Archived - Canada at the IMF and World Bank Group 2015–16 – Part 1 of 2

Report on Operations Under the Bretton Woods and Related Agreements Act 2015–2016

Table of Contents

It is clear that the world’s attention is now focused on inclusive growth—ensuring that more people benefit from the growth countries create. By investing in people and the economy, we can create jobs and long-term growth. Overcoming the challenges facing the global economy requires concerted international effort, cooperation and leadership.

To succeed, all countries need to work together to put in place policies that drive stronger, more inclusive, and sustainable global growth. This means renewing our cooperative focus on investment and openness, and making sure that the benefits of free and open trade and investment are broadly shared by, and benefit, all citizens.

The International Monetary Fund (IMF) and the World Bank Group are important partners in supporting this effort and the engaged multilateralism needed to achieve our shared goal of inclusive and sustainable global growth and prosperity. Over the last year, the IMF has helped advance the dialogue on how the global economy can break out of its low growth pattern and overcome rising inequality. The IMF has advocated for countries to make better use of fiscal policy, monetary policy and growth-enhancing structural measures to ensure that growth is shared by all global citizens. The IMF’s and Canada’s approach are closely aligned, and, over the coming year, Canada intends to work even more closely with the IMF to promote cooperative global solutions.

We support the IMF’s effective surveillance, sound policy advice, capacity development and—when needed—effective adjustment lending. The world needs a strong, effective and representative IMF. As Canada’s Governor at the IMF, I will continue to work with our international partners to ensure the IMF remains properly equipped with the tools, resources, policies and governance structure it needs to do its job.

I will promote these same objectives in my role as Canada’s Governor at the World Bank Group. The World Bank Group is Canada’s largest international development partner, with priorities that are closely aligned with the Government of Canada’s goals of promoting sustainable and inclusive growth at home and abroad. This past year, the World Bank Group played an important role in the development and financing of solutions to global challenges such as the refugee crisis in the Middle East and in managing the impacts of climate change.

In the coming year, I will encourage the World Bank Group to continue to advance the use of its balance sheet as efficiently as possible to unlock additional development financing capacity, including by pioneering innovative instruments to mitigate risks and mobilize new resources for development. I also support the continued implementation of the shareholding roadmap, which can provide the World Bank Group with the resources and legitimacy it needs to continue to play its integral role as the world’s leading promoter of inclusive economic and social development.

Canada believes that international cooperation is a necessary component of a strong and stable global economy. Working together towards this shared goal complements Canada’s own efforts at home to foster inclusive economic growth and to strengthen the middle class, and help those working hard to join it. For these reasons, Canada will continue to play an integral part in the growth and modernization of both the IMF and the World Bank Group, as we have for the past 70 years.

It is in this spirit that I am pleased to present to Members of Parliament and Canadians this annual report, entitled Canada at the IMF and World Bank Group 2015–2016: Report on Operations Under the Bretton Woods and Related Agreements Act. This report sets out the key developments at these institutions in 2015–16 and discusses Canada’s views and objectives at both the IMF and World Bank Group that will guide our interactions at both institutions in the coming year.

The Honourable Bill Morneau
Minister of Finance

The International Monetary Fund (“IMF” or “the Fund”) and World Bank Group were founded in 1944 as part of the United Nations Monetary Conference. Since that time, the global economic landscape has undergone multiple evolutions and is now a very different and significantly more interconnected place. These two institutions—collectively known and the Bretton Woods institutions—have evolved alongside the global economic landscape and continue to play a critical role in the global financial architecture today.

Canada is a member country of the IMF and of the World Bank Group’s five institutions: the International Bank for Reconstruction and Development (IBRD), International Development Association (IDA), International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA) and International Centre for Settlement of Investment Disputes (ICSID).

As one of the largest members by financial contribution and voting share at both the IMF and World Bank Group, Canada has an important role in the governance of both institutions. The Minister of Finance represents Canada on the Board of Governors of both the IMF and the World Bank Group. Governors delegate day-to-day decisions to an Executive Director at both institutions. Given Canada’s financial contributions and level of engagement, a Canadian has always held an Executive Director position at each institution, representing a constituency of members, including Canada, at the Executive Board.^[1]

This report to Members of Parliament and the Canadian public discusses key developments at both the IMF and World Bank Group in 2015–16, describes Canada’s engagement and contributions, and reports on objectives that are of core importance to Canada.

Canada’s objectives for the IMF over the reporting period were:

1. Improve IMF surveillance and increase uptake of Fund policy advice to support economic growth and stability;
2. Promote effective IMF tools and lending programs to address the root causes of instability;
3. Promote high quality technical assistance as a way to foster economic stability and inclusive growth; and
4. Strengthen the IMF’s governance structure to enhance the effectiveness and credibility of the institution.

Canada’s objectives at the World Bank Group over the reporting period were:

1. Promote appropriate financial instruments and partnerships that strengthen the World Bank Group’s capacity to deliver development results;
2. Improve the institutional effectiveness of the World Bank Group, including through appropriate reforms, accountability mechanisms and governance structure; and
3. Promote Canadian priorities in World Bank Group policies and programming.

This report is prepared by the Department of Finance Canada in consultation with Global Affairs Canada, and with input from our Executive Directors’ offices at the IMF and World Bank Group. Within the Government of Canada, the Department of Finance Canada coordinates Canada’s engagement with the IMF and World Bank Group, consulting closely with other government departments and agencies.

Links to more information are provided throughout the report. For detailed information on the end-of-year financial performance of the IMF and the World Bank Group, please refer to the institutions’ annual reports. Additional information on Canada’s official development assistance activities at these institutions is available in Canada’s annual report on the Official Development Assistance Accountability Act.

The world is currently confronted with uneven and weaker than desirable growth, persistent trade imbalances and volatile capital flows. Various commodity exporters are also struggling to respond to lower demand and prices. At the same time, deeper global forces (e.g., aging populations, mass migration, inequality, technological innovation) present evolving challenges and opportunities for policymakers.

Against this backdrop, countries generally agree on the need to use all policy levers (fiscal policy, monetary policy and structural reforms) to respond, but consensus remains elusive on the right mix or emphasis among these tools. At the same time, some central banks have introduced innovative policies (e.g., negative interest rates) in the pursuit of their mandate, with ongoing uncertainty about their ultimate effectiveness and secondary effects.

In this context, it is important to have an international monetary system (IMS)—the set of internationally agreed rules, conventions and supporting institutions that facilitate international trade and investment—that promotes cooperative solutions and has structures that facilitate needed adjustment. And at the heart of the IMS, it is essential that the world has an institution charged with leading these efforts and helping to safeguard economic and financial stability, while advising on the policies needed for stronger, more sustainable and inclusive growth.

The IMF has fulfilled this role for more than 70 years, and over this period has provided invaluable financial and technical support as well as monitoring and advice to its membership. It is important that the IMF’s membership continues to hold the institution accountable for effectively fulfilling this mandate and remaining nimble enough to respond to new and emerging challenges. To this end, Canada identified four objectives for its engagement at the IMF in 2015–16 focusing on each of the Fund’s main business lines (economic surveillance and advice, tools and lending programs, and capacity development) as well as the corporate governance of the institution. A detailed discussion of these objectives and the action taken by Canada to promote them are highlighted below.

