Draft International Bank for Reconstruction and Development (General Capital Increase) Order 2019
Draft International Bank for Reconstruction and Development (Selective Capital Increase) Order 2019
Draft International Finance Corporation (General Capital Increase) Order 2019
(4 years, 9 months ago)
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The Minister for the Middle East (Dr Andrew Murrison)
I beg to move,
That the Committee has considered the draft International Bank for Reconstruction and Development (General Capital Increase) Order 2019.
The Chair
With this it will be convenient to consider the draft International Bank for Reconstruction and Development (Selective Capital Increase) Order 2019 and the draft International Finance Corporation (General Capital Increase) Order 2019.
Dr Murrison
It is a pleasure to serve under your chairmanship, Mr Sharma, particularly given the expert nature of the Committee.
The draft orders seek Parliament’s consent for the UK Government to make payments to two institutions of the World Bank Group: the IBRD, which provides financial and advisory support to middle-income and creditworthy low-income countries, and the IFC, which provides financial and advisory support to the private sector in developing countries. I will briefly set out the rationale and expected benefits of those contributions before dealing with any wider questions the Committee has.
First, on the rationale, the UK contributions are part of a wider package of additional shareholder support. That support is driven by two factors: financial need, and the need to make a shift in shareholding to enhance governance. I will explain that a little, starting with financial need. Historically low interest rates reduced the returns from the IBRD’s loans, reducing its capacity to support development financing. Although the IFC has increased its financing, including in poorer and more fragile countries, it is reaching the limits of what it can do without more support from its shareholders. On the second factor, the World Bank Group is seeking to enhance the participation of developing countries in its decision making by increasing their shareholding and voting power, consistent with their growing economic weight and contributions to development.
In response, the World Bank Group proposed a package of $13 billion of additional capital: $7.5 billion for the IBRD and $5.5 billion for the IFC. That is to be paid in by shareholders through the subscription of additional shares allocated to them through two kinds of capital increases for each institution: general capital increases, in which shares are allocated in line with existing shareholdings, and selective capital increases, in which shares are allocated in proportions that do not match current shareholdings, resulting in a shift in relative shareholding and voting power. The contributions expected from the United Kingdom, which are set out in the draft orders, are consistent with the shares we were allocated in the capital increases.
Secondly, on the benefits, the World Bank Group is expected to play an important role in addressing the estimated $2.5 trillion of investment required every year to meet the sustainable development goals. The financial strength of the IBRD and the IFC allows them to access finance at low interest rates and use that to support clients, in return for interest that can be channelled back as future investment. They have taken the $19 billion of total shareholder contributions and used it to provide $900 billion of development finance.
The World Bank Group shares UK norms and values and helps to promote them globally. The Government’s 2016 multilateral development review rated the IBRD and the IFC as “very good” and “good” respectively for their match with UK priorities and organisational strength. The capital increases include policy and financing commitments that are expected to enhance their impact and support the United Kingdom’s interests.
Specifically, the capital increases will, first, support an increased focus on tackling climate change, with the share of projects with climate benefits increasing to an average of at least 30% by June 2023 for the IBRD and to 35% by June 2030 for the IFC. That compares with previous World Bank Group-wide ambitions of 28% by June 2020. The increases will also assist an increased focus on support for poor and fragile countries where development needs and security benefits are greatest. The IBRD will boost its share of support to its poorer clients to 70% of its total financial support, compared with 63% historically. The IFC will increase its support for the very poorest countries and fragile countries to 40% of its total support by 2030, compared to a baseline of 24%.
The increases will support a greater focus on gender equality. By June 2023, the IBRD will increase the proportion of its projects that support gender equality to 55%, from 42% now. The IFC will quadruple the amount of IFC financing dedicated to women and women-led small and medium-sized enterprises by 2030. Finally, the proposed increases will deliver a range of other enhancements in value for money, including both the IBRD and the IFC committing to deliver further internal efficiencies and ensuring that wealthier countries will pay more to borrow from the IBRD. In addition, the shifts in shareholding in the capital increases will be expected to support the increased legitimacy of the institutions in the eyes of developing countries.
