NEOCOLONIALISM, OPAQUENESS AND DEBT CRISIS: IS THE WORLD BANK FIT FOR PURPOSE?

By Victor Edwin Odhiambo

Does the World Bank, as the custodian of the Loss and Damage Fund, have the agility, accountability, efficiency and the organisational culture required to tackle climate change?  

Last year, the World Bank (WB) was appointed administrator of the Loss & Damage (L&D) Fund established under the UNFCCC. But many finance and climate experts see the Bretton Woods institution as an extension of colonial dynamics.   

Its practices, they argue, are inconsistent with the push for reforms of the global financial architecture, raising concerns about its suitability to administer the fund and, most importantly, to push for a significant increase in climate finance.  

So, why does this matter?  

Colonial Echoes 

Power Imbalance 

The WB’s historical association with colonial lending practices raises concerns about replicating a top-down approach. Developing nations, often the most vulnerable to climate impacts, are often pressured to accept pre-defined conditions for finance. This hinders ownership and urgency. 

Historical Debt Burden 

Many developing countries are burdened by historical and unfair debt, the bulk of it owed to international financial institutions. Third World countries are currently in a debt crisis amid slow economies. 

This has triggered distrust in the WB as the administrator of the L&D Fund. Many see its role in the fund as a continuation of neocolonial and unjust ‘lending’ practices that will propagate the debt cycle. 

Inconsistency with Reform Efforts 

Democratic Representation 

The WB’s governance structure, with voting power heavily skewed towards developed nations, does not reflect the principles of equitable representation championed in climate finance reform discussions. This often leads to decisions that prioritise the interests of contributors over those of frontline communities.  

Genuine reforms in climate finance can only be achieved with meaningful representation and inclusion of Global South voices in World Bank decision-making processes. 

Tough conditions 

The WB’s history of attaching stringent conditions to loans raises justice and fairness questions. These conditions undermine national development priorities and limit the effectiveness of finance.  

Funding oil & gas projects 

The World Bank as the custodian of the Loss and Damage Fund is, ironically, financing fossil fuel projects, especially in Africa. In 2022 alone, the World Bank and its subsidiaries advanced about $3.7 billion in trade finance to governments and businesses.  

Trade finance is an opaque form of financing that does not declare the nature of projects to be undertaken. 

Some of these funds end up facilitating oil and gas operations around the world, making it (indirectly) responsible for environmental degradation, air pollution and habitat loss.  

Several studies reveal that the WB has pumped more than $15 billion into upstream oil and gas projects since the adoption of the Paris Agreement in 2015.  

Transparency & Accountability 

The World Bank has courted controversy over transparency and accountability issues, with claims of operating opaquely floated over the years. The bank, together with IMF, is said to push for undesirable economic policies in developing countries, locking them in a cycle of dependency. 

This is raising concerns over how the L&D Fund will be managed, allocated and distributed. With the bank providing development finance to countries in the Third World, many are reluctant to hold it accountable.  

So, is the WB fit for purpose?