Given weaker than desirable and uneven global growth and an elevated risk environment, economic “surveillance”, or the Fund’s work to monitor economic developments and provide policy advice, is of crucial importance. However it is difficult for even the highest quality analysis and tailored policy advice to be effective if there is not sufficient buy-in from member countries. With this in mind, Canada’s objective in 2015–16 was two-fold, focusing not only on ways that the IMF’s surveillance could be further improved but also on ways to increase uptake of the Fund’s advice.

• Leverage the role of IMF surveillance in supporting the G20’s efforts to boost global growth and in promoting the implementation of macroeconomic and structural reform commitments.
• Advocate for continued efforts to integrate global, regional and bilateral surveillance, and to mainstream macro-financial surveillance, with a view to ensuring the completeness, consistency and cohesion of surveillance and policy advice.

Over the past year the IMF has continued to provide valuable input into the work of the G20. This contributed to the G20’s collective recognition of the complementarity of macroeconomic and structural reform policies as well as the commitment in February 2016 to use all policy tools—monetary, fiscal and structural—individually and collectively to foster economic growth. Canada’s own domestic policies are consistent with this commitment, and the IMF has noted publicly that Canada is an example of a country taking advantage of such a balanced approach. The analytical support provided by the IMF was also critical in the context of the development of the G20 Enhanced Structural Reform Agenda [PDF 440 KB], the discussion of countries’ available economic room for manoeuvre (or “policy space”), and the monitoring and assessment of G20 member growth strategies within the Framework Working Group (which Canada co-chairs along with India).

Furthermore, the G20 growth strategies, which were originally developed in 2014 and have been adjusted and updated in the years since, have also benefitted greatly from the IMF’s advice on ways to strengthen growth, foster more inclusive economies, and reduce economic imbalances within countries and globally. To ensure that these growth strategies deliver the maximum potential benefits to the global economy, continuous monitoring and implementation of the commitments in them are required. This has necessitated ongoing collaboration between the G20 and the IMF. In its role as co-chair of the Framework Working Group, Canada has also actively worked to encourage implementation of IMF recommended best practices and policy advice over the past year. Canada strongly appreciates the IMF’s contributions to this process and looks forward to continued effective collaboration in 2017.

In 2014, the IMF undertook a comprehensive review of its surveillance policies (the Triennial Surveillance Review) to assess the effectiveness of its current practices and to identify opportunities for future improvement. Although this review noted that significant progress had been made, it found that further improvements were still possible in a number of areas. In particular, the review noted the importance of better integrating and exploiting synergies between the IMF’s bilateral and multilateral surveillance activities (e.g., deepening spillover and risk analysis in bilateral consultations), as well as broadening the use of macro-financial surveillance (e.g., assess linkages between the financial and other sectors as well as their impact on the country’s outlook and risks) in the IMF’s work.

Canada has been very supportive of the IMF’s efforts to make advancements in this work stream over the past two years. In line with this support, Canada participated in the IMF’s pilot project to step up macro-financial analysis in members’ annual bilateral surveillance (“Article IV”) consultations. This pilot group included more than 60 countries and looked at a range of macro-financial issues specific to each country. In Canada’s case, the report looked at the macro-financial impacts of the oil price shock, including its effects on the domestic economy, banking system and housing markets. The experience from this pilot project is expected to inform the IMF’s Executive Board discussion on Approaches to Marco-Financial Surveillance in late 2016.

In order for the IMF’s surveillance to be both consistent and effective, the Fund’s analysis of global macroeconomic risks and trends should translate clearly into its country-specific policy advice. Notwithstanding the progress noted above, Canada continues to see important gaps in that regard. In particular, Canada continues to support more strategic work by the IMF with respect to tackling global macroeconomic imbalances, including policy recommendations that identify the need for adjustment in both surplus and deficit countries, thereby making use of available policy space.

Over the coming year, Canada will continue to support improvements in IMF surveillance and policy advice while pressing for even greater focus on efforts to promote inclusive and sustainable global growth through investment and openness. Canada will also continue to highlight the need to be more consistent in translating the key messages and risks identified in the IMF’s global and regional surveillance into bilateral policy advice for the membership.

In this respect, it will be important for the institution to seek other opportunities to improve its policy advice and increase uptake among its membership. This will mean capitalizing on the IMF’s already significant expertise to provide policy advice that directly addresses some of the key challenges the membership is facing today. The IMF has already identified a few new areas for work in 2016–17 on macro-critical areas (e.g., efficient public investment in areas such as infrastructure, climate change and inclusive growth) that will provide such an opportunity. Canada is supportive of these efforts. Over the coming year it will explore opportunities for even closer collaboration with the Fund and other international institutions in an effort to promote more comprehensive and in-depth advice on priority policies needed for stronger, more inclusive and sustainable growth.

To properly assist its members, the IMF must be equipped with the tools and lending instruments it needs to provide timely and effective support. The needs of members are not static, and it is important that over time the Fund’s tools and lending programs adapt to effectively capture these changes and remain targeted at the root causes of instability. For example, the end of the commodities super-cycle of high demand and prices has left many IMF members with protracted balance of payment and deep budgetary shortfalls that require a targeted and progressive approach to adjustment in order to protect vulnerable groups. Similarly, greater financial sector interconnectedness and increased capital flow volatility have often increased the scale of and cross-country contagion risks associated with episodes of instability. These medium-term challenges will shape our agenda in the years ahead.

At the same time, it is important that the IMF draw lessons from past experience and strengthen lending policies where shortcomings have emerged. Thus, in 2015–16 Canada’s objectives focused not only on encouraging the application of lessons learned from the recent global financial crisis, but also on promoting adjustments to the IMF’s tools and policies in select areas where there was an opportunity to bolster the overall effectiveness of IMF support (sovereign debt restructuring, sustainable development and fragile states).

• Actively encourage the Fund to apply the lessons learned through its response to the global financial and euro area crises to improve future IMF adjustment programs and to inform concurrently national authorities and other global institutions.
• Support an evolution of the IMF’s lending framework that is responsive to sovereign debt vulnerabilities, including the development of new, transparent frameworks that will sustain the critical role of the Fund as lender of last resort while safeguarding Fund resources.
• Support Fund participation in the 2030 Agenda for Sustainable Development, consistent with its core mandate and expertise in the areas of surveillance, capacity development and lending, and focusing access to concessional facilities on the most vulnerable members of the Fund.

In recent years, Canada has emphasized the importance of the Fund undertaking a comprehensive review of the global financial and euro area crises to distill lessons and improve the IMF’s ability to face future periods of global or regional instability. After some delay, the IMF completed a Crisis Program Review [PDF 4.0 MB] in December 2015. The report did a good job of cataloguing the lessons of recent crisis episodes including the potential need to allow for more gradual adjustment in countries without flexible exchange rates (e.g., those in currency unions), the benefits of clearer operational guidelines for engagement with regional financing arrangements, as well as the importance of timely and appropriate debt restructuring. Unfortunately, concrete proposals for better incorporating some of these lessons going forward were limited. In particular, one area that deserves greater follow-up is IMF program design in instances where the IMF lends together with regional financing arrangements. Canada has actively encouraged the Fund to develop clear operational guidelines for cooperation in these instances.

