The World Bank Group 101: A Tale of Reconstruction and Development


Foreword


This series of articles provides a detailed explanation of the work conducted by the World Bank, a well-known international financial institution, and its importance. The World Bank Group is one of the world’s largest providers of sources, knowledge, and funding for low and middle-income countries. Through issuing loans and grants the World Bank can facilitate the development of struggling nations in their fight of eradicating poverty, inspire prosperity, and promote sustainability. A detailed analysis of the past and present engagement of the five divisions of the World Bank Group will address the respective frameworks of the five organisations. Each article will focus thoroughly on the function and activity of each of the following organisations: The International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). As an institution dedicated to establishing long-term economic development, the World Bank is an organisation whose continuous technical and financial support has successfully implemented projects and reforms on a global level. The World Bank Group 101 series aims to break down the function of the World Bank Group and its five member organisations. Every article in the series aims to offer an overview of the mission of the respective WBG institutions and their never-ending war against poverty and many other global issues concerning the majority of the countries of the world.


The World Bank Group 101 series consists of six articles:

  1. The World Bank Group 101: The Bank of All the World

  2. The World Bank Group 101: A Tale of Reconstruction and Development

  3. The World Bank Group 101: A Narrative on the Association of Development

  4. The World Bank Group 101: Encircling Risk Management and Investment Warranty

  5. The World Bank Group 101: A Story on International Arbitration

  6. The World Bank Group 101: The Global Resolution of Financial Disputes


The International Bank for Reconstruction and Development, abbreviated as IBRD, is one of the five central units of the World Bank Group. Its work is centred on reducing poverty and promoting the development of middle-income countries, and on issuing credits and loans to credit-worthy low-income countries while promoting sustainable development throughout borrowing nations (International Bank for Reconstruction and Development, n.d.). In order for a country to qualify as middle-income according to the World Bank standards, it has to have a Gross National Income (GNI) per capita within the range of $1,026 and $12,235 (Overview, n.d.). In order for a low-income country to classify as credit-worthy, it has to be rated as such by the International Monetary Fund (IMF) based on the country’s creditworthiness framework and, if applicable, the credit rating of a countrys past credit scores. As a provider of technical services, strategic advice, and other financial means on top of loans and credits, the IBRD is an organisation that conducts extensive work in the development of middle-income countries. This article offers a detailed overview of the establishment, function, mission, and financial operations of the International Bank for Reconstruction and Development.


Figure 1: The logo of the International Bank for Reconstruction and Development.

IBRD at a Glance

The IBRD was first established on 22nd July 1944, at the Bretton Wood Conference in the United States of America, prior to the end of World War II (1939 – 1945) (International Bank for Reconstruction and Development | UIA Yearbook Profile | Union of International Associations, n.d.). Representatives of 44 nations came together and discussed concerns and plans for rebuilding and strengthening the international economy and financial collaboration post World War II. The majority of the 44 nations which attended the Conference, ratified the Bank’s charter and were officialised as the first members (International Bank for Reconstruction and Development | UIA Yearbook Profile | Union of International Associations, n.d). The IBRD was at the time referred to as simply the Bank, until 1946 when its separate function was fully established after two years of active work in the financial sector. The formal international relations and cooperation between the IBRD and the UN are maintained through an agreement signed in 1947 by the Bank’s board of Governors and the UN General Assembly members (International Bank for Reconstruction and Development | UIA Yearbook Profile | Union of International Associations, n.d).


Figure 2: An illustration of the Bretton Woods Conference in 1944.

At the United Nation offices, when discussing relations of the work conducted by the IBRD, it is often done so under the name of the World Bank, the parent organisation of The International Bank for Reconstruction and Development (IBRD), The International Development Association (IDA), The International Finance Corporation (IFC), The Multilateral Investment Guarantee Agency (MIGA), The International Centre for Settlement of Investment Disputes (ICSID) members (International Bank for Reconstruction and Development | UIA Yearbook Profile | Union of International Associations, n.d). Technically and nominally during assemblies of the UN, when utilising the term ”World Bank” — in French ”Banque Mondial” and in Spanish ”Banco Mundial” — it is understated that the speaker or writer refers to the IBRD and the IDA together since those were the first two organisations established in 1944 to commence the World Bank Group members (International Bank for Reconstruction and Development | UIA Yearbook Profile | Union of International Associations, n.d).


