro have appreciated significantly against their national currencies. The situation is particularly bad in Ghana, Ethiopia, Chad and Zambia. Zambia is currently restructuring its debt with international support, and Ghana is next. We are working on getting the major creditors in the so-called Paris Club, the IMF and ourselves to agree on a common strategy. But it's still going far too slowly.

ZEIT ONLINE: Ms. Schulze, isn't all this the task of traditional development policy? Why do you need a bank for this?

Schulze: What Germany spends on development amounts to just 0.8 percent of our gross national product. That's good by international standards, but it's not enough to save the world. And even if all countries in the world gave that much, it wouldn't be enough. A bank can do a lot more with a little money than we can.

Banga: If I get one dollar, I can lend four. The multiplier effect is enormous. And then there is also the possibility of enabling additional private loans - as I described earlier.

ZEIT ONLINE: What role does China play in this? Many poor countries are heavily indebted because the Chinese government has virtually pushed loans onto them for infrastructure projects.
Schulze: There will be no solution to the debt crisis without China.

ZEIT ONLINE: How openly can you talk to the Chinese government about this and urge them to waive repayment?

Banga: In the case of Zambia, China helped. More broadly, China is a constructive member of the World Bank they engage and contribute. We benefit from their knowledge and development experience like on stunting, where we are taking successes in Peru, Indonesia, and China and applying it elsewhere.

ZEIT ONLINE: In addition to China, there are many other conflicts in the world. The geopolitical situation has rarely been so fragile. How much does this complicate the work of the World Bank?

Banga: Of course it doesn't make our work any easier. But we are not there to intervene in specific conflicts. We were founded to help in the long term. We help with reconstruction. We strengthen a country's economy and its social networks. I have 25 Supervisory Board members. When they meet, 25 different world views come together. But when it comes to specific issues, they agree seven times out of ten. There are not many places left where so many bridges are built. Multilateralism still works here.

ZEIT ONLINE: The World Bank is now also to manage a new fund that was created at the climate conference. It is intended to help developing countries that are particularly affected by the climate crisis. Because they have been hit by a hurricane or a flood. There is criticism that if the bank manages the money, it will be too slow, too expensive and too opaque.

Banga: Firstly, we are not expensive, even if some people claim that. Secondly, it will not be us, but the supervisory boards of this new fund that will decide how the money is spent. And it will be made up of the donors and the recipients. We are just the instrument....

Schulze... and that's a good thing. Once again, speed is of the essence. If we had to rebuild the entire infrastructure for this, it would take years. Because the bank manages the fund, we can raise money quickly and are better prepared for the next climate shocks.