In July 2016, the Fund’s Independent Evaluation Office completed a separate report on the IMF and the crises in Greece, Ireland and Portugal. Canada welcomed this report, which did an excellent job of focusing on the core aspects of the Fund’s role and performance and provided sound recommendations for improving IMF adjustment programs. In addition, the report reinforced the value of more specific operational guidelines for IMF-regional financing arrangement cooperation as a tool to better clarify the roles and responsibilities of each institution in advance of a crisis, while still retaining some flexibility to adapt to circumstances as they arise.

In January 2016, the IMF’s Executive Board approved reforms to the IMF’s exceptional access lending framework. The framework governs access to loans above normal financing thresholds, with the aim of making IMF support more calibrated to members’ debt situations and other risks. The approved reforms included the elimination of the “systemic exemption” clause agreed to facilitate lending to Greece (and eventually other euro area members) at a time when its longer-term debt sustainability was questionable. Canada was fully supportive of removing the clause, which was hastily approved in 2010. The policy had several major drawbacks including failing to eliminate contagion, introducing moral hazard, mispricing risk, prolonging needed debt restructuring and requiring too much subjectivity in decision-making. Canada was also supportive of another IMF proposal to introduce a suite of tools, including the possibility of including debt profiling (i.e., delaying debt repayments) of private claims in programs to help ensure taxpayers are less likely to bail out private investors when a country’s debt sustainability is unclear.

In December 2015, the Fund also revised its Non-Toleration of Arrears to Official Creditors [PDF 1.07 MB] policy to adjust to the increasingly diverse landscape of country-to-country (or “bilateral”) finance. Canada had advocated for revising the IMF’s policy for some time as it allowed an uncooperative member to block IMF assistance in certain circumstances. Canada strongly welcomed the IMF’s proposed amendment to the policy, which allows the Fund to maintain assistance in cases where arrears between IMF members persist despite good faith efforts by the debtor to reach an agreement while maintaining the appropriate safeguards for creditors.

Canada has been supportive of the Fund’s contribution to the 2030 Agenda for Sustainable Development and the role it should play in meeting the new Sustainable Development Goals. This includes expanding access to Fund resources for the poorest and most vulnerable members, including emergency assistance. Canada has also encouraged the Fund to consider placing greater emphasis on its institutional advantages, including capacity building and technical assistance, in areas such as domestic resource mobilization and domestic financial markets development, which can help bolster sustainable development in these countries. Undertaking this work in a manner that is reflective of the comparative strengths of the IMF and avoiding duplication with other international organizations active in these areas will be key to maximizing the Fund’s contributions to the Sustainable Development Goals.

Building on the lessons learned during—and in the years since—the global financial crisis, 2016–17 presents an opportunity for the IMF’s membership to assess its existing lending toolkit and to discuss whether further improvements are needed. It is important that the IMF’s lending toolkit is flexibly designed to address the causes of instability facing individual members while still encouraging necessary adjustment to avoid future crises. Following direction from its members, it is expected the IMF will explore ways it can further improve its lending toolkit including through further precautionary lending tools, tailored support for commodity exporters and policy signalling instruments over the coming months. Canada will actively participate in these discussions.

With regard to precautionary lending instruments, Canada will continue to push for improvements to the incentive structure associated with these instruments to help facilitate members’ successful and timely exits from these facilities, which has been problematic. Canada looks forward to considering whether alternative pricing approaches and stronger ex ante exit strategies could enhance the effectiveness of the Fund’s precautionary support tools.

The third leg of the IMF’s core responsibilities is the provision of technical assistance (TA) and training activities, generally referred to as capacity development. IMF capacity development is an important benefit of IMF membership, and helps countries to strengthen public institutions, design more effective policies and better manage their financial affairs to promote inclusive and sustainable growth and stability. However, to ensure that lasting progress is being made and that the IMF’s membership is truly getting the assistance it needs, this work also requires accurate and comprehensive monitoring of results achieved. For this reason, Canada’s objective in 2015–16 focused on promoting the application of a results-based management (RBM) framework in the provision of IMF technical assistance.

• Promote effective capacity development and the application of a results-based management framework to ensure the Fund is effectively utilizing Canada’s capacity building assistance to deliver concrete and durable outcomes in partner countries and regions.

Canada has been a strong supporter to the IMF’s capacity development work throughout the world and values the IMF’s role in promoting economic stability and growth. The IMF’s capacity development work is aligned with Global Affairs Canada’s Sustainable Economic Growth Strategy, in particular the Strategy’s Building Economic Foundations pillar, which targets strengthened fiscal and economic management capacity at the local, regional and national levels.

Throughout 2015–16, Canada continued its efforts to encourage and promote the development of an RBM framework at the IMF. These efforts took the form of semi-annual consultations and updates as well as information sharing, in particular best practices, reporting guides and tip sheets related to RBM. Canada can deliver stronger results in its international assistance efforts by working with partners that are committed to a results- based approach and to continuous learning through effective evaluation and governance mechanisms.

The Fund’s ongoing RBM efforts will allow for a more coherent approach and systematic tracking of outcomes, assisted by a new software system. A catalogue of expected outcomes and indicators will be applied to all Fund TA and training and provide a structure for designing programs with partners. RBM will also increase the accountability of IMF capacity development. This is being implemented in close consultation with Canadian authorities and other key partners. All new TA projects are now being guided by the RBM framework, which is expected to be incorporated into most existing TA and training initiatives over the next year.

The provision of high quality technical assistance remains an important objective. Over the coming year, Canada will continue to pursue opportunities where the IMF can further improve the effectiveness of capacity development support, including through its Regional Technical Assistance Centres where Canada remains a core donor. This will involve not only continued work to encourage the application of a results-based management framework, but also efforts to encourage the continued provision of advice and training on various region-specific challenges (e.g., de-risking in the Caribbean).

To remain credible and to fulfill its core responsibility of promoting global stability, it is important that the Fund continue to evolve alongside changes in the global economy. Specifically, Canada has consistently pushed for reforms to the IMF’s broader governance structure to ensure the voting shares and Executive Board representation of members are better aligned with their relative weight in the global economy. For this reason, active engagement to strengthen the IMF’s governance structure has been an important objective for Canada at the IMF for the past several years. Achieving this goal requires efforts not only to strengthen the Fund’s own internal operational management and broader governance structure, but also to ensure the institution is well placed to effectively fulfill its role in the broader IMS. In 2015–16, Canada worked towards this objective by targeting each of these aspects of governance.

• Engage actively in efforts to advance IMF quota and governance reforms to align the institution with the evolving global economy and financial system, with commensurate resources, informed by rigorous and transparent analysis.
• Promote sound and thorough analysis of the Fund’s role in strengthening the international monetary system, including through careful review of the risks to global financial stability and the components and adequacy of the global financial safety net.
• Advocate for the implementation of best practices and management tools to further strengthen the internal governance of the Fund, including in the upcoming FY2017–2019 Medium-Term Budget.

