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

Andrew Murrison Excerpts

Monday 15th July 2019 General Committees

[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.

--- Later in debate ---

[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.)