Ignazio Visco: New global challenges and the global economy
Statement by Mr Ignazio Visco, Governor of the Bank of Italy and Governor of the Constituency
of Albania, Greece, Italy, Malta, Portugal, San Marino and Timor-Leste, to the Development
Committee, Lima, 11 October 2015.
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1. Adjusting to new global challenges
The recent approval of the Sustainable Development Goals comes at a challenging moment
for the global economy. The important development successes since 2000 should not make
us complacent. Poverty has fallen substantially, but it is deep and concentrated. Furthermore,
growth is losing steam in some developing economies while in others economic activity is
heavily affected by the downturn in commodity prices. More importantly, growth alone will not
be sufficient to reach the deepest pockets of poverty and boost shared prosperity.
We welcome the emphasis of the Global Monitoring Report (GMR) on the non-income
dimensions of development, which do not always correlate well with poverty measured by the
money metric. A proper analysis of these dimensions is essential for eradicating poverty and
increasing shared prosperity in a comprehensive way. The GMR also rightly points to
demographics as a crucial factor in shaping the evolution of the global economy in the next
fifteen years.
Key drivers of population dynamics are migration flows. Cooperative policies regulating
migration between countries affected by demographic decline and those experiencing high
population growth could ease regional aging pressures and smooth trends in population
growth. In this context, the upheaval caused by conflict outbreaks has intensified the already
strong trend to migrate and resettle brought on by often dramatic economic conditions and
global and domestic shocks.
Dealing with the root causes of migration requires development policies that grant poor
countries better market access for their products and transfer expertise and technological
know-how to speed up development. On its own, however, foreign aid may not be sufficient.
For it to be effective, it also requires coherent development programs. Large flows of foreign
aid, for example, are unlikely to be helpful if they finance unproductive investments or delay
needed structural reforms. On the contrary, when foreign aid complements domestic policy
reforms in the recipient country it can ease the costs of adjustment, provide a catalyst for
change, and thereby drive a sustainable improvement in the country's growth prospects.
2. Providing voice and vision to the new global economy
In the context of the Bank's periodical shareholding reviews we recommit to reaching an
agreement on a realignment mechanism based on a formula. This will ease the task of
maintaining an equitable representation of shareholders over time and will strengthen the IBRD
legitimacy as a global player. The formula should reflect global economic weights and the
contributions to the Bank's development mission. Rewarding support to this mission is
essential to building up adequate incentives for future contributions.
Any discussion of future resource needs to be preceded by a thorough conversation on the
future positioning of the Bretton Woods institutions. A long-term vision of the role of multilateral
financial institutions - and of the WBG in particular - needs to take into account the importance
of engaging in the financing of global public goods and the benefits of cross-border integration.
This requires the promotion of regional cooperation efforts. We should at the same time
recognize that official development assistance represents only a small portion of global
financial flows for development. The role of the WBG in enhancing the use of domestic
resources - through technical assistance - should be intensified, and IFC and MIGA should
strengthen their efforts to catalyze private sector capital into development projects. The time
is ripe for updating the IDA financing model.
3. A partner in climate change financing
As we approach the COP21 meeting in Paris, where decisions need to be taken to step up
international action on climate change, we envision an important role of the WBG as a key
partner in both promoting the transition to a "greener" economy and alleviating the impact of
climate change on developing countries.
This effort requires financial resources that largely exceed those available to development
institutions and calls for combining limited public resources with larger private sources of
capital. The WBG is strategically positioned to contribute to this effort.
The problem of climate change falls in the domain of global public goods and posits complex
intergenerational questions. As a global financial organization, the World Bank is well-suited
to address both these issues. Furthermore, as a multi sector development agency, the Bank
should make use of its expertise in a broad array of policy areas to provide sound evidence
that climate-smart projects are good development projects.
4. A sustainable development organization
We welcome the substantial increase in WBG commitments. It is now time to deliver with an
effective implementation of WBG projects. Large, transformative development solutions
require a focus on results and appropriate fiduciary and safeguards policies to manage risks.
The IBRD should focus on financing long-term structural projects, even if the shift toward
investment lending is likely to reduce the growth of the IBRD loan portfolio. This requires a set
of strategic priorities fully shared by the institution at all levels and supported by robust
analytical evidence.
A balanced structure of revenues and expenses will effectively protect capital from the vagaries
of the economic cycle. The prolonged period of low interest rates continues to constrain the
income of the IBRD and calls for a continuous monitoring of efficiency-enhancing measures.
The objective of the full implementation of the new organizational structure should be
efficiency. Efficiency must remain a guiding principle once financial sustainability is eventually
achieved.
All these challenges call for strategic prioritization and joint action. Over the decades, the World
Bank Group has consistently displayed a remarkable capacity to adapt to the changing external
environment, redefining its mission over time and expanding its clientele and its tools. At this
critical juncture we have no reason to doubt that it will once more rise to the level of the
challenge.