When Ajay Banga was nominated to be President of the World Bank in 2023, many WB retirees [1] wondered — “Who is this guy ?” I had no idea. But one could see that Banga (AB) began with some limitations and it is unsurprising, after 8 months, that those limitations affect his judgment as Bank CEO. AB’s interview with Masood Ahmad at the Center for Global Development (CGD) on February 5 allows some initial impressions of the man’s thinking and illuminates what I see as his blind spots. I do credit him for avoiding public expressions [2] of the error that Presidents Preston, Wolfensohn, Cleveland-Kellems Wolfowitz and Zoellick all made — that Bank staff are socialist bureaucrats who need a good swift kick to get them going.
The first limitation is how he was chosen. We know that the Jim Kim method of picking the WB President — find a hyper-ambitious man with a US passport who has come across a senior member of the US administration in a foreign place [3] — is unreliable because it does not allow vetting of the candidate. This is a form of the story about asking a VIP to recommend someone for a job. If you as the hiring person eventually say “well, sorry, we went in another direction”, then you’ve made two enemies - the VIP and his protégé. However AB’s name may have gotten to the White House it is patent that there was no serious due diligence about his nomination, notably on his personal finances, which ought to be a strict requirement for anyone pretending to lead an IO.
Second is that AB starts from the perspective of the hard-headed businessman. The hard-headed businessman (HHBM) is as badly adapted to the World Bank as it is badly adapted to political office. A businessman—for example the CEO of a lender or a reality-TV star — can fire clients who don’t pay and can sack staff who don’t deliver[4]. The President of the US cannot fire Texas (as useful as that might be). The President of the WB cannot fire Guinea-Bissau, to take a small example, and cannot fire Argentina, to take a big one, though he will be sorely tempted with both. The CEO of the WB deals with sovereign nations and their prickly, entitled, representatives, not with people trying to pay their utility bills. One has a drop of sympathy for AB here in that he must already be sick of the sly requests beginning “My authorities are concerned …”. The HHBM has much less freedom to maneuver in government and in the international organizations (IOs). The HHBM can operate within sectors—the Bank can stop lending for fossil fuels or can refuse untied budget support to corrupt countries—and even has the advantage of familiarity with decisions based on quantitative analysis1. Even then, such decisions must be carefully considered because they are political in a way that fiddling terms of a credit card agreement is not. So, to look tough and hard-headed the Bank President will, for example, impose trivial restrictions on the uses of staff leave entitlements (Zoellick did this) while continuing to lend for fossil fuels and to glad hand dictators, which is where we are today.
A third issue is Banga’s financial background which would seem to be an advantage but is not always so. His background omits the type of projects in which the Bank specializes, operations with dozens or even hundreds of little principal-agent problems. While AB spoke eloquently of leveraging the Bank’s balance sheet (and yes, it is a good thing to add a few billion to the IBRD portfolio), he does not yet know the microeconomics of the Bank. (Even Jim Wolfensohn, surely the greatest President of the Bank, spent a couple of years there before he realized that the World Bank was not just another tax-evading foundation, that asset (project) quality mattered and could vary greatly with country and sectoral circumstances).
Project delays. AB started (about minute 12 in the video) on the standard story about Bank procedures and how slow they are, etc. Forgive me for revealing that he does not really know the procedures and he does not know why some projects move quickly and others move slowly. What has happened, I expect, is that he talked to other members of the global nomenklatura at Davos or Dubai or Abidjan or Zanzibar and they have told him, in the strictest confidence, how “my people are saying that the Bank is very slow”. This urban legend is false. The Bank has recently been disbursing more in real terms and more per dollar of operating cost than it has ever done. If Bank procedures were so slow, then its delivery would not have been so strong[5]. AB (putting on his HHBM game face) appears to repeat this legend because it allows him to sound like he is doing something (“reforming Bank procedures”).