In order to maintain its credibility and continue fulfilling its role as a central component of the IMS, the IMF must be equipped with a governance structure that is representative of its members and their respective weight in the global economy. In past years, the IMF has received much criticism on this front, as long-standing reforms agreed in 2010 (14th General Review of Quotas or “2010 Reforms”) remained unimplemented. Canada actively encouraged members who had not ratified these reforms (which Canada itself ratified in 2012) to do so as quickly as possible. After much delay, these reforms entered into force in January 2016, paving the way for a significant redistribution in the IMF’s quotas and voting power to underrepresented dynamic and emerging economies (i.e., six per cent shift in quota shares).

Although significant efforts to create a stronger and more resilient IMS have been made since the global financial crisis (e.g., financial sector reform, improvements to IMF economic surveillance and lending toolkit, reforms to the IMF’s governance structure), the system continues to face tensions and new risks have emerged. Given its role in safeguarding global economic and financial stability, Canada and other IMF members encouraged the Fund to undertake an assessment of the adequacy and effectiveness of the IMS [PDF 1.22 MB] as well as the global financial safety net [PDF 1.69 MB] (GFSN).^[2] Through this work, the Fund identified a number of areas where potential improvements could be made, including better cooperation between the GFSN’s different components and reforms to the available mechanisms for crisis prevention and resolution.

For Canada, this initial work in 2015–16 provided an important opportunity to undertake sound and thorough analysis of both the IMS and the GFSN and to set up the necessary building blocks for future discussions on whether and how to further strengthen them. These assessments also served as important inputs for discussions among the G20 and helped to inform the recommendations set out in the group’s Agenda Towards a More Stable and Resilient International Financial Architecture [PDF 131 KB], which will continue to be a focal point for the G20 in 2017.

To function effectively and remain accountable to its membership, the institution needs a sound and sustainable budgetary framework. In FY2016, the IMF was able to respond to new needs in areas such as surveillance and technical assistance within its existing real budgetary envelope (i.e., in real terms after accounting for inflation) through streamlining initiatives and the reallocation of existing resources. This cross-cutting streamlining package was put forward by an advisory group of senior staff ahead of the Executive Board’s discussions on the FY2016–18 Medium-Term Budget. When combined with the cost savings measures derived from individual departments’ prioritization processes (which require the identification and quantification of lower priority activities and potential efficiency gains), these measures resulted in a significant reallocation of resources equivalent to nearly 5 per cent of the IMF’s net administrative budget.

In the context of the current Medium-Term Budget (FY2017–19), Canada pressed the Fund to maintain this discipline, and continue seeking ways to streamline and strategically reallocate resources to meet growing pressures. That said, it is understandable that sometimes exceptional circumstances may generate costs that cannot be met through reallocation alone, and that an increase in the budget may be required to meet these needs (e.g., security costs). However, if these increased costs are expected to persist in the Fund’s core business lines into the future, Canada will continue to encourage the Fund to undertake a value for money assessment of the institution’s priorities against available resources and potential sources of savings.

Work to strengthen the GFSN and the IMS is expected to continue over the coming year at the IMF and also within the G20, building on the various gaps and weaknesses identified in the IMF’s assessments. Although discussions may touch on multiple issues, a key component of this work will be the current round of discussions on the IMF’s quotas and resources (the 15th General Review of Quotas or “15th Review”).^[3] This review provides an important opportunity to build on the recently implemented 2010 Reforms to further align members’ quota shares with their relative positions in the world economy and to further strengthen the IMF’s governance structure. As one of the IMF’s larger members, Canada will take a constructive approach in these discussions and will look for opportunities to help broker consensus.

In addition to the distribution of the IMF’s quota shares, the 15th Review will also provide important context for discussions on the IMF’s resource needs. For Canada, it is important the Fund remain adequately resourced to play its central role in the international financial architecture. In 2016–17 Canada will look for rigorous and transparent analysis to accompany these important discussions on the size and composition (i.e., mix between temporary and permanent) of the IMF’s resources. Canada will do its part to ensure the Fund is adequately equipped.

Finally, we support the principle that the IMF must be agile in responding to the evolving challenges facing the membership. However, in an environment of finite resources, Canada will continue to encourage the IMF to be strategic in its engagement on new issues, building upon the Fund’s comparative advantages and partnering effectively with other organizations as appropriate.

There is a pressing need to respond to the low and uneven growth environment facing the global economy. Canada will seek to play a more active role on the international stage and promote the need to work together for more inclusive and sustainable global growth, particularly through policies and initiatives to boost investment and reinforce the benefits of openness and multilateralism.

At the Fund, this will mean working cooperatively with the institution and other members to ensure that the IMF is also driving these objectives and delivering sound analysis and policy advice in these areas to its members. It will also mean ensuring that the IMF is properly equipped with the tools, resources and policies to continue providing appropriate financial support where needed given the elevated risks facing the global economy. More specifically, over the medium term this will require the:

• Continued improvement of IMF surveillance and policy advice, with a particular focus on inclusive growth and openness;
• Application of an effective and appropriate lending toolkit by an adequately resourced IMF;
• Provision of high quality technical assistance and training; and
• Continued evolution of the Fund’s governance structure to better reflect the growing importance of emerging economies in the global economy.

Canada strongly believes that the IMF has a central role to play in helping to support a stable international monetary system and stronger, more sustainable and inclusive global growth. Canada intends to deepen its engagement with the institution to help advance these goals.

• Work together with the IMF to enhance the effectiveness of Fund surveillance and policy advice by promoting policies to boost inclusive and sustainable growth, particularly through investment and openness.
• Promote effective IMF tools that target the root causes of instability and work to identify and advance potential improvements in the IMF’s lending toolkit.
• Support an adequately resourced IMF equipped to effectively carry out its mandate.
• Play a constructive role in strengthening the IMF’s governance structure to create a more representative, inclusive and effective institution through the 15th General Review of Quotas and the quota formula review.

Since its establishment over 70 years ago, the World Bank Group has been at the forefront of the global fight against poverty and inequality. The World Bank Group is one of the world’s leading development institutions, and provides a wide range of financial products and technical advice to both governments and the private sector in developing countries.

As a large shareholder in the World Bank Group, Canada has a strong interest in the Bank’s continued effectiveness. In order to advance its interests in 2015–16, the Government of Canada identified three main objectives for engagement with the World Bank Group. These objectives were focused on: improvements to the World Bank Group’s development financing instruments and partnerships; the institutional effectiveness of these operations; and the reflection of Canadian priorities in the Bank’s development programming. A detailed discussion of these objectives and actions taken by Canada to promote them are highlighted below.

Canada’s first objective in 2015–16, as defined in last year’s report, was focused on supporting improvements to the financial instruments and partnerships used by the World Bank Group in its global development financing operations. In 2015–16, the World Bank committed US$69.1 billion in development financing globally, in the form of a wide range of products including loans, grants, equity investments and the provision of risk management tools.

To undertake this work, Canada collaborated with like-minded countries to encourage the efficient use of the World Bank Group’s balance sheets, and worked to promote private investments and partnerships with the potential to catalyze additional development financing. In addition, Canadian officials continued to work with the World Bank Group and other partners to respond to the economic and financial challenges facing the Caribbean region.

• Support the efficient use of capital to enhance the World Bank Group’s capacity to deliver development results, while monitoring risks to the Bank’s balance sheet.
• Engage with the World Bank Group to promote and catalyze private investment and partnerships in developing countries, including with Canadian firms and Canada’s new development finance initiative.
• Work with the World Bank Group, in collaboration with other governments, the IMF, the Inter-American Development Bank and the Caribbean Development Bank, to address development challenges facing the Caribbean region, with a focus on renewed growth and economic governance reform.