These capital increases will support Britain’s development, prosperity and security objectives. Our participation in them will support us in continuing to stand proud as a leader in backing and improving the multilateral rules-based system and demonstrate value for money for UK taxpayers.
Alex Norris (Nottingham North) (Lab/Co-op)
I am grateful for the chance to serve under your chairmanship, Mr Sharma, and grateful to the Minister for outlining the statutory instruments before us. The Opposition do not intend to divide the Committee on this matter, but I have a series of points to raise. The Minister is always well briefed and may have the information with him, but if there are some things he does not know, perhaps he will follow up in writing. That would be much appreciated.
We seek reassurance on a number of points of serious concern relating to these two arms of the World Bank. I will talk first about impact. What independent evidence can the Minister give us on both the IBRD’s and the IFC’s impact on reducing poverty? We have concerns about the developmental impact of the World Bank’s work, as raised by its independent evaluation group, which found that the IFC in particular has in recent years experienced a downward trend in the developmental impact of its investments. IFC investments made via private equity funds are of particular concern, given that they can be opaque and difficult to track. How can we be certain that all the IFC’s investments will lead to demonstrable developmental impacts?
I was pleased to hear the Minister’s reference to gender and the positive outlook and direction being taken. I am keen to know what plans are in place to ensure the impact sought. I was also pleased to hear the Minister’s assurances regarding the shift in direction on governance. Hopefully, we will be able to tease out a bit more. The recent leadership selection exercise, which lacked a fair or competitive process, showed that we still have a long way to go in increasing the representation of borrower countries. There is a clear need across the architecture of global financial institutions for serious change in that respect. The governance of the World Bank is skewed towards the wealthiest nations. Developed countries retain the majority of shares and board seats, which means that there is an uneven distribution of voting powers, and of course the United States retains its veto power. I would be interested to hear how we will achieve the changes that the Minister outlined, and on what sort of timeline.
Tying voting powers directly to capital contributions is a problematic way to govern such an important international financial institution, so I welcome the Minister’s saying that we will move away from that, not least because the capital that the UK provides is a relatively small proportion of the bank’s funding, and large chunks of its operations are funded by loan repayments from developing countries. Surely we could go further than the reforms of recent years and de-link capital contributions and voting powers. I would be interested to hear how far we can go on that, so that we take into consideration other factors, such as population or developmental needs. Does he agree that we still have a way to go to ensure more balanced structures? What tangible changes will he be advocating through these orders and beyond?
Thirdly, on domestic resource mobilisation, as law makers we know how important collecting taxes is to a country’s development. A major impediment to raising the resources they need is tax avoidance. How will the Minister make sure the World Bank helps Governments to maximise their domestic revenues by ensuring that no investments go to companies engaging in tax avoidance or operating through non-compliant jurisdictions? Does he agree that we should ensure that all investments made by the IFC are analysed for their impact on domestic revenues?
Fourthly, I was pleased with what the Minister said about aligning the work with the Paris climate agreement, but I want to probe that a bit more. In the recent general debate on climate change and global development—a very good debate indeed, with excellent contributions from across the House and a high degree of consensus—the Government assured the House that the big multilateral banks are aligning their climate finance with the targets of the Paris agreement. However, we are deeply concerned about the bank’s continued funding of fossil fuel projects after the Paris agreement, which the shadow Chancellor raised in his speech at Labour’s International Social Forum this weekend. At that conference, the Leader of the Opposition announced Labour’s plans to stop channelling finance through the World Bank’s climate investment funds, but instead to redirect them to the UN’s green climate funds—a move that would give more direct access to national and local actors, rather than concentrating funding in a handful of multinational development banks. I would be very interested to hear the Minister’s thoughts on that idea. In additoin, how will the Government ensure that all climate finance is spent in a way that ensures local ownership? Will he set out the ways in which the World Bank is aligning its investments with the Paris agreement, and how that will be monitored?