Reasons for delays. There are of course projects that lag. Why ? One reason is environmental and social review. The Bank classifies projects by level of environmental and social risk, among other sources of risk. Infrastructure projects (roads, dams, power, for example) are larger and riskier and take longer to prepare. The Bank’s Board members are generally hopeless, to be sure, but they do listen to the NGOs who complain about real or perceived violations of the Bank’s safeguards policies and those Board members will then complain to senior management. Reviews take time because they are a necessary part of the governance of public institutions. Limiting sensitive reviews, notably environmental and social, to accelerate disbursements will cause a huge fight and achieve little except to pad the frequent flyer accounts of Inspection Panel members or to cause a general outbreak of urticaria among the Nordic chairs.
Another reason for project delays and for low project quality is that slow and inefficient projects tend to be in Africa[6]. Now Banga cannot fire countries in SSA (they are at least half of IDA, after all) and it is practically impossible for him to say in public what everyone knows about the portfolio, so he must rely on the usual explanation — lack of capacity. But the real internal issue is that his people in Africa are just not telling him the truth: the Bank is pushing money out the door while neglecting project preparation all in the name of reducing delays.
Another phantom problem about project delays is that Banga has somehow not heard (starting at about 20 minutes in the video) of programmatic operations, which have been a Bank instrument since the beginning of this century. Now it may be that staff [7] have not explained to him how programmatic operations work, including accelerated Board approvals, but such instruments have long been a significant part of the IDA and IBRD portfolios without which the recent burst of new commitments would not have been possible.
The risk-based approach. At about 17 minutes we arrive at one of Banga’s wild misconceptions. He claims that a US$3 million “school in Nepal” has the same risk analysis as a $2.5 billion hydro-power dam. He used this (farcical) comparison to contend that the Bank does not a have a “risk-based” approach which he deemed to be ”shocking”.
Now if AB had said this at Davos or Dubai, I would have assumed he was playing to the crowd (again, the syndrome of “my people are saying …”). But he made this egregious misstatement before a small audience at a DC think tank and from that I can only conclude — really, what does he gain here ?— that he truly believes that the Bank does not have a “risk-based approach”.
Of course, the Bank has a risk-based approach — by client, sector, and type of risk. Roughly the first branch of the approach is to channel poorer clients, who have higher country risk profiles, into a special trust fund (IDA). The approach separates IDA-eligible borrowers from ‘market-access’ countries, so that the former pose no risk to the latter on the consolidated balance sheet of the WBG. Next, the risk model puts country limits on IBRD commitments while imposing caps on IDA funding through national allocations[8].
As regards sector risks, staff prepare projects in line with the borrowers’ priorities and in collaboration with borrower governments and civil societies. This is done to manage country implementation risk by creating national ownership of operations. Each project is classed by social and environmental risks and each project document has sections on risks and on lessons learned from previous investments. None of this is a secret and detailed project documentation is available to the public. It is baffling why Banga thinks he has to make up stories about things that are well-recognized (evaluating risks under country and sectoral constraints) when he has real problems in front of him (the poor quality of the Bank’s green investments, as a recent CGD paper has noted, the low return on Bank support to the CGIAR[9], and the utterly confused mix of green finance instruments in which the WBG is involved).
Climate investments. AB announced new electricity access targets of 100 million people in West Africa and another 100 million in East Africa—these are long overdue. Left unspoken in AB’s re-affirmation of WBG support for electrification in Africa is any description of the technical path to wider access. If the target of 200 million more Africans with electricity is to be met with wind, solar, and hydro, then the mitigation and adaptation targets can be met jointly. If that target is to be met with (notoriously leaky) gas, then mitigation targets will not be met and adaption timelines will be missed because of longer delays in gas-electricity projects, delays which are less binding with decentralized renewables.
Banga’s reference to mitigation methane (CH4) emissions exhibits some confusion about what the Bank can do. Of course, CH4 has both a high carbon equivalence and a shorter life giving therefore, high short-term returns to lowering methane emissions. Stopping flaring and plugging leaks are paths to lower CH4 emissions and the Bank has a role in smoothing those paths. But Banga — repeating the fairy tales told to him by Bank agricultural staff — claims that the WB has some formula to reduce the significant CH4 emissions from rice paddies and from ruminant livestock. Even if these formulae did exist [10] they do not mean that the Bank has any role in extending rice or animal production techniques. Rice and livestock treatments can be extended by national research and extension programs in Asia, Africa, and Latin America without external support. Neither rice nor livestock treatments would absorb much, if any, WBG financing and hence—even if the technical feasibility of such methods is confirmed—should not be declared as reasons for reallocating or expanding WBG finance to serve such investments. The only point of such unfounded statements is to pretend that the Bank is doing something major with CH4 when in fact it is doing very little.