Over the last several years, Canada has strongly advocated for the World Bank Group and the other multilateral development banks (MDBs) to make more efficient use of their existing capital. More efficient use of MDBs’ existing balance sheets has the potential to unlock hundreds of billions in additional resources for international development financing. In November 2015, this work culminated in the Canadian-led MDB Action Plan to Optimize Balance Sheets which was agreed to by G20 Leaders [PDF 154 KB]. In response to the findings of the Action Plan, MDBs submitted their own report to G20 Finance Ministers in July 2016[PDF 492 KB]. In the World Bank Group’s section of the MDBs’ response, IBRD and IFC both highlighted existing capital efficiency actions they were taking, while also noting areas with potential for further actions.

In 2015–16, IBRD responded to strong demand from borrower clients—committing US$29.7 billion in sovereign loans and risk management products for 118 projects. This strong commitment volume represents a 26 per cent increase compared to 2014–15, and demonstrates the ongoing relevance of the World Bank Group to its developing country clients. This year’s strong lending volume also validates Canada’s position that more development resources can be unlocked from MDB balance sheets. This resulted in a decline in IBRD’s equity-to-loan ratio (ELR) to 22.7 per cent in 2015–16, still well above the 20 per cent minimum ELR limit adopted in 2013–14. Over the coming year, Canada will encourage IBRD management to continue a similar pace of annual development lending, while also reviewing the ongoing appropriateness of the 20 per cent ELR limit in a world of extensive development finance needs.

In December 2015, the World Bank Group played an important convening role by concluding an exposure exchange agreement with the African Development Bank and Inter-American Development Bank. An exposure exchange is a financial arrangement between MDBs to synthetically diversify the regional concentration of MDBs’ development lending portfolios, resulting in additional lending headroom. In this case, the three MDBs collectively implemented an agreement to synthetically transfer $14 billion in development exposure. Looking forward, Canada will continue to encourage the World Bank Group to enter into additional exposure exchange operations with other MDBs.

The World Bank Group’s capacity to grow its balance sheet organically through retained earnings is also an important element of the institution’s financial sustainability. In addition to growing retained earnings, a portion of annual net income at IBRD and IFC is also allocated to a range of development priorities, including financial support to IDA. However, in recent years low global interest rates have constrained the amount of net income available at year end.

In recent years, the World Bank Group has worked to cover its administrative expenses through its revenues from loan spreads. This means that the administrative costs of the Bank Group’s operations would eventually be fully incorporated into the interest costs that borrowers pay. In 2015–16, expenses exceeded loan spread revenues by 35 per cent, but are projected to be fully incorporated no later than 2018–19. Canada has been a strong advocate for this “budget anchor” at the World Bank Group’s Board of Directors, and will continue to closely monitor progress towards meeting the budget anchor by 2018–19. Similarly, Canada supported the Bank Group’s efforts to implement a robust expenditure review, which will result in savings of US$400 million in administrative expenditures across the World Bank Group. Taken together, the continued implementation of these revenue and capacity measures will enhance the World Bank Group’s financial sustainability and ability to grow retained earnings internally despite operating in a challenging interest rate environment.

The World Bank Group has been a leader in designing new instruments to mobilize private capital, starting with IFC’s A/B loan program in 1959. Since then, new instruments have been developed, covering the spectrum of public and private sectors to mobilize capital. Recent work on new mobilization tools has centred on IFC moving towards “platforms�, where investors can participate in a portfolio of IFC’s investments based on pre-determined allocation rules instead of co-investing with IFC transaction by transaction. IFC is also seeking to mobilize more capital from institutional investors, mostly for infrastructure projects.

In 2015–16, Canadian officials began to work closely with the World Bank Group to support the development of new financial structures that have the potential to catalyze private investment in developing country infrastructure. According to the World Bank Group, developing countries face an estimated infrastructure financing gap of over US$1 trillion per year. Infrastructure investment is critical for strong and sustainable economic growth, and facilitates the movement of people, goods and ideas. MDBs, and the World Bank Group in particular, are well placed to play an important convening role by creating innovative financial structures which mobilize private funds through de-risking infrastructure investments, creating opportunities for private co-financing, and supporting the development of a pipeline of bankable projects. Canada’s support for infrastructure investment in the developing world is exemplified by the $20 million provided to establish the Global Infrastructure Facility (GIF), a World Bank facility to develop and implement new models for complex public-private infrastructure financing. Since this investment, Canada has played an integral role through its seat on the GIF Governing Council.

During the last year, IFC launched efforts to create a new initiative to catalyze private capital for investment in emerging market infrastructure. Based on the existing Managed Co-Lending Portfolio Program (MCPP), this new initiative would help to mobilize debt financing by large institutional investors. Under the MCPP platform, infrastructure debt funds would invest in a portfolio of IFC-originated loans. IFC would then mitigate the risks on the debt funds by providing a first-loss guarantee. This structure is expected to mobilize investments from insurance companies and other large institutional investors into the fund.

Canada has been working closely with IFC to promote the creation of new facilities and has challenged the G20 to be ambitious in supporting MDBs in their work to scale up efforts to mobilize private capital for investment in developing country infrastructure. Canada supports the MDBs Joint Declaration of Aspirations on Actions to Support Infrastructure Investment [PDF 308 KB], which articulates quantitative ambitions for high quality infrastructure and actionable steps that MDBs can implement to crowd-in private investors.

IFC is an important partner for Canada’s support for blended climate financing, an approach which mixes low interest or long maturity loans from donors like Canada with commercial financing from IFC—resulting in lower cost financing for private sector climate adaptation projects which meet certain criteria. This includes climate financing initiatives in developing countries through the IFC-Canada Climate Change Program (CCCP), a US$274 million trust fund which provides blended financing to climate change mitigation and adaptation related projects. Since Canadian blended financing is provided alongside funds from IFC, Canada benefits from IFC’s financial expertise and extensive experience lending in emerging and frontier market economies. In 2015–16, the CCCP committed US$41 million in blended funds to five investment projects, while the program has committed US$154 million across the developing world since its inception in 2011. This year, the CCCP provided a US$24 million concessional loan to finance the development of a 50 megawatt solar plant and associated transmission infrastructure in Jordan. Once completed, this project will provide clean power into the Jordanian electrical grid, the equivalent of mitigating 90,000 tonnes of carbon dioxide per year.

The World Bank Group also developed new financial structures to mobilize funding from donors to provide additional funding for development. These included initiatives such as the Middle East and North Africa Concessional Financing Facility (MENA CFF), an innovative facility which uses donor grants to buy down the interest rate of new World Bank financing to Middle Eastern countries hosting large numbers of refugees. The MENA CFF was announced at the Spring Meetings in April 2016 and received financial pledges of support from Canada and several other countries. Based on the facility’s innovative structure, Canada’s $20 million commitment will unlock $60 million in low-cost financing to support refugees and host communities in Jordan and Lebanon. Given the World Bank Group’s global network of expertise, Canada views the institution as an ideal partner to work with in developing innovative financing structures like the MENA CFF which catalyze additional resources for development and to respond to pressing global challenges like the refugee crisis.