The IBRD headquarters are in Washington, D.C and the current president of IBRD is the 13th president of the WBG, David Malpass (International Bank for Reconstruction and Development, n.d.). There are 189 member countries of the IBRD, represented by 25 board members of 5 appointed, and 20 selected executive directors (International Bank for Reconstruction and Development, n.d.). There are currently 67 registered as active borrowers of the IBRD. The capital at the disposal of the IBRD to fulfil its designated mission is $252 billion, however, the annual lending capacity which shall not be exceeded is $27 billion (International Bank for Reconstruction and Development, n.d.)


Figure 3: An image of the United Nations General Assembly in New York, USA.

Partial Risk Guarantees

The International Bank for Reconstruction and Development offers a risk mitigation tool known as a Partial Risk Guarantee or PRG. PRGs are able to cover risks that may lead to ultimate performance failures of an entire government or entity respecting contractual obligations for private projects (State Secretariat for Economic Affairs SECO Economic Cooperation and Development, n.d.). Through PRGs several risks can be mitigated such as lack of currency transferability, risks imposed by political force majeure, regulatory risks, thwarting of arbitration, payment defaults, and performance failures (State Secretariat for Economic Affairs SECO Economic Cooperation and Development, n.d.). The size of coverage of PRGs extends to cover outstanding principal and accrued interest of debt tranche in full (State Secretariat for Economic Affairs SECO Economic Cooperation and Development, n.d.). The maturity of PRGs can be extended to the necessary time length required to ensure the viability of a project.


There are various fees that accompany PRGs: front-end fees, initiation, processing, and guarantee fees. The front-to-end fee is a one-time fee with a value of 0.25% on the sum of the guarantee (State Secretariat for Economic Affairs SECO Economic Cooperation and Development, n.d.). The initiation fee is also a one-time fee, but with a value of 0.15% on the sum of the guarantee or a minimum of $100,000 (State Secretariat for Economic Affairs SECO Economic Cooperation and Development, n.d.).


Figure 4: An illustration of Insurance Solutions by the IBRD for WBG clients.

The processing fee is a one-time fee that varies from an undetermined minimum to a maximum of 0.5% on the sim of the guarantee, designated to cover out-of-pocket costs (State Secretariat for Economic Affairs SECO Economic Cooperation and Development, n.d.). The guaranteed fee is an annual fee of 0.3% on the disbursed and outstanding sum of the guarantee (State Secretariat for Economic Affairs SECO Economic Cooperation and Development, n.d.). PRGs cover any foreign currency and local currency debt, not just American dollars even though it is the most common currency issued as per the preference of borrowers.


Middle-Income Countries

The International Bank for Reconstruction and Development (IBRD) supports the World Bank Group’s mission by providing loans, guarantees, risk management products, and advisory services to middle-income and creditworthy low-income countries, as well as by coordinating responses to regional and global challenges (World Bank Group - International Development, Poverty, & Sustainability, n.d.-b). Created in 1944 to help Europe rebuild after World War II, IBRD joined forces with IDA, to form the World Bank in 1946. The IBRD works closely with all institutions of the WBG in both the public and private sectors to aid developing countries and fulfil the common mission of the WBG to reduce poverty and inspire shared growth and prosperity.


Figure 5: A table released by the IBRD demonstrating the economic classifications of countries as of 2020-2021.

The IBRD engages with middle-income countries abbreviated as (MICs), in both scenarios as clients and as shareholders (World Bank Group - International Development, Poverty, & Sustainability, n.d.-b). According to the research of the IBRD, MICs are major drivers of global growth, through their territorial ability to host major investments in the field of infrastructure. Middle-income is also key receivers of a large share of exports from high-income countries, powerful economies, and low-income countries. Data gathered by the IBRD throughout its years as a functioning development institution demonstrates that the majority of middle-income countries around the world are displaying rapid economic and social progress, alongside a great potential to indulge in further growth in many fields, as well as play a crucial role in finding long term solutions to global challenges that remain unsolved otherwise (World Bank Group - International Development, Poverty, & Sustainability, n.d.-b).


