Nigeria, Indonesia and Peru struggle to cope with oil consequences as World Bank lending surges

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Nigeria , Indonesia and Peru as they struggle to cope with the effects of the collapse in global commodity prices as surge in demand by ailing commodity exporters in the developing world has pushed up lending from the World Bank this year to its highest levels since the aftermath of the 2008 financial crisis.

But alongside scheduled discussions on everything from slowing emerging economies to tax havens, officials at the World Bank will be dealing with an increase in requests for loans from commodity exporters.

Finance ministers and central bankers from around the world are due to gather in Washington this week for the spring meetings of the World Bank and the International Monetary Fund. The latter is widely expected on Tuesday to downgrade its 3.4 per cent global growth forecast for this year.

In the fiscal year to June, the bank is on pace to lend $25bn-$30bn via its main lending arm, the International Bank for Reconstruction and Development, the bank’s top two officials said in an interview with the Financial Times. That would be most the IBRD has loaned to member countries since the immediate aftermath of the 2008 financial crisis, which in 2010 caused the bank to lend $44.2bn.

“It is our highest lending in a non-crisis period ever,” said Jim Yong Kim, the World Bank’s president, who has begun a push for an increase in the bank’s capital driven in part by the rising demand for aid.

Part of the surge in lending, Mr Kim said, was because of increasing requests to help with crises ranging from Ebola to the exodus of millions of people from Syria and other conflict-affected countries, as well as longer-term responses to things like climate change.

But almost half of this year’s lending — about 45 per cent — would come in the form of what the World Bank called “development policy lending”, or lending directly to national budgets that is not tied to specific physical projects, said Sri Mulyani Indrawati, the bank’s chief operating officer.

Demand for such loans is growing as the collapse in oil and other commodity prices has left yawning budget gaps in countries such as Nigeria. Africa’s top exporter is in increasingly dire economic straits and has turned to the bank to help it plug what is expected to be an $11bn budget deficit this year.

Such lending has prompted criticism that the World Bank is at risk of encroaching on the IMF’s crisis-response role, and that it is in effect enabling governments to avoid making the tough political decision to turn to the IMF for assistance.

There is some evidence that lending by the bank has helped governments at least delay an approach to the fund, whose rescues often come with demands for reforms attached and carry stigma for countries.

Angola last week requested an IMF emergency loan, marking the second time in less than seven years that it has turned to the fund. Yet that move came just nine months after it received a $650m budget-support package from the World Bank, and after it had spent years garnering financial support from China to avoid a return to the fund.

Both Mr Kim and Mrs Sri Mulyani denied that the World Bank was seeking to infringe on the IMF’s territory. The bank’s lending, they said, also came with plenty of requirements for reforms and in consultation with the IMF.

“I think you would be hard-pressed to find a country that sees us as an easy mark compared to the IMF,” said Mr Kim.

The surge in demand highlighted the need for the World Bank’s shareholders to consider giving it more resources, said Mr Kim. During the past two years the bank has already cut its cost base by $400m and has found new ways to leverage its existing equity. Still, it needed more ammunition, he said.

Shareholders are building up to the regular replenishment later this year of the World Bank’s fund for lending to poor countries. That would be followed by a bigger discussion, which would climax next year, over the World Bank’s capital structure, said Mr Kim.

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