Q&A with World Bank President Ajay Banga: My priorities ahead of Davos 2024

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

• Ajay Banga, ex-Mastercard CEO, has headed World Bank since June 2023.
• He spoke to World Economic Forum Founder and Executive Chairman Klaus Schwab ahead of the Forum’s Annual Meeting 2024. Hear the full conversation on the Agenda Dialogues podcast.
• This year’s Annual Meeting in Davos, Switzerland, takes place between 15-19 January under the theme Rebuilding Trust.
• Subscribe to the podcast on any app: https://pod.link/1574956552

https://open.spotify.com/embed/episode/7aezewV678YXNaGrIx0Dem

https://cdn.jwplayer.com/players/ktrTqlj5-ncRE1zO6.html

Ajay Banga, the President of the World Bank and member of the World Economic Forum’s Board of Trustees, spoke to Forum Founder and Executive Chairman Klaus Schwab ahead of the Forum’s Annual Meeting 2024.

Here are some highlights from the conversation, that you can hear in full on the Agenda Dialogues podcast.

What are the challenges which are foremost in your mind at the beginning of 2024?

Shorter-term: conflict and debt

The answer to your question has two sides to it. There’s the more immediate side, and I think that is if I were to worry about things that are the short term, aside from the conflict in Gaza and Israel, aside from Ukraine and the situation there, I think the third thing I would worry about is the situation on debt in a number of the emerging markets.

A number of them are also coming up for rolling over that debt over the next 12 to 24 months, and given interest rates today, that rollover will come at a price. And so I think their ability to service that debt is eating away from their ability to look after health and education. And, you know, there are statistics out there that they’re spending more on debt repayment than on a number of those things.

So I think fragility and conflict, combined with the challenges of debt, are two of the most serious ones right now in the shorter term.

Longer-term: poverty and the environment

If you look at the state of the world, I try and look at the challenges we face as being on three sides of a triangle.

And one side of the triangle is the longer-term issue of ‘one versus many’: essentially the inequality, poverty aspect … you could feel it because of gender or ethnicity or religion or being born on the wrong side of the tracks. And it might be exhibited in the form of access to education or health care or clean air or water or, frankly, opportunities of all types…

So that’s one side of the triangle. The other side of the triangle to me is the challenge of humanity versus nature. And today we discuss that as climate and biodiversity and forest degradation and the challenges of all the aspects of climate and nature that society has begun to discuss now.

And the reason these two sides of the triangle don’t fall down is because the third side is what keeps them up. And the third side is the tradeoff between long-term and short-term. And whether you’re a politician, a CEO, a teacher, society [incentives] you towards short-termism. Whereas the nature of these two sides of the triangle is that these are very deep-rooted problems that require longer-term solutions.

What are the solutions? Jobs and tech part of the answer

The best way to solve [inequality and poverty], aside from creating better access, is a job because jobs give you not just earning and breaking out of the cycle but also dignity. And I think dignity is a part of human development, not just economic development, that we have to pay a great deal of attention to.

… I do believe that technology is a great enabler. I think if you go back in time, and when I was younger … you wanted to learn about something different, you had to buy the Encyclopedia Britannica. That was expensive. And then comes Google and search, and, all of a sudden, knowledge is democratized and available to everyone.

In the same way, technology, and now data and AI, are great enablers to break through the power of incumbency or the challenges that this triangle represents. Of course [if] done the right way. We have to put guardrails around how these work, but done the right way, this could be very helpful.

World Bank: Importance of “measuring the outcome”

One of the challenges in the World Bank is that we have been focused over the years, for good reason, on input, as in projects and lending and dollars applied. And those are important.

But I think equally important, if not even more important, is measuring the outcome, the impact of those projects and dollars in terms of how many girls went to school, how many people got a better job because of a skilling institute that we invested in, how many tonnes of carbon emissions we avoided because of certain things we funded, how many private sector dollars we crowded in, along with our own capital, in a project to help drive impact.

The role of the Private sector

Without the private sector … [the big] challenges, we cannot solve these, because if you look at the estimates just for renewable energy in the world, they run in the trillions of dollars every year that need to be invested to make the necessary change in the way in which our future growth can be less energy emissions-heavy.

Now, there aren’t trillions of dollars in government coffers. There aren’t trillions of dollars in multilateral banking coffers.

The only way this is going to work is by getting private sector capital, private sector innovation in generating technology, their people, their ambition to make a return on their capital, but to come to the party where it’s possible that there is a good business model.

Barriers to private-sector investment

It is now true that solar and wind, by unit, are cheaper than fossil fuel … So then why is it that more private capital is not beating down the doors of many countries to invest in solar and wind energy there?

There are many reasons. They start from regulatory certainty and policy certainty from that country. The Bank can help with that, because we have a good knowledge bank which is capable of imparting knowledge-building capacity to these countries to help create the regulatory and policy certainty that a private investor tries to get some idea of when they put money in…

The second part is there are still political risks. You know, the World Bank, through one of our institutions called the Multilateral Investment Guarantee Agency, we do provide for insurance guarantees against political risk. Can we do more? Can we do three times the amount we do today, over the next few years? Can we make it simpler for the private sector to understand these guarantees and to access them? Can we make it simpler for the governments of these countries to make them work? Certainly. That’s one of the things we’re working on.

And then there is the whole issue of foreign exchange. If you’re an investor investing dollars, euros or yen into a country, and your earnings are principally in local currency, that’s an unhedged exposure. Not all these countries have deep and wide enough foreign exchange markets to absorb such a hedge. So the question is, how do you solve for that in the medium and long term is through the development of local capital markets. But in the shorter term, is there something we can do to help incentivize local currency-raising bonds and the like? And so there’s work to be done there.

And then, of course, there’s the real prize to me, which is the creation over time of securitization classes in these kinds of investment categories … There’s a lot of work to be done on making the loans more standardized, so to say, less bespoke, which enables this to happen. And so this is probably a more longer term effort.

Trending now: