World Bank intensifies support for climate action in developing countries

•IMF extends zero-interest loans to low income countries
The World Bank Group, yesterday, announced its new Climate Change Action Plan that seeks to deliver record levels of climate finance to developing countries through a series of activities.

Apart from funding, the Group will help affected countries to firm up incentives and taxes to support de-carbonisation efforts.

The new plan is a follow-up to its first Climate Change Action Plan, which delivered over $83 billion in financing over five years, including a record $21.4 billion in 2020. The new move aims to reduce emissions, strengthen adaptation and align financial flows in line with the Paris Agreement goal.

Tagged the Action Plan for 2021-25, the effort will free investment in green projects to help countries fully integrate their climate and development goals.

The announcement comes as countries battle economic disruption caused by the COVID-19 pandemic. Through the programme, the group will help to mobilise private capital for climate action, step up efforts to develop carbon credit markets, green bond and loan markets in countries.

“Our new Action Plan will identify and prioritise action on the most impactful mitigation and adaptation opportunities, and we will drive our climate finance accordingly. This means helping the largest emitters flatten the emissions curve and helping countries achieve successful adaptation and resilience to climate change,” the World Bank Group President, David Malpass, said in the announcement.

He said the group would “be delivering climate finance at record levels and seeking solutions that achieve the most impact”.

The plan includes a commitment to increase total World Bank Group financing for climate throughout the plan by an average of 35 per cent.

“At least 50 per cent of International Development Association (IDA) and International Bank for Reconstruction and Developing (IBRD) climate finance will support adaptation,” the announcement said.

In line with the action plan, the Country Climate and Development Report (CCDR) will help countries align climate action and development efforts and take on new climate-related technologies as they emerge.

The action will also boost support to developing countries for implementing and updating their Nationally Determined Contributions and Long-Term Strategies in line with the Paris Agreement. It will also support the countries in providing incentives to increase de-carbonisation as well as increase taxation of greenhouse gas emissions.

It noted that the action will align “all World Bank Group financing flows with the objectives of the Paris Agreement to support countries’ climate commitments”.

It added that the World Bank – comprising of the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) – will align all new operations starting July 1, 2023.

“For the World Bank Group’s private sector development arms, IFC and MIGA, 85 per cent of Board approved real sector operations will be aligned starting July 1, 2023, and 100 per cent of these operations starting July 1, 2025, two fiscal years later”.

Also yesterday, the International Monetary Fund (IMF) approved policy reforms and a funding package to support the recovery of low-income countries from the COVID-19 Pandemic.

Low-income countries could access concessional facilities over 45 per cent of normal limits at zero interest rates. The higher access limits will facilitate the provision of more concessional support to LICs with strong policies and a large balance of payments needs, IMF said in a statement.

According to the statement, the programme pays “close attention to the expected evolution of debt burdens and the risk of countries falling into debt distress”.

“Higher levels of lending would mean higher credit risk to the Fund and a corresponding need for more in-depth analysis of capacity to repay the Fund. Directors supported the proposal to give enhanced attention to debt dynamics and capacity to repay in staff analysis and in program documents, along the lines discussed in Annex VI of the Board paper. In this regard, Directors emphasised the importance of taking into account country-specific circumstances and called for the Fund to support capacity development in debt management,” the Fund noted.