Finally, transparency is very important to all right hon. and hon. Members, and the Department for International Development raised that issue in its multilateral spending review. Although the IBRD and the IFC scored “good” overall, both agencies’ scores for transparency were weak. In particular, the IFC has struggled with scandal. Just this month, one of its investment officers was in the press after she allegedly favoured the company in which her husband was a senior executive and which was awarded a significant part of a £2.6 billion contract that she was involved with. According to the New York Times, that conflict of interest has dragged the bank into Latin America’s biggest corruption scandal. We all agree that transparency is critical to tackling corruption, so will the Minister set out how he will ensure that the World Bank urgently improves the transparency of all its institutions?
I will leave it there. I have raised a number of issues, and I would be very grateful for the Minister’s reflections on them. If the answers are not available today, perhaps he will follow up in writing.
Stuart C. McDonald (Cumbernauld, Kilsyth and Kirkintilloch East) (SNP)
It is a pleasure to serve under your chairmanship, Mr Sharma. I thank the Minister for his very thorough and wide-ranging introduction to the instruments. Like the shadow Minister, I do not intend to divide the Committee and I support the broad thrust of the proposals. The Minister referred to all the expertise that is on this Committee. I certainly do not count myself as being among the experts—I am slightly outside my comfort zone—but I have a couple of slightly geeky, lawyerly questions for the Minister.
The two draft orders that relate to the IBRD make perfect sense to me, because we can track through where those proposals have been approved by members by way of resolution. As far as I can see, however, the order relating to the IFC has not yet been approved by the membership of those institutions. Is it not slightly premature to bring the draft International Finance Corporation (General Capital Increase) Order 2019 before us? Essentially, we have been asked to approve payments of monies that have not yet been formally requested by those institutions. Could the Minister say something about why those IFC resolutions have been delayed? I have heard suggestions that it is related to the US blocking the resolutions until the rules have changed so that it retains a veto over future IFC capital increases. If that is the case, it would be interesting to know the Government’s position on that.
There is a second issue that I want to flag up. We have two instruments that relate to the IBRD, but just one that relates to the IFC; it is a general capital increase order, and there is no selective capital increase order. I understand that is because the UK will not get any additional shares as part of that rebalancing exercise, and therefore no payments of monies would be required. I totally understand that and have no reason to doubt that what is going on is perfectly fair, but it is slightly ironic that the one proposal going to the Royal Bank of Scotland that sees the UK’s share capital and voting influence being diluted does not require an instrument to come before MPs for scrutiny. As I say, I have no reason to suggest that anything untoward is going on, but we should have some alternative means of debating those proposals.
More broadly, I support everything proposed in the instruments, but there must be a question mark over whether the spending of such significant sums of money deserves slightly more interest than an albeit expert Committee on a quiet Monday evening in Parliament. These proposals were made several months ago, and I would suggest that we should have these debates in the Chamber and give the orders slightly more detailed scrutiny than we can give them in this short time span.
Dr Murrison
To deal with that last point, the ministerial position on this was tabled in April 2018, and we have received no questions on this matter at all. Although I agree with the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East, who defines himself as a geeky lawyer—I do not think he is—I am perhaps disappointed that we have not had more interest in this matter, and I share his concern in that respect. We are dealing with very large sums of public money. As the Minister in the hot seat, I am confident that this money is being disbursed appropriately, in accordance with our legislation and with the intention to get the maximum effect for the taxpayer’s pound; none the less, it is the job of this place to scrutinise such measures closely. It is slightly disappointing that we have had no parliamentary interest following the statement in April 2018.
I will go through the hon. Gentleman’s points. The money will be called down at some point in the future, having been approved by the IFC. That is what we are doing now. We are approving the spend now, but technically that can be signed over at the point at which it is called down by the World Bank Group. He will forgive me if we dispense with this matter—as the hon. Member for Nottingham North said, it is largely uncontroversial, given that we have not had any criticism of this since April 2018—together with the order.
I turn now to the points made by the Labour spokesman, and probably one or two of the points made by the spokesman for the Scottish National party. The hon. Member for Nottingham North is right to point out that we need to focus on impact, and he knows that DFID is absolutely focused on getting the maximum effect from our spend of 0.7% of GNP. Obviously, all of that is official development assistance, obviously.