Finally, the Government of Canada is considering whether and how to establish a development finance institution (DFI), which would provide financing to support private sector initiatives in developing countries. Over the last year, the Government of Canada has held several consultations with the World Bank Group, and particularly with IFC, in order to learn from its extensive experience working with the private sector in developing countries. Should Canada proceed with a DFI, it would be expected to continue to work closely with established institutions like IFC in order to draw from its best practices, as well as leverage its financial capacity and development know-how.

The Caribbean region is one of the most indebted regions in the world, with most of the small island economies struggling to cope with weak economic growth and high levels of debt. The region is facing the potential impacts of financial de-risking and is also highly predisposed to economic shocks due to a number of structural vulnerabilities including lack of economies of scale, a narrow range of exports, reliance on tourism, a weak private sector, and limited institutional capacity. The region is also highly exposed to adverse weather events, with the aftermath of natural disasters placing significant strain on the fiscal systems of affected countries.

In response, governments at the national level are working earnestly to become economically, socially and environmentally sustainable in order to achieve the 2030 Sustainable Development Goals. While Caribbean states constitute a “region of focus” for Canada’s development programming in the Americas, these states also have a close relationship with Canada at the World Bank Group and IMF, where we represent a constituency that includes most Commonwealth Caribbean countries. As a result, the economic and financial well-being of the Caribbean region is of prime importance to Canada.

Through Global Affairs Canada’s Caribbean Regional Program, Canada supports a broad range of initiatives to strengthen the foundation for inclusive and sustainable economic growth, in order to address the region’s key structural challenges. Canada’s development programming in the Caribbean works to strengthen public institutions’ financial management capacity, improve the ability of micro, small and medium enterprises to compete and trade, and enhance employment skills. The Caribbean Regional Program also aims to strengthen the region’s capacity to mitigate the impacts of natural disasters and to advance the rule of law through justice reform.

In 2015–16, Canada continued to support two World Bank Group projects in the region: the Entrepreneurship Program for Innovation in the Caribbean (EPIC) and the Supporting Economic Management in the Caribbean (SEMCAR). The EPIC project aims to build an enabling environment to foster high-growth and sustainable enterprises throughout the Caribbean. Training and technical assistance has helped strengthen and expand the network of business enablers, as well as enhancing competitiveness of entrepreneurs in the region. Since its launch in 2010, EPIC has reached more than 2,000 entrepreneurs and business enablers in 14 Caribbean Community (CARICOM) countries. The SEMCAR project seeks to improve economic management in 12 Caribbean countries through improved revenue administration, public financial management in budget preparation and treasury operations, and related information and technology systems. To date, training and technical assistance has been provided in key public financial management areas, including cash consolidation through Treasury Single Account implementation, better cash forecasting and planning, modernization of chart of accounts, enhancement of quality of financial reporting, and revision of public financial management legislation. Canada also provided funding for IFC’s Partnership for CARICOM Private Sector Development, which contributes to a strengthened enabling framework for environmentally sustainable growth and productivity of the region’s private enterprises.

Supporting the World Bank Group’s financial instruments and ability to catalyze additional funds for development is an important priority for Canada going forward. In the next year, extensive discussions will occur among shareholders on the capital resources required for the World Bank Group to maintain the strong annual development financing required to support the achievement of the Sustainable Development Goals. While an increase in the share capital of the World Bank Group will likely be a central element of funding support, Canada will continue to advocate for the World Bank Group to leverage its existing resources as fully as possible before seeking additional capital from shareholders.

Given the persistent low-interest rate environment, Canada will advocate for a rules-based approach for the annual net income allocation exercise at IBRD. IFC currently uses a formula to allocate net income to development priorities while also retaining some earnings on its balance sheet. Canada will support a similar approach at IBRD to strike the balance between funding development priorities while also helping to grow the institution’s balance sheet internally.

Canada is committed to ambitious action on climate change. The Prime Minister has announced that Canada will contribute a historic $2.65 billion to help developing countries mitigate and adapt to climate change. Given its significant expertise and global network, the World Bank Group will be an important partner for Canada in mobilizing climate finance and accelerating the global transition to low-carbon growth.

Canada’s second objective in 2015–16 was to work with World Bank Group management and like-minded shareholders to improve the Bank Group’s institutional effectiveness, through reforms to its governance and accountability mechanisms. Since a large share of Canadian international development assistance is delivered through the World Bank Group, Canada has a vested interest in ensuring that the institution generates clear results in accomplishing its global development and poverty reduction mandate.

In 2015–16, Canada played a constructive role in encouraging cooperation and compromise through the ongoing voice and shareholding review process. Canada was also actively involved in the development of the World Bank Group’s new gender strategy, and in the review of its environmental and social safeguard policies. Finally, Canada has been closely engaged in the 18th donor replenishment of IDA, the World Bank Group’s concessional lending window.

• Serve as a constructive force in promoting transparent reform of voice and shareholding at the World Bank Group, while ensuring that Canadian interests are reflected in those discussions.
• Encourage the World Bank Group to strengthen its governance and accountability mechanisms, while also advocating for continued improvement in the value for money of Canadian contributions with a particular focus on the management and strategic vision of the International Development Association.

At the 2015 Annual Meetings in Lima, Governors agreed to a roadmap of future work for IBRD shareholding realignment. As part of this roadmap, Governors agreed that Executive Directors should work to develop a dynamic formula, which would be used as a starting point for negotiation around the next realignment of IBRD shareholding. The dynamic formula is expected to be based on countries’ relative economic weights in the global economy and their contributions to the World Bank Group’s development mission through financial support to successive IDA replenishments.

Through 2015–16, work on the development of a dynamic formula has been led by the Committee on Governance and Executive Directors’ Administrative Matters of the Board of Directors, chaired by Canada’s Executive Director. Under Canada’s chairmanship, the committee has made meaningful progress in 2015–16, despite shareholders having divergent positions and views on the ideal formula. Throughout these negotiations, Canada has closely monitored the proposals being discussed and assessed their potential impact on our own shareholding in IBRD. Canada has also frequently emphasized the need for a spirit of compromise between competing country positions.

Executive Directors are expected to report to World Bank Group Governors at the Annual Meetings in October 2016. Once a dynamic formula has been agreed upon, discussions will start on a Selective Capital Increase, including its size, rules on allocations of shares, and how to protect the smallest poor member countries from dilution.

The 2015 Shareholding Review Roadmap also included work on the medium to long term future role of the World Bank Group—known as the “Forward Look”. Over the last year, through the Forward Look, the Board and management have discussed a range of options to enhance the Bank Group’s ability to support the 2030 Agenda for Sustainable Development while staying focused on the institution’s own twin goals. A number of strategic retreats, seminars and briefings were organized on topics such as IFC and IBRD financial capacity, mobilization and guarantee instruments, and knowledge services. Through this exercise, Canada has emphasized the importance of using existing resources as efficiently as possible and has also pushed for a greater focus on mobilization, both from the private sector and other development actors. In the context of preliminary discussions around increasing the World Bank Group’s financing capacity, Canada has encouraged Bank management to develop a package of options to augment the institution’s capital base, and has called for the ongoing implementation of measures outlined in the G20 balance sheet optimization agenda.

