Singapore and New Zealand have announced new contributions to financial instruments designed to increase the World Bank’s lending capacity for addressing global challenges.
Singapore will provide $20 million to the World Bank’s hybrid capital instrument. The country also plans to become the first shareholder to redirect the interest payments from this instrument back into the Bank’s net income. With leveraging, Singapore’s contribution could result in up to $200 million in additional lending over a decade. The hybrid capital instrument allows shareholders and partners to invest in tools with high leveraging potential. Including Singapore, 12 countries have now pledged about $1.2 billion to hybrid capital, which could expand the Bank’s lending by approximately $9 billion over 10 years. Other contributors include Germany, Latvia, the Netherlands, Denmark, Sweden, Iceland, Canada, the United Kingdom, Norway, Italy, and Australia.
New Zealand is the first country to subscribe to the Enhanced Callable Capital (ECC) instrument, contributing $50 million. ECC acts like equity and can be activated to protect the International Bank for Reconstruction and Development’s (IBRD) credit rating in rare cases of imminent threat. Each dollar of ECC unlocks $6 in lending capacity over 10 years. The World Bank Group is the first multilateral development bank to use callable capital in this way.
Ajay Banga, President of the World Bank Group, said: “Singapore and New Zealand are leading the way by contributing to these innovative financial tools. With strong leveraging potential, these instruments allow us to invest even more in projects that create jobs and help people to reach their full potential.”
Indranee Rajah, Singapore’s Minister in the Prime Minister’s Office and Second Minister for Finance and National Development, stated: “Singapore strongly welcomes the innovative financial instruments introduced by the World Bank Group which will strengthen the Bank’s lending capacity in furtherance of its mission to end extreme poverty and boost shared prosperity. As part of our long-standing partnership with the World Bank Group, Singapore will contribute $20m to its Hybrid Capital instrument. This will enable the Bank to leverage eight to ten times the amount to address global challenges such as energy access, water security and sustainable growth.”
New Zealand’s Minister of Finance, Nicola Willis, commented: “I am pleased to announce that New Zealand will convert a portion of our existing callable capital at the IBRD into enhanced callable capital. I know the World Bank has real expertise and strong relations in the Pacific, and I look forward to its Pacific work continuing. I’m also pleased that the IBRD’s financial innovations mean that we can efficiently support increasing its lending capacity.”
Through new financial instruments and balance sheet optimization measures, including a lower minimum equity-to-loans ratio, the World Bank has expanded its lending capacity by about $100 billion over the next decade, which could support projects impacting hundreds of millions of people.