A conversation with The World Bank

Gennadiy Goldberg: Hello and thank you for joining us today. My name is Gennadiy Goldberg and I'm a senior US rate strategist here at TD Securities, and I'm pleased to welcome Jingdong Hua, Treasurer of the World Bank, to our series today. We think this conversation will be especially timely now that a year has actually passed since the start of COVID. And we can really begin to gain some perspective on how COVID may have changed things in both the short run and the long run as well. I'm also pleased today to welcome my co-interviewer Laura O'Connor from a debt capital markets team whom I'll ask to introduce our guest today, Laura.

Laura O'Connor: Thanks Gennadiy, and welcome to Jingdong. Since you arrived as Treasurer to World Bank in January 2019, the world has really entered a new chapter of history. But the mandate of World Bank to support sustainable development of low- and middle-income countries is now even more crucial amidst the backdrop of a global pandemic. As Treasurer of World Bank, you sit at the nexus that connects capital markets to development and you have a unique perspective that we are really keen to hear more about today.

Gennadiy Goldberg: Perfect and with that just moving on to the first question we've got, Jindong, how's your balance sheet changed in the last year?

Jingdong Hua: Well, first of all, Gennadiy and Laura very nice talking to you and greetings to TD colleagues all over the world. And thank you for your partnership over the past year. Indeed, the last year has been exceptional in every sense of the word. That is, we have a global pandemic and the global pandemic has brought a devastating human health and economic crisis to virtually all the countries that we serve. That is, all the developing countries. And therefore, I'm very proud that the World Bank Group has been stepping up to make sure that countries receive the support.

So, with that, of course our balance sheet has grown. Just to give you an idea that last year our business volume has gone up 65% over the past year, our IBRD balance sheet. So, when we talk about the World Bank, we generally talk about 2 balance sheets. One is IBRD. This is the entity that serves the middle-income countries and we have another entity called IDA, which serves the poorest 60 plus countries, often with concession on very favorite terms.

So we have seen our client countries really coming to ask for help, whether it's a protective equipment in the early stages, but now helping them to lay a foundation for a resilient recovery and in between, we're also working to provide accelerated availability of vaccines, so I'm very happy to say that we stepped up and TD has been part of that journey as you have seen, we have done so many capital market operations with additional funds to supply the financing needed for our client countries. So the balance sheet has gone up and let me also add that while IBRD has been issuing bonds since the year 1947, IDA is a new kid on the block. And we are very happy that IDA, which issue is first bond only three, four years ago can use the capital market to supplement the resources needed for the poorest country. So very happy to see both balance sheet maximizing what we can do for our clients.

Laura O'Connor: To support your balance sheet growth Jingdong, World Bank has a very unique capital base with 189 member countries and a combination of paid in capital and callable capital for IBRD, as well as very significant replenishments that IDA has built up over many years for the IDA program. How has COVID-19 transformed your capital base as you look to build and grow your support for your member countries?

Jingdong Hua: So, Laura, we have been very fortunate that on the IBRD side we actually received a capital injection or general capital increase just before the pandemic hit. And therefore, the timing was great in the sense that with that additional capital injection we do have increased capability to step up. At IDA what we have done is that we are now front loading the three-year cycle of IDA 19 and shrinking it to two years. Let's start IDA 20 a year earlier. So that also gives us the additional financial resources we need. Not to mention the fact that for IDA now we are starting to tap into global capital market also. So in a sense, while you know nobody wanted to see the pandemic happening in the first place, but the World Bank Group is positioned very well. That's why last March as soon as we realize it is a global pandemic, our board within a couple of weeks, approved a $160 billion package across the four balance sheet of the World Bank Group that is, IBRD, IDA, MIGA and IFC.

And also, we said that we would provide $12 billion ready for vaccine procurement and distribution, and that is also important because our analysis has shown that with accelerated vaccine availability in developing countries, we could turn out at least one percentage GDP growth faster than if no acceleration. So this is where I think we felt that the multilateral approach where we are represented by virtually all the countries in the world coming together, providing resources to the poorest countries that otherwise would not be available, is something that that is a unique value that the World Bank Group and the multilateral system is providing.

Gennadiy Goldberg: And speaking of capital markets, hoping to get your perspective on this as well. How do you think financial markets have been changed by COVID? Is it something that's been an irrevocable shift or do you think we keep going with business as usual?

Jingdong Hua: Well, let me first say that, the World Bank balance sheet structure is such that we do get a paid in capital and over the past 70 odd years the paid in capital from our shareholders is over $20 billion, and of course we have also net income going into retained earnings. So the capital base of the IBRD is about $45 billion. Now, leveraging that capital by issuing AAA rated bonds, we actually, since our first bond in 1947, we have issued over $1 trillion of bonds, of which about $800 billion has gone to development financing needs. That's the power of the capital market, which using our AAA, connecting and risk transforming global payments into development finance resources, and this is something that you help us to do. So first of all, let me say that I feel very pleasantly surprised that the global financial architecture was not impacted, right? Although we are all working virtually, the financial system worked. Which is a big sigh of relief, because otherwise, can you imagine the added crisis that we have to face?