Over the last year, Canada has been working to enhance the World Bank Group’s development effectiveness, by supporting the development of a new Bank Gender Equality Strategy as well as a new Environmental and Social Framework.

In December 2015, the World Bank Group released its new Gender Equality Strategy 2016-2023, following consultations with more than 1,000 stakeholders in 22 countries. In line with Canada’s important priority of closely integrating gender equality into our international assistance programming, Canada encouraged the Bank to ensure that its new Gender Equality Strategy included financial support and technical assistance to help borrower countries close the gender gap. Finally, through these discussions, Canada encouraged the Bank Group to collect and make increased use of sex disaggregated data in order to better assess the gender impacts of its development programming. The World Bank Group’s new gender strategy can be found on its website.

Another area where the World Bank Group made meaningful progress in its institutional effectiveness is in the development of a new environmental and social safeguard framework. Starting in 2012, the World Bank Group began consultations to renew and strengthen its environmental and social safeguard policies. Safeguard policies are important in ensuring that the design and implementation of World Bank-financed projects include thorough consideration of environmental protections and of the well-being of the world’s poor and most vulnerable. Through these consultations, Canadian stakeholders’ feedback and recommendations have helped to focus and strengthen the discussion on a number of key priority areas, including human rights, indigenous peoples, risk assessment and risk management, labour standards, land acquisition and resettlement, and biodiversity.

In 2015–16, the World Bank Group held a third round of consultations to gather feedback from borrowing countries and other stakeholders on the resources and support required for borrowing members to adequately implement the new safeguards framework. At the Board of Directors, Canada’s approach over the last year has aimed to improve the quality and implementation capacity of the Bank’s environmental and social policies, in order to ensure that the new safeguards framework results in improved environmental and social standards for World Bank Group-financed projects. The third phase of consultations included a discussion of issues of special importance to Canada, such as ensuring that the framework reflects international human rights standards, and providing support to borrowers in the development of policy frameworks that can eventually complement the Bank’s environmental and social policies. After three rounds of public consultations and extensive negotiations between countries, the World Bank Group’s Environmental and Social Framework was approved by the Board of Directors on August 4, 2016. More information can be found on the World Bank Group’s safeguards website.

In preparation for the 18th replenishment of IDA (IDA18), Canada participated in the IDA17 Mid-Term Review in November 2015. Donor countries evaluated IDA’s progress in delivering development results and reviewed the work of the three informal working groups that were created during the IDA17 replenishment process on IDA’s long-term vision and financial sustainability, on development results, and on the governance and reform of the IDA replenishment process. As part of this work, Canada expressed its strong support for the appointment of an independent co-chair for the IDA18 replenishment process, supported measures to enhance the representation of borrowing countries in replenishment negotiations, and encouraged the World Bank Group to develop proposals for IDA18 to create additional development resources through the leveraging of IDA’s equity.

The IDA17 Mid-Term Review meeting was also an opportunity to make some adjustments to the IDA17 financing framework. As part of this exercise, Canada supported adjustments to IDA’s liquidity management framework which will enable IDA to make a more efficient use of its internal resources. These adjustments generated an additional $5 billion in development resources over and above the US$52.1 billion in commitments made during the IDA17 replenishment, and allowed IDA to replenish its Crisis Response Window (US$900 million) and to create a new lending facility (US$4.1 billion) without the need for additional support from donors.

Discussions for the 18^th IDA replenishment cycle remain underway, with meetings taking place in March and June 2016. IDA Deputies and borrower representatives discussed IDA’s challenges and strategic directions, as well as the proposed special themes for IDA18: climate change, gender and development, jobs and economic transformation, governance and institutions, fragility, conflict and violence.

Discussions on the IDA18 financial framework focused on IDA’s innovative proposal to leverage its large equity base in order to increase the total volume of development resources available for the poorest and most vulnerable countries. As part of these discussions, Canada has been one of the leading voices in encouraging the World Bank to explore more ambitious leveraging options while ensuring that a significant portion of the leveraged resources are provided to the world’s poorest countries on concessional terms.

The institutional effectiveness of the World Bank Group will remain an important priority for Canadian engagement in 2016–17. Canada is a significant contributor to World Bank Group capital increases and to IDA replenishments every three years. Canada is also a significant annual contributor to World Bank Group-administered trust funds and financial intermediary funds. As a result, Canada is committed to ensuring that these investments translate into clear and effective results for the world’s poorest and most vulnerable.

At the 2016 Annual Meetings, World Bank Group Governors will review a report on the development of a dynamic formula, which is one of the key elements needed to ensure that the next realignment of IBRD shareholding is strongly based on principles and data-driven analysis. Consideration of a realignment of shareholding, through a Selective Capital Increase, will take place in 2016–17, with the goal of reaching a decision by the 2017 Annual Meetings. Canada will continue to encourage a spirit of comprise in these negotiations while also ensuring that our priorities are reflected in the proposals being discussed. At the 2016 Annual Meetings, Governors will also receive a report on the Forward Look exercise, outlining a strategic vision for the World Bank Group.

Finally, the 18th replenishment of IDA will conclude in December 2016. Canada intends to make a meaningful financial contribution to this replenishment, and will also work with like-minded donors to advance policy proposals with the potential to make IDA more responsive to the needs of its clients and more efficient as a financial institution. Next year’s Report to Parliament will note the results of the replenishment exercise.

Over the course of 2015–16, the Government of Canada worked closely with the World Bank Group to ensure that our international development priorities are reflected in the Bank Group’s operations. Canada’s support has helped the World Bank Group to implement its twin goals of eradicating extreme poverty and reducing income inequality by promoting global shared prosperity. Canadian support for the World Bank Group, including through the delivery of Canadian bilateral programming (see Annex 2), has helped to focus funding on helping the poorest and most vulnerable, addressing challenges in fragile and conflict-affected states, and better integrating gender into Bank Group policies and programs.

In line with Canadian development priorities, the World Bank Group has advanced work in the areas of innovative financing mechanisms for crisis response, private sector development and funding for infrastructure development.

• Ensure that Canada’s foreign policy, trade and development priorities are reflected in World Bank Group operations, including in the areas of private sector development and maternal, newborn and child health.

Canada played a leadership role in July 2015 at the Third International Conference on Financing for Development in Addis Ababa, Ethiopia, where world leaders agreed on measures to finance the Sustainable Development Goals (SDGs). In the resulting Addis Ababa Action Agenda, Canada supported the formal launch of the Global Financing Facility in Support of Every Woman Every Child, along with the World Bank Group, Norway, the United States and the UN. Following international agreement on the SDGs at the United Nations General Assembly in September 2015, the World Bank Group is spearheading discussions on how to best operationalize the SDGs—through financing, solutions and lessons learned. Canada continues to encourage the World Bank Group to foster a sound enabling environment for private sector engagement in international development projects; within the context of the new SDGs, the private sector brings much-needed innovation, capabilities and resources to global development.

