World Bank removes loan fees to aid vulnerable nations

The World Bank has scrapped several loan fees in a bid to make borrowing more affordable for vulnerable countries, aligning with its goal to tackle urgent global issues such as climate change, inequality, and economic instability.

In a statement shared on its official X handle, the institution highlighted the removal of the prepayment premium on International Bank for Reconstruction and Development (IBRD) loans, a grace period for commitment fees on undisbursed balances, and extended low-cost pricing for small, vulnerable states.

“The bank is working hard to make it easier for countries to borrow and to pay back their loans more easily by removing some fees on IBRD loans,” the statement read.

The reforms, aimed at easing financial pressure on nations needing development financing, form part of the bank’s broader strategy to increase lending capacity by $150 billion over the next decade. This includes adjustments to the IBRD’s equity-to-loans ratio from 20% to 18%, unlocking $70 billion in additional lending, alongside $10 billion from bilateral guarantees and $1 billion from the Asian Infrastructure Investment Bank.

“These measures are designed to make borrowing easier and more affordable for countries facing significant challenges,” the bank noted, adding that the changes align with its vision of building a “better, more efficient, and bigger” institution.

To maintain its Triple-A credit rating, the bank stated that adjustments to its capital framework reflect a commitment to scaling up resources while maintaining financial stability.

The institution also unveiled its Framework for Financial Incentives (FFI), approved in April 2024, to encourage investments in global challenges like biodiversity, water security, energy access, and pandemic prevention. The framework includes the Global Solutions Accelerator Platform and the Livable Planet Fund, supported by Japan’s initial contribution.

“The FFI is the first comprehensive framework among multilateral development banks to incentivize financing for projects with global benefits,” the bank remarked.

The World Bank has developed innovative financial tools such as outcome bonds, catastrophe bonds, and climate-resilient debt clauses to attract private sector investments. Among these is the Wildlife Conservation Bond, which directed private financing toward Black Rhino conservation in South Africa, and a plastic waste reduction-linked bond, mobilizing funds for recycling initiatives in Ghana and Indonesia.

“We are finding new ways to channel private investment into emerging markets and address barriers to sustainable development,” the bank emphasized.

It added that the reforms are crucial for addressing the trillions of dollars required annually to combat climate change, support fragile states, and promote digital inclusion. However, it acknowledged that bridging the gap will require collective action from governments, multilateral institutions, and private investors.

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