U.S. Treasury dashes hopes for near-term World Bank capital hike

WASHINGTON (Reuters) – A U.S. Treasury official dashed hopes for a World Bank capital increase in the near term, saying the multilateral lender first needs to review its balance sheet to ensure resources are going to countries and projects that need them most.

The World Bank Group two years ago had set a goal of agreeing on a capital increase for its International Bank for Reconstruction and Development arm by the time of the 2017 World Bank and International Monetary Fund annual meetings, which start this week.

The IBRD provides concessional financing for projects in middle-income and creditworthy low-income countries.

But U.S. President Donald Trump’s “America First” agenda and plans to cut back foreign aid had cast doubt over the bank’s ability to win the support of its largest shareholder.

Last week, World Bank President Jim Yong Kim said the capital increase was a question of timing as the “vast majority” of the bank’s 189 member countries supported it.

But the Treasury official told Reuters on Tuesday that it was too soon to discuss such an effort because too much of IBRD’s resources were tied up in countries that had ample borrowing ability, including China and other larger emerging markets.

The World Bank needs to do a better job of “graduating” such countries off of IBRD support to private sector lending resources, the official said.

”Our view is that the World Bank Group as a whole needs to present substantial work on its balance sheet and the direction of that balance sheet as we go forward, the official said. “It’s early to be talking about a capital increase for the IBRD.”

The World Bank cannot proceed without the approval of the Treasury, which controls an effective veto on the institution’s executive board.

“So the bottom line here is right now we’ve got too high a percentage of the World Bank’s balance sheet that’s going to countries and to projects that already have ample borrowing capacity.”

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