Over the past year, the World Bank Group’s openness to collaboration and the capacity of the private sector liaison offices (PSLO) in Canada have helped Global Affairs Canada to bring a broad spectrum of opportunities from the World Bank and other MDBs to the attention of Canadian businesses and consultations. In February 2016, the Canadian PSLO network led an international transportation mission to the Washington-based MDBs. This mission involved 40 private sector participants from 12 countries, including 17 delegates from Canada, in order to build awareness of commercial opportunities at MDBs and to explore possible partnerships. The renewed global momentum to increase access to clean energy represents a significant opportunity for many Canadian firms. Presentations by the World Bank Group and other bank specialists in these business forums provided useful information to the Canadian private sector about priority projects, and Canadian firms were able to highlight how made-in-Canada solutions can contribute to sustainable global development. See Annex 3 for a summary of World Bank Group procurement from Canada.

In March 2016, Canada partnered with World Bank Group, Centre for International Governance Innovation (CIGI), International Development Research Centre (IDRC), Aga Khan Foundation Canada (AKFC) and McGill University to hold public events in Waterloo, Ottawa and Montreal and launch World Development Report 2016: Digital Dividends. The World Development Report is the annual flagship publication of the World Bank Group and is supported in part by Global Affairs Canada through a three-year funding arrangement. This year’s report explored the impact of the Internet, mobile phones and related technologies on economic development, illustrating that the potential gains from digital technologies are high, but often remain unrealized. The report proposed policies to expand connectivity, accelerate complementary reforms in sectors beyond information and communication technology (ICT), and address global coordination problems. The three events brought together representatives from the federal government, the World Bank Group, and the not-for-profit and private sectors, academics, and over 200 student and others participants from the general public. Participants, including Canada’s Executive Director at the World Bank Group and several leading international development experts from the CIGI, IDRC, AKFC and McGill University, had the opportunity to discuss the role of ICTs in development and explore the various ways different sectors and regions are using ICTs to enhance the livelihoods of people in the developing world.

Finally, during the state visit in March 2016, Prime Minister Justin Trudeau made a historic visit to the World Bank Group, becoming the first Canadian Prime Minister to tour the Bank’s headquarters. Prime Minister Trudeau’s visit included a productive meeting with President Jim Yong Kim, and showcased the Government of Canada’s commitment to re-engage in multilateral institutions and foster strong partnerships with international development organizations like the World Bank Group.

Canada will work with the World Bank Group to catalyze additional resources in support of achieving the SDGs. Canada will continue to seek opportunities to cooperate with the World Bank Group and align our programming with its shared prosperity agenda, including through initiatives in which Canada is heavily invested, such as the Global Financing Facility in Support of Every Woman Every Child, and the Global Infrastructure Facility.

Canada intends to play a more active role on the international stage, including through multilateral development institutions like the World Bank Group. The World Bank Group’s twin goals of ending extreme poverty and promoting sustainable and inclusive growth are well aligned with Canada’s own international development priorities.

Looking forward, Canada will aim to ensure that the World Bank Group is both effective and efficient in meeting its development financing mandate, and that it continues to undertake institutional reforms to adapt to a changing international landscape. More specifically, over the medium term this will require:

• Financial instruments and partnerships that strengthen the World Bank Group’s capacity to deliver development results; and
• Improvements in the institutional effectiveness of the World Bank Group through ongoing reforms, accountability mechanisms and governance structures.

Accomplishing these high-level goals will take time and will require a collaborative process involving all of the World Bank Group’s 189 members. Canada will work to develop an incremental approach to meeting these goals, and will encourage a spirit of compromise between member countries in negotiations on issues related to these medium-term objectives. In 2016–17, Canadian efforts will focus on strengthening the World Bank Group’s development financing business model, supporting a successful replenishment of IDA, supporting the implementation of the World Bank Group’s shareholding roadmap, and ensuring that Canadian priorities are reflected in World Bank Group programing and operations.

In order to advance these objectives, Canada will work with other countries in the development of statements, policy papers, and coordination of positions for votes. Canada will also advance these priorities in bilateral discussions and through participation by the Minister of Finance, Canada’s Executive Director and Canadian officials at the Development Committee, the World Bank Group Board of Directors, and the G7 and G20.

• Support the efficient use of capital, the development of innovative financial instruments and the leveraging of private capital to enhance the World Bank Group’s capacity to deliver development results.
• Contribute to a successful replenishment of the International Development Association, including reforms that will enable a scaling up of concessional financing to the world’s poorest and most vulnerable countries.
• Serve as a constructive force in the ongoing implementation of the World Bank Group’s shareholding roadmap, while ensuring that Canadian interests are reflected in those discussions.
• Ensure that Canada’s international priorities are reflected in World Bank Group operations, including in fragile and conflict-affected states, and in the areas of gender, climate finance and infrastructure development.

To meet the first objective of supporting the efficient use of capital, development of innovative financial instruments and leveraging of private capital, Canada will work with the World Bank Group to support the implementation of commitments made in the recent report by MDBs to G20 Finance Ministers [PDF 492 KB] . Canada will also continue to support the World Bank Group’s efforts to better leverage its balance sheet, in order to unlock additional headroom for global development financing. In 2016–17, this work will include encouraging the World Bank Group to present shareholders with a meaningful package of options to augment its forward financing capacity. These options should include consideration of differentiated loan pricing, further use of exposure exchanges and the introduction of a rules-based IBRD net income allocation exercise. Canada will also work with the World Bank Group to continue the development of new and innovative financial instruments to catalyze funds from the private sector and other non-traditional development partners. Finally, the World Bank Group will be an important partner for Canada in mobilizing climate finance and accelerating the transition to low-carbon growth.

To meet the second objective of contributing to a successful replenishment of IDA, Canada intends to make a meaningful financial contribution to this replenishment, and will remain closely engaged in negotiations until their conclusion in December 2016. Similar to our approach over the last year, Canada will continue to encourage the development and implementation of policy proposals with the potential to make IDA more responsive to the needs of its low-income country clients and more efficient as a financial institution.

To meet the third objective of supporting the implementation of the World Bank Group’s shareholding roadmap, Canada will play an active role in the continued negotiations around the development of a dynamic formula and the planned realignment of IBRD shareholding. Canada also has an important stake in the implementation of the Forward Look exercise, and its objective of making the World Bank Group more responsive to client demand, with a financing toolkit that is well aligned with global development needs.

In order to meet the fourth and final objective of promoting Canadian priorities in the World Bank Group’s operations, Canada will work to align the World Bank Group’s programming with Canadian development, trade and foreign policy priorities. We will continue to encourage the World Bank Group to fund projects which are aligned with Canadian priorities, including in the areas of sustainable economic growth, private sector development, gender, climate financing and infrastructure development. Finally, Canada will continue to encourage the World Bank Group and other international financial institutions to collectively respond to the economic and financial challenges facing the Caribbean region.

¹ Canada’s constituency includes Antigua and Barbuda, the Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Guyana (World Bank Group only), Ireland, Jamaica, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines.

² The GFSN is a network composed of institutions, tools and buffers at the domestic (e.g., reserves, fiscal buffers), bilateral (e.g., central bank swap lines), regional (e.g., regional financing arrangements) and multilateral levels (e.g., IMF, World Bank) that support economic and financial stability and can be drawn upon in times of individual, regional or global turbulence.

³ Discussions on a new quota formula, which guides the allocation of individual quota shares, are also anticipated to resume within the context of the 15th Review.

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