‘Rebuilding better’, but better for whom? A review of the WBG response to the Covid-19 crisis

Executive Summary The Covid-19 health emergency has created a worldwide economic shock on an unprecedented scale, triggering a global recession that far exceeds recent crises. Pre-existing inequalities have been amplified, including gender inequalities. An estimated 100 million people have been pushed into extreme poverty in 2020. The downward trend in global poverty has been reversed for the first time in a generation, with per capita income losses wiping out the gains of the previous 10 years in some cases. In March 2020 the World Bank Group (WBG) launched a Covid-19 response programme and pledged to provide US$ 160bn to client countries in the 15 months to June 2021, across its divisions – the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) (which work with governments) and the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) (which work with the private sector). A coordinated response across its different components aims to mobilise private sector resources alongside donor funds. The WBG’s Covid-19 response goes considerably further than supporting countries in dealing with the effects of the pandemic. The WB sees the crisis as an opportunity to, what they call, ‘Rebuild Better’. A review of core policy documents and project reports for the World Bank and the IFC Covid-19 response and beyond indicates that the initial emergency response has in some cases provided an entry point for a more expansive scope for structural reforms, including those linked to a more substantial role for the private sector in development finance, in line with the Bank’s development vision. The WBG has long been a supporter of privatisation and public-private partnerships (PPPs), but support for private finance gained added momentum in the 2010s with the ‘From Billions to Trillions’ agenda and subsequently the Cascade/ Maximising Finance for Development (MFD) approach. In essence, it was argued that the trillions needed to achieve the Sustainable Development Goals (SDGs) are beyond the reach of public funds alone, and so private finance is needed. Hence rather than financing development projects directly, public funds should be used to shape developing country needs for infrastructure and services into profitable business opportunities, largely for investors from the global north. An extensive critique has highlighted numerous concerns with this approach, including the negative long-term fiscal impacts, high costs, lack of transparency and potential negative impact on poor households. Private finance, for example through PPPs, can create additional fiscal risks for governments akin to debt and can be associated with outflows of funds in the long term. Attaching the private finance agenda to the Bank’s emergency response risks weakening public finances in the long-term and deepening structures of global inequality. The main findings of this review are: 1. The WBG sees its Covid-19 response as firmly linked to its long-term development vision in which global private sector finance plays a strong role. 2. For the WBG, contraction in ‘fiscal headroom’ calls for increased private sector financing. However, diverting public resources to attracting private investment risks placing increased fiscal pressure on government finances, which are already facing immense strain due to the pandemic. 3. The IFC, with its emphasis on creating markets and mobilising private finance, has a prominent position at all stages of the Covid-19 response. The IFC is expected to account for around one third of the Bank’s response, including in health, suggesting that private markets will be prioritised over equitable public services. 4. Rather than supporting local private enterprises, some IFC projects have provided finance to global chains of hotels, large conglomerates, subsidiaries of international companies and international private health providers. 5. Private finance as a source of financing for development needs to be downgraded, given the overwhelming evidence of its failure to effectively contribute to sustainable development. Greater attention is needed to more effective and sustainable means to expand fiscal space, including meeting ODA commitments, tackling tax avoidance and evasion, and an immediate cancellation of debt payments, linked to a more comprehensive approach to debt crisis resolution under the auspices of the United Nations. Policy recommendations • The MFD/Cascade approach should be completely re-evaluated. Private finance is not a substitute for public funds and creates a strain on governments. Scarce public resources should not be used to convert essential services into attractive private investments. The emergency humanitarian response should no longer be linked to the wider private finance agenda. • The WBG needs to restore the balance between the public and private sector in its Covid-19 response, and beyond, including in its modalities and instruments. Developing countries are in need of concessional resources to strengthen their public systems, particularly health, education and social protection, and to stimulate economic recovery. This includes, among other things: ? Placing greater emphasis on supporting public health systems. This is a long-term objective, but it can begin by ceasing to advise governments to bring in international private providers, and avoiding supporting commercial private health facilities that undermine public system building. ? Reassessing the activities of the IFC in the Covid-19 response, and beyond. Rather than providing finance to large conglomerates and global investors, more attention should be focused on fostering local businesses. Rather than large commercial private banks, public national development banks may offer cheaper and more equitable means of disbursing IFC loans. ? Strengthening IFC due diligence procedures, as a way of combating international tax avoidance, by demanding public country by country reporting and public beneficial ownership registration for all its clients, partners and business relations. • The WBG needs to work to upscale the Debt Service Sustainability Initiative (DSSI) to include debt cancellation by all multilateral development banks (MDBs), including the WBG, and to work towards restructuring sovereign debt across all creditors. • The WBG needs to anchor its activities in inclusive civil society engagement throughout all phases of the project cycle so as to ensure a high-degree of citizen accountability, an area which has been weakened during the crisis response. In line with the WBG approach, these changes are long-term but also need to be incorporated into current activities. Interventions today need to have a line of sight to future economic and social structures. The pandemic does offer an opportunity to rebuild better, but this means rebuilding fairer. Global social equity needs to be at the heart of the long-term plan in order to reset, reshape, rebuild and recover better. • The WBG needs to anchor its activities in inclusive civil society engagement throughout all phases of the project cycle so as to ensure a high-degree of citizen accountability, an area which has been weakened during the crisis response. In line with the WBG approach, these changes are long-term but also need to be incorporated into current activities. Interventions today need to have a line of sight to future economic and social structures. The pandemic does offer an opportunity to rebuild better, but this means rebuilding fairer. Global social equity needs to be at the heart of the long-term plan in order to reset, reshape, rebuild and recover better.