The Federal Council is requesting Parliament to approve guarantee credits for capital increases for two sub-organisations of the WBG – the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC) – as well as for the AfDB. Credit decisions are being requested for a total of CHF 2 759.2 million. The actual level of investment is USD 297.4 million, of which of which USD 197.7 million is being used to obtain shares in the IBRD and the IFC, and USD 99.7 million is for shares in the AfDB. The remainder is guarantee capital (WBG: USD 649m, AfDB: USD 1 562m) and currency reserves. Switzerland will pay in almost USD 50 million a year for additional shares in the WBG between 2021 and 2024. And at the AfDB it will pay in USD 12.5 million over the period 2021 to 2028. The additional guarantee capital strengthens the financial standing of the two development banks on the financial markets.
Tackling poverty and climate change
The member states of the WBG and AfDB have agreed capital increases totalling USD 13 billion for the WBG and USD 7 billion for the AfDB. The capital increases will allow the institutions to gradually increase their volume of financing in view of the huge need for development financing in emerging and developing countries. These form part of broader reform efforts, which include a strategic review of the focus of the WBG and the AfDB, as well as efficiency improvements.
These measures will enable both development banks to play to the best of their ability their role as pillars of a stable world economic order, not just in terms of volume, but also in terms of quality and effectiveness, particularly with regard to implementing the 2030 Agenda.
As a result, both institutions will be in a position to work even harder to eradicate poverty, combat climate change and adapt to its consequences, and bring about broad-based economic growth. In addition, the development banks should make an even greater contribution towards strengthening basic public services and good governance and mobilising the private sector to implement the 2030 Agenda, especially in fragile contexts.
Importance of multilateral financing institutions
The WBG and the AfDB are leading international development and financing organisations and play a decisive role in implementing the 2030 Agenda for Sustainable Development. They have contributed significantly to reducing global levels of extreme poverty from 41 per cent in 1981 to 10 per cent in 2015, and are priority multilateral organisations in Switzerland’s international cooperation activities. Many international problems, such as climate change, major financial crises and pandemics, cannot be tackled effectively at a purely national level. International cooperation is required to take relevant and effective measures. Switzerland’s contribution to the capital increases is a clear commitment to multilateralism and to its importance in solving global challenges.
Member countries invest actual sums of money in the WBG and the AfDB, and also provide guarantee capital. The member countries obtain shares in the development banks in return for the money they pay in, while the guarantee capital remains in the member countries. The assurance of guarantee capital strengthens the financial position of the development banks on the capital market (AAA rating) and allows them to obtain loan capital on particularly favourable terms, which they can then make available to emerging and developing countries. The WBG and the AfDB manage their finances so as to avoid calling on guarantee capital at all costs. Since their founding, neither the WBG nor the AfDB have ever had to draw on their guarantee capital, and it remains unlikely that they will have to do so.
Swiss representation at the WBG and AfDB
Switzerland is an active member on the boards of both the WBG and the AfDB. Swiss initiatives have significantly contributed to ensuring that greater priority has been given within the WNG and AfDB to private sector involvement, tackling climate change, the debt issue and development in fragile contexts. Furthermore, Switzerland advocates closer cooperation between international financial institutions, such as the WBG and AfDB, and the UN.
Switzerland joined the WBG in 1992. The head of the EAER represents Switzerland's interests on the WBG Board of Governors. Switzerland forms a constituency together with Azerbaijan, Kyrgyzstan, Kazakhstan, Poland, Serbia, Tajikistan, Turkmenistan and Uzbekistan, and provides an executive director.
Switzerland has been a member of the AfDB since 1982 and belongs to a constituency together with Germany, Portugal and Luxembourg.