The World Bank approved a modification to its internal lending guidelines on Tuesday, which will unlock an additional $30 billion in lending capacity over the next decade. This initiative aims to assist developing nations and emerging markets in addressing climate change and other pressing global issues, as stated by World Bank President Ajay Banga in an interview with Reuters NEXT.

Banga explained that the International Bank for Reconstruction and Development (IBRD) will reduce its equity-to-lending ratio by 1 percentage point to 18%, thereby accepting a slightly higher level of risk. This adjustment is part of ongoing reforms based on an independent report commissioned for the Group of 20 (G20) major economies and requested by its shareholders, including the United States.

In conjunction with modifications to the bank's pricing strategies, this decision will ultimately enhance the bank's lending capacity by a total of $150 billion over the next seven to ten years through balance sheet adjustments, Banga noted during the Reuters NEXT Newsmaker interview.

These changes are being implemented in response to escalating global challenges, including the conflict in Ukraine, rising violence in the Middle East, increasing climate-related disasters, and significant government debt levels. Banga highlighted a critical concern: an anticipated shortfall of nearly 800 million jobs for the 1.2 billion individuals expected to enter the workforce over the next decade.

Experts estimate that developing countries and emerging markets will require at least $3 trillion in annual funding to tackle future pandemics, climate change, and other significant challenges.

The IBRD last adjusted its equity-to-lending ratio in 2023, reducing it from 20% to 19%.

Today, we received board approval to reduce our equity-to-loan ratio by an additional one percentage point, which will enhance our capacity to lend, Banga stated. When asked about the possibility of further adjustments, he indicated that the bank would continue to explore new financial instruments, such as hybrid capital, and seek ways to optimize its balance sheet.

The bank noted that it managed to lower the ratio while maintaining its triple-A rating by enhancing its credit rating monitoring system and implementing contingency measures for potential "stress events."

Additionally, the board approved modifications to its fee structure aimed at facilitating access to loans for borrowing countries and making repayment more affordable. This includes discounted rates for short-term, seven-year loans and extending the lowest pricing offered by IBRD to more vulnerable small states, as stated in the bank's announcement.

Banga also highlighted the World Bank's efforts to replenish the International Development Association (IDA) fund for the world's poorest nations by over $100 billion, mentioning that a target of $120 billion, as suggested by some African and Caribbean leaders, is realistic.

Achieving this goal would require World Bank shareholders and donor countries to increase their contributions from $24 billion to $30 billion, a challenging task given the strengthening U.S. dollar and domestic fiscal pressures.

"We are working diligently to achieve this," he remarked, noting that Denmark has already committed to a 40% increase in its contribution, while other nations, including Britain and Spain, are contemplating similar increases.

Banga expressed cautious optimism that the United States, the largest global economy, would also provide a significant contribution, although he did not disclose specifics.

He mentioned that he plans to meet with U.S. Treasury Secretary Janet Yellen, who has been a strong advocate for the World Bank to adapt its operations to address contemporary challenges prior to Banga's arrival at the institution.

Overall, she has been quite supportive of our collaborative efforts on the evolution framework, he remarked, highlighting that the bank is also focused on streamlining the process from proposal to board approval for new initiatives.

Previously, the bank required an average of 19 months to transition from proposal to approval; however, this duration has now been reduced to 16 months, with a target of reaching 12 months. He mentioned that some projects are already receiving approval in less than a year.

Banga announced the formation of a new job council aimed at tackling the jobs crisis, which will be led by Singapore President Tharman Shanmugaratnam and former Chilean President Michelle Bachelet. This council is scheduled to convene for the first time during the upcoming annual meetings of the International Monetary Fund and the World Bank.