But that said, indeed I think this will raise a lot of issues on how finance will work going forward, not to mention the complication the Libor transition itself is introducing. Because the World Bank and a lot of the financial system have been relying on Libor as effective risk management tool or maturity transformation tool. So we look forward to, and in that regard, the software replacement is something we also have been working together with you in tapping into the new floating rate basis, but more fundamentally with technology, with a reflection on how the future of works will lay out in the next three to five years, I certainly would love to see a more efficient, syndication distribution. Meaning that already we benefit from a global financial system where we can raise large amounts of money very efficiently, including our largest ever $8 billion bond that we issued last year.

However, there are also segments of market where we have not tapped, for example, global millennials and generation X&Z are passionate about development. How can we use technology to do global retail bonds? But while addressing AML, TFC issues through blockchain, through artificial intelligence. So, in addition to institutional fund raising we could also use technology to tap into the passionate next generation so that we can raise funds even more efficiently. By connecting our SDG goals, our impact, to global citizens so that we can increase the level of funding, I think that's something that is quite exciting.

In that regard, the World Bank issued the world's first blockchain bond in Australian dollars a couple of years ago. So, we do see the potential impact of technology and certainly COVID-19 probably will accelerate the focus on providing virtual and technological responses. And I look forward to new ways of raising financing for our mission.

Laura O'Connor: Thank you Jingdong. It's refreshing to have an optimistic note when speaking about the future and the improvements that can be made with everything we've learned from the COVID-19 experience. You mentioned before about the capital increase that IBRD received before the onset of the COVID-19 pandemic. What other strategic challenges has World Bank been prioritizing or what have you managed to overcome in in the past year?

Jingdong Hua: So, Laura, that's a fundamental question. Our mission stays the same. That is, we wanted to see a world free of poverty, and we wanted to reduce inequality. And that's the twin goal we have that is eradicating poverty and build shared prosperity. Overlaying that, of course, is how post COVID-19 that we can support country to have a green, resilient and inclusive develop blueprint, addressing many of the SDG's of the United Nations, including Climate Change, including the need to build digital infrastructure, because, while kids in OECD countries can still continue their learning virtually because of the better digital infrastructure, over a billion kids in developing countries lost access to education. So increased literacy, building digital infrastructure, reducing childhood stunting and malnutrition. Of course, providing better healthcare, ensure clean water, energy access, improve and expand local supply chains. And of course, fighting Climate Change.

So, many different things and we are very excited. I think looking beyond the immediate COVID support from the World Bank, building on its decades of experiences dealing with crisis, and now focus on working on the medium-term long-term recovery plan.

Let me say a few words on Climate Change. Climate Change is a lens through which we realize we all live in a single planet, where the immediate health issues are addressed by every country putting priority over its own citizens. But there are global issues that that that doesn't stop at the border, including the COVID-19 pandemic itself. So, I'm very happy to see on Climate, the World Bank in its Spring Meetings also announced that we are stepping from an average of 26% of our program focus on climate benefit, we are increasing that to 35% and beyond. And that I think speaks volumes to our commitment to addressing this global priority, alongside all the SDG goals that the United Nations system has put forward that we need to achieve by 2030.

Gennadiy Goldberg: Thanks for that and I guess our parting question for you today. This one is a little bit more broad, but what are the lasting lessons for you of the COVID-19 experience? Or maybe something you're looking at after COVID as well?

Jingdong Hua: I think this crisis, which is global, which hit every country which according to World Bank economists, said that such a synchronized economic downturn has not happened since 1870s. And therefore, there are so many lessons that we can learn to prevent us from repeating the same mistakes. So, Sustainability; Resilience; and Green. These are the themes that would be of everything we do going forward. Resilient means that when we address inequality, we should bring focus to women. For example, women entrepreneurs are unproportionally affected because they work more in the informal sector.

So, when we draw a policy, how do we make sure working women are more resilient? Because when they are more resilient, they can help the society to be more resilient. So I think this really opens our mind and eyes in terms of making sure that every investment decision, every policy advice that we give to our countries would incorporate all the lessons we have learned from this crisis and hopefully the path forward is something that is, as I said, we call it G.R.I.D, right? That is a Green, Resilient and Inclusive Development. That's what we'll be focusing on.

Gennadiy Goldberg: Perfect thanks for that. And Jingdong, thank you for joining us for our conversation today and thank you everyone for tuning in. We'll certainly hope you'll join us for other instalments in the coming weeks. Thank you.

Jingdong Hua: Thank you very much. Have a good day.

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