Should the World Bank Group be Lending to Upper-Middle-Income Countries?
How should the institution’s role evolve as more countries attain upper-middle-income status?
At a time when the World Bank Group is asking shareholders for an increase in lending capital, should the institution continue to lend money to countries like Mexico, Turkey, Mauritius and China? How should the institution’s role evolve as more countries attain upper-middle-income status?
This week’s IMF and World Bank Group Spring Meetings take place at an interesting and critical time for the two institutions. Among the issues that shareholders are likely to explore during the meetings is the role of multilateral institutions in supporting upper-middle-income countries. At a time when the World Bank Group is asking shareholders for an increase in lending capital, should the institution continue to lend money to countries like Mexico, Turkey, Mauritius and China? How should the institution’s role evolve as more countries attain upper-middle-income status?
A recent IEG report, World Bank Engagement in Upper-Middle-Income Countries: Evidence from IEG evaluations, explores the subject and concludes that the World Bank Group still has an instrumental role to play. However, the Bank Group must rethink its choice and menu of instruments to better serve the needs of its upper-middle-income country clients.
Under the World Bank Group definition, middle-income countries include those in which the 2016 GNI per capita was between $3,956 and $12,235. By this definition, there were 56 countries across the world that belonged to this group.
Middle-income countries are an important client group for institutions such as the World Bank Group. One key reason is that, despite their recent progress, these countries are still home to about 70 percent of the poor of the world and host more than 60 percent of the world’s refugees. These countries collectively generate 58 percent of global CO2 emissions. And the World Bank Group’s continued engagement gives it leverage to engage middle-income countries to do their part in contributing to global public goods.
What about the sub-group of upper-middle-income countries? Why should the World Bank Group stay engaged with them?
First, upper-middle-income countries have unfinished development agendas. Many upper-middle-income countries are still susceptible to global shocks. IEG’s findings show that the World Bank played an important countercyclical role in helping middle-income countries during recent crises, particularly in mitigating the social impact. They also face many second-generation challenges, such as inequality, unplanned urbanization, gaps in public sector performance, weak private sector, low levels of innovation and an overall lack of global competitiveness. These are areas, where upper-middle-income countries often turn to the Bank Group for help and advice. Without such assistance, some of these countries would be at risk of losing their poverty-reduction gains. Unless they address their unfinished development agendas they will not achieve further economic, social, and structural transformation, and risk remaining in middle-income status. Evidence reviewed by IEG suggests that the World Bank Group has contributed positively to supporting many upper-middle-income countries in strengthening their institutions and capacities.
Second, upper-middle-income countries have a lot to offer to other countries on the development trajectory. The World Bank Group can increase its role in this important area, as client countries seek to leverage the institution’s global reach and convening power as a vehicle for learning from each other’s experiences. IEG has seen positive examples of such transfers, for instance, learning from experiences with conditional cash transfers in Latin America and applying the lessons in East Africa. A forthcoming evaluation on the convening power of the World Bank Group will further explore this trend to better understand how the Bank Group is using its influence to promote learning and knowledge exchanges across countries and regions.
New Approaches are Needed…
However, to stay relevant in upper-middle-income countries, the World Bank Group needs to revisit the nature of its engagement and its current choice of financial instruments. IEG’s report found that the World Bank Group’s programs have shifted since the early 2000s toward more intensive delivery of knowledge services linked to lending. This is an important shift that when implemented properly and to scale, has immense impact.
In China, for example, the World Bank Group’s lending program, while relatively small compared to total need and other resource flows, has had a significant catalytic impact in areas such as energy efficiency, water conservation, and capital markets development. By leveraging the World Bank Group’s support linked to lending, China has been able to tap into Bank Group’s technical support to improve project design and implementation. Increasingly, the Bank Group is also working more with subnational governments in regions where poverty remains particularly high by integrating poverty alleviation objectives in all sector development programs.