Financial engineering. When Banga gets on his turf — financial engineering — he is very fast, but glides past the reality that the Bank is, yes, a lender seeking a return but is also an IO whose freedom from conflicts of interest must be absolute. He covers this ground well (beginning after ~ 30 minutes) passing smartly the posts of: (i) regulatory clarity about renewables; (ii) expanded guarantees to support private investments[11] and managing them more efficiently within the Bank; and (iii) partitioning foreign exchange risks among partners (foreign and domestic investors, FX markets, host governments, and the WBG). His assignment of “tail [FX] risk” to the WBG is simplistic, especially when many WB client countries face debt crises whose resolution will require difficult workout negotiations among creditors, borrowers, the cousins across 19th street, and the Bank. If there is an expansion of WBG guarantees — AB spoke of increasing MIGA guarantees from ~ US$7 billion to ~ US$20 billion— such that the Bank is both a creditor and a debt-resolution advisor to the same client, its neutrality in debt workouts will be compromised[12].
I wish Ajay Banga well of course but his financial background is limiting in an important way and his (current) lack of preparation about what the Bank does creates its own risks. The chief reason that AB’s experience will not easily adapt to what the Bank needs is in finding an optimum. As CEO of a commercial lender, AB’s optimization problem was complex because of the number of constraints involved but it basically had Walter Reuther’s objective function: more. The CEO of the Bank faces multiple objective functions : more volume, more sectors, more sub-sectors, new clients, new fads (sustainability, resilience), and new interest groups (gender, youth, IPs, biodiversity). Producing results along those lines requires a lot more than cant about livable planets. It does appear, nonetheless, that he is off to a faster start than such nags as Wolfowitz or Zoellick or Kim and this augurs well for his performance over the longer course.
[1] I worked at the Bank from 1989-2011. I thank an anonymous reviewer for comments on an earlier draft.
[2] I have no idea about what AB says and does internally.
[3] Kim knew the Clintons in Haiti; Banga seems to have met VP Harris from some Central America work.
[4] A former President of a regional development bank, upon taking office, found it necessary to sack quite a few staff. He soon received angry letters from heads of the state in the region in question demanding to know what he thought he was doing.
[5] The Bank, AFAIK, keeps data on the costs of dropped projects—have they risen recently ?
[6] I was Country Director on 7 IDA countries in Africa from 2000-04 and 2007-11 so I do know something about this. In 2022, I wrote a portfolio review of a Bank-managed trust fund for > 30 agricultural projects, many of which were in Africa, and the project quality was poor, a fact that Bank agricultural staff have hidden from their own management.
[7] The sycophancy of the apparatchiks surrounding WBG Presidents would have embarrassed Lord Copper.
[8] One of the rare things that would wake the US Chair from its general catatonia would be for some brave soul to propose IDA commitments above the national allocation.
[9] McIntire and Dobermann, “The CGIAR needs a revolution”, Global Food Security, 2023.
[10] There is some prospect for lower CH4 emissions from irrigated rice production using a method called “alternate wetting and drying” but the scientific and field evidence are mixed and the impact in terms of hectares treated and tons of CH4 abated is unknown.
[11] NB: the “Private Sector Lab”, a lab of 12 CEOs created to advise AB, is stuffed with potential conflicts of interest. I will come back to that issue in a future post.
[12] This might pose the obscure problem of “roundtripping”. An example of “roundtripping” is that of IBRD net income generated by IBRD loans to blended IDA and IBRD countries, being used to endow the HIPC Trust Fund, whose resources were then used to service the debt of HIPC countries having both IBRD and IDA obligations. This conflict cannot be resolved by recourse to any other part of the consolidated WBG balance sheet and requires fresh money from some generous external donor, again exposing the HHBM to the politics of that donor.