The World Bank stepped up lending in July 2008 at the request of member countries as demand from developing countries increased in the face of a worsening world recession and sharp drop in global trade.
The bulk of the lending since the onset of the crisis in 2008, about $60.3bn, was to middle-income countries, which struggled to borrow on global financial markets. Typical lending for these countries had averaged about $15bn a year before the crisis.
Meanwhile, loans and grants through the bank’s fund for the world’s poorest countries reached $21.2bn during the crisis. This compares to about $12bn a year prior to the crisis.
Kyle Peters, World Bank director for country services, said such demand was natural for countries facing economic stress.
“A lot of countries wanted to make sure that social safety nets were expanded both in terms of the amount of support and the number of people who needed them,” he told reporters.
As governments saw their revenues shrink due to the fall in global demand, countries turned to the World Bank for budget support to avoid cuts in spending for social programmes.
Credit strains
Since July 2008, the World Bank supported 497 projects to promote economic growth, fight poverty, and support the private sector, including $28bn in infrastructure financing, the institution said in a statement. Commitments to shore up troubled financial sectors also increased as banks in emerging and developing countries faced credit strains.
In particular, countries such as Latvia and Hungary, which were not borrowers from the World Bank when the crisis struck, resumed borrowing from the institution as their economies were rocked by the financial turmoil.
World Bank President Robert Zoellick has warned that as the world emerges from the crisis, the economic recovery will be uneven and countries will “face recurring and new challenges”.
To cope with increased demand the World Bank has asked member countries to replenish its coffers in a general capital increase to be decided at meetings of the World Bank and the IMF.
Emerging market economies have said they are willing to raise their contributions in exchange for a greater stake in the development institution.
Peters said uncertainty about the global economic recovery was behind the increased demand for World Bank support.
“It is a very mixed picture across different regions and even across countries, as illustrated by the demand, which is much stronger than we had before the crisis,” Peters said.
He said it was important that governments do not crowd out private businesses by borrowing too much in domestic markets – thereby pushing up the cost of credit for companies.
“We are trying to keep our lending up to help them not crowd out their private sectors who also need financing for recovery,” Peters said.
“Without a capital increase, we would have to come down more sharply and we will be unable to provide the same level of support we have in the past 18 months if the recovery stalls,” he added.