Statistically, 70% of all individuals classified as poor by the World Bank Open Data are found in MICs, usually in the remote areas of respective middle-income countries (World Bank Group - International Development, Poverty, & Sustainability, n.d.-b). Central locations, capital cities, and greater urban areas amount to a higher level of economic stability, not as vulnerable in the face of economic shock, inflation, crises, global warming, climate change, migration, and pandemics (World Bank Group - International Development, Poverty, & Sustainability, n.d.-b). Thus, the remote areas, seemingly difficult to reach are the ones that impede general growth on a national level and require the help of the IBRD and its portfolio represented by their main partner the World bank at 60% (World Bank Group - International Development, Poverty, & Sustainability, n.d.-b). To access the remote areas of middle-income countries, and provide the assistance needed, through the resources of the World Bank, the IBRD offers strategic advice to governments in need through the implementation of reforms, encouragement of private investment, and innovative solutions to national problems. Through partnerships with other countries, the IBRD helps nations emerge and evolve in global forums of shared financial products where MICs are able to detect their strengths and weaknesses in order to establish the help, they require in exchange for the help they can offer to partners.


Figure 6: A world map available on the WBG and IBRD websites, depicting middle-income countries as of 2021-2022.

Ultimately, attacking the weakest, and least developed areas of middle-income countries, is a major progress toward poverty reduction and broadened sustainable prosperity. As a specialised unit in the advancement of MICs to a higher level of national income, the IBRD also simultaneously monitors possible “recruits” whose progress proves eligible to graduate from the ranks of the IDA and join the IBRD, thus expanding the capacity of the IBRD and demonstrating the success of the WBG framework in the accomplishment of their missions (World Bank Group - International Development, Poverty, & Sustainability, n.d.-b).


IBRD’s Services

IBRD provides innovative financial solutions, loans, guarantees, risk management tools, and knowledge on advisory services to governments on national and subnational levels through partnerships with MICs and creditworthy poorer countries. IBRD finances investments across all sectors that require financial investment and provides technical support and expertise at each stage of a project from start to finish regardless of the timeframe. IBRD’s resources are allocated to provide borrowing countries with the requested capital while simultaneously assisting as global resources of knowledge and expertise of technical assistance.


The IBRD advisory services are amongst the top worldwide due to the extensive advice they provide in public debt and asset management. These two fields come in the aid of governments, and institutions of all sectors to develop institutional capacity, while fully utilising financial resources and capital at their disposal. Strengthening public financial management is a core duty of every nation’s government which becomes thoroughly challenging in middle-income, and low-income countries from factors that heavily influence such as poverty, political power, and corruption. The IBRD aims to facilitate ideal public financial management in MICs but not only, through meliorating investment conditions, addressing service delivery weaknesses, and strengthening the policies of the respective institutions in charge.


Figure 7: A table chart of the IBRD and IDA fiscal disbursements in millions of US dollars in 2021.

Financing the IBRD

There are various ways in which the IBRD received its funds, one of the central ways being through global financial markets. This strategy allows the institution to accumulate the necessary funds to allocate up to $500 billion in loans around the world since 1946 with the aim of reducing poverty (International Bank for Reconstruction and Development (World Bank Group) : Credit Enhancement for Infrastructure | IISD, n.d.). The shareholder governments that make up the IBRD have paid around $14 billion in capital to facilitate the aim and goals of IBRD (International Bank for Reconstruction and Development (World Bank Group) : Credit Enhancement for Infrastructure | IISD, n.d.).


Since 1958, the IBRD has religiously maintained a triple A, in credit rating, which allows the IBRD to borrow at low cost and offer middle-income developing countries extended access to financial capital on preferable terms (International Bank for Reconstruction and Development (World Bank Group) : Credit Enhancement for Infrastructure | IISD, n.d.). A triple-A credit rating, also known as AAA, is the highest possible rating an issuer can have, as it identifies the highest creditworthiness, the lowest default risk, and the successfulness of the organisation to meet all financial commitments. Thus, the IBRD helps to ensure that the undergoing development projects are conducted sustainably whilst catalysing private financing.


The IBRD earns considerable income annually through equity return and a small margin from lending capital. The accumulated income serves to pay off operating expenses, and the remaining capital goes to WBG reserves to increase the capital reserves and provide a higher annual transfer potential for the fund of the International Development Association, a member of WBG which deals with the poorest of countries (International Bank for Reconstruction and Development (World Bank Group) : Credit Enhancement for Infrastructure | IISD, n.d.).