The institutions in the World Bank Group feature well in the multilateral agency review that we are required to conduct. I share the hon. Gentleman’s concern about the focus on the poorest, which is why we have ensured in this matter that more money as a proportion of the whole will be spent on fragile states, as I made clear in my opening remarks. The same is true regarding gender. We will continue to review that through the mechanisms available to us and through the International Aid Transparency Initiative, with which he will be familiar. That deals with his final point, on transparency, with which I agree entirely. The IFC joined the International Aid Transparency Initiative in January 2017—so relatively recently—partially as a result of concerns that expressed about that part of the World Bank Group, to which the hon. Member for Nottingham North referred. I take that as a good sign. Since all that stuff is meant to be published, I look forward to him being able to scrutinise that particular piece of public expenditure much more closely than has been the case historically.
The hon. Gentleman would expect, and I would demand, that we use our seats on the boards of both those bodies to scrutinise carefully how money is spent, given the scope, and to ensure as far as we can that the expenditure accords with our own national priorities—I think he agrees with that, which is reassuring—and in particular our sense that more needs to be spent on the world’s poorest, on climate change and on gender equality. Those are clear UK values and norms which, given the scale of our contribution and that of like-minded partners, we expect to be expressed in how the money is disbursed.
The hon. Gentleman is right to mention governance, and correct to say that historically it has been heavily weighted towards the wealthier nations—those who are contributing. I suspect that those wealthier nations would say, “Hang on a bit. If we are contributing so much, we need to have a seat at the table.” None the less, we have we have expressed the view that the poorer countries need to have a bigger say in how the money is disbursed. That will be the case, and he is correct to say that that is the intention of the selective capital increases, which dilute the influence that countries such as Britain, France and America have on the decisions.
The hon. Gentleman is quite right to comment on tax avoidance. The IFC reviews the tax arrangements of its clients to ensure that any offshore financial centres used by those clients are assessed as compliant or largely compliant with the OECD global forum standards on tax transparency and exchange of information. The UK was assessed as “largely compliant” under that initiative, which I personally found rather disappointing, but there it is. Clearly, tax avoidance is of concern to the World Bank Group, and we will ensure through our seat on the boards of both the bodies in the group that tax avoidance and other forms of strange accounting practices, if I may put it in such terms, are expunged from this international multilateral organisation.
I am running through all my points, but I still have “power stations” written down. I think it is intended to be a response to the comments of the hon. Member for Nottingham North on climate change. I thought that he might mention the coal-fired power station in Gujarat, which historically has been funded through the World Bank Group, through those initiatives. My defensive line—which, sadly, I will deploy, although he forgot to mention it—is that that is historical disbursement. I hope he has been reassured that our focus on climate change in the recent process makes that kind of expenditure at that scale far less likely to happen, although I completely understand the often differing imperatives of many of the countries with which we engage in this work. That is a debate for another day, but he who pays the piper calls the tune, and it is important that global public goods are satisfied by this kind of expenditure.
There are those who say, citing in particular China and India, “What are we doing spending all this money on middle-income countries?” Again, that is a debate for another time and place, but global public goods, as the name suggests, are global. We are all in this together, and we need to have some tangible way of persuading our middle-income partners and friends to develop their economies that in a way that protects our imperatives too, which have to do very largely with climate change and the other things I have described.
I think I have covered most of the points made. I will ask my officials to go through the record to see whether I have missed anything, and if I have, I will write to hon. Members.
Question put and agreed to.
Resolved,
That the Committee has considered the draft International Bank for Reconstruction and Development (General Capital Increase) Order 2019.
Draft International Bank for Reconstruction and Development (Selective Capital Increase) Order 2019
Resolved,
That the Committee has considered the draft International Bank for Reconstruction and Development (Selective Capital Increase) Order 2019.—(Dr Murrison.)
Draft International Finance Corporation (General Capital Increase) Order 2019
Resolved,
That the Committee has considered the draft International Finance Corporation (General Capital Increase) Order 2019.—(Dr Murrison.)