Figure 8: A table chart of the IBRD and IDA fiscal commitments in 2021.

Strategies

The Country Partnership Framework dictates the work response of the IBRD but also other WBG institutions that interact with client countries (International Bank for Reconstruction and Development, n.d.). The goal of the Country Partnership Framework is to ensure that the twin goals of putting an end to poverty and inspiring the growth of shared and sustainable prosperity are ultimately reached in the best manner (International Bank for Reconstruction and Development (World Bank Group) : Credit Enhancement for Infrastructure | IISD, n.d.). In order to deliver a personalised and adequate response the strategies undertaken by the Country Partnership Framework are facilitated by the division mentioned below:


1. Financing and Risk Management: IBRD alongside WBG institutions provide offers a plethora of financial offers to countries in need such as insurance, credit enhancement, and hedging products to allow client countries to manage financial risks while addressing national development obstacles (International Bank for Reconstruction and Development, n.d.). Often enough, the IBRD works together with the IDA when addressing projects and financial concerns of the poorest countries that qualify as creditworthy under the analysis conducted by the IBRD.


Figure 9: An image of the IBRD headquarters in Washington D.C.

2. Projects and Transactions: Projects undertaken by IBRD can be either greenfield or brownfield. A greenfield project is essentially a project that starts from scratch the accomplishment of which no prior work or action has ever been undertaken (Greenfield Vs. Brownfield Investments: What’s the Difference?, 2021). A brownfield project is a project on the site of which one or multiple problems and issues of diverse backgrounds and gravities have risen impeding its finalisation (Greenfield Vs. Brownfield Investments: What’s the Difference?, 2021). In terms of financial initiative, IBRD projects can be either dependent on private participation or undertaken by a respective government including the following: build–operate–transfer and concession projects, public-private partnership projects, and privatisations (International Bank for Reconstruction and Development, n.d.).


3. Regions: The regions eligible to profit from the IBRD’s financial resources include 69 countries, which are listed on the official page of the WBG, under the area designated to IBRD activity regions (International Bank for Reconstruction and Development, n.d.). However, the advisory services are available to all WBG clients according to their needs and requirements.


Figure 10: A pie chart graphic illustration of the IBRD and the IDA fiscal lending in 2021.

Conclusion

The International Bank for Reconstruction and Development is a member organisation of the World Bank Group which provides, loans, grants, guarantees, as well as detailed advisory services to both public and private entities. The budget and the finances that make up the funds of the IBRD are focused on fulfilling the common missions of all members of the WBG: to reduce poverty and promote sustainable growth, alongside the main mission of the IBRD itself which is to come to the aid of middle-income countries and credit-worthy nations seeking further financial aid in their economic development. As of 2022, the IBRD is actively operating and leading projects in 69 nations and offering advisory expertise to WBG clients. Through the projects financed by the organisation since its establishment in 1944, a lot of countries annually, have been able to exceed their economic bracket and improve the general state of their national economies and international affairs.


Bibliographical References

Greenfield vs. Brownfield Investments: What’s the Difference? (2021, December 1). Investopedia. https://www.investopedia.com/ask/answers/043015/what-difference-between-green-field-and-brown-field-investment.asp


International Bank for Reconstruction and Development. (n.d.). World

Bank. https://www.worldbank.org/en/who-we-are/ibrd


International Bank for Reconstruction and Development | UIA Yearbook Profile | Union of International Associations. (n.d.). https://uia.org/s/or/en/1100034299


International Bank for Reconstruction and Development (World Bank Group) : Credit Enhancement for Infrastructure | IISD. (n.d.). https://www.iisd.org/credit-enhancement-instruments/institution/world-bank-international-bank-for-reconstruction-and-development/


Overview (n.d.). World Bank. https://www.worldbank.org/en/country/mic/overview

State Secretariat for Economic Affairs SECO Economic Cooperation and Development. (n.d.). International Bank for Reconstruction and Development. https://www.seco-cooperation.admin.ch/secocoop/en/home/themes/multilateral-cooperation/swiss-participation-mdbs/world-bank-group/ibrd.html


World Bank Group - International Development, Poverty, & Sustainability. (n.d.-b). World Bank. https://www.worldbank.org/en/home

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