World Bank Under Fire: Debt Crises Deepen as Fossil Fuel Funding Looms
The World Bank is facing intense scrutiny as developing nations grapple with escalating debt crises, a situation compounded by the institution's ongoing re-evaluation of its policy on financing fossil fuel projects. Recent reports express grave concerns that the Bank's development models are pushing nations into crippling debt burdens, even as it considers lifting a ban on supporting upstream gas production.
Ghana's Debt: A Cautionary 'Gas' Tale
Ghana's current economic woes stand as a stark example of the potential pitfalls associated with World Bank-backed projects and debt sustainability. Despite adhering to the World Bank's prescribed energy reform model, the Ghanaian government finds itself wrestling with severe debts and spiraling energy costs.
By 2022, reports confirmed that Ghana was unable to meet its debt repayment obligations for the third time since becoming a fossil fuel-producing country. This predicament has been significantly exacerbated by the World Bank Group's substantial financial commitment to Ghana's flagship Sankofa offshore gas project, which included $1.2 billion in financing and guarantees in 2015, contributing to nearly $2 billion in total for Ghana's oil sector in recent decades.
Critics, notably ActionAid Ghana, contend that Ghana's gas development, structured through public-private partnerships with rigid "take or pay" clauses, has compelled the nation to guarantee payments to foreign investors regardless of actual energy demand. This arrangement has reportedly drained over $1 billion of Ghana's public funds annually, leading to a power sector now described as expensive and unreliable, requiring hundreds of millions in public subsidies. As part of the latest wave of World Bank-backed reforms, Ghana has begrudgingly agreed to raise tariffs by 70 percent, a condition tied to a $260 million financing agreement signed in May 2024.
World Bank's Energy Strategy Under Intense Review
World Bank President Ajay Banga initiated a review of the institution's energy financing at the recent Spring Meetings. Following these discussions, the World Bank has already controversially lifted its ban on nuclear energy and is now in active debate over whether to resume support for 'upstream' gas projects. This re-evaluation occurs as the Bank champions its "Mission 300" initiative, which aims to provide electricity to 300 million people in Sub-Saharan Africa by 2030. Some heads of state are advocating for gas as a "transition fuel" within this framework.
However, civil society organizations are urgently pressing development banks to cease all funding for fossil gas, particularly in light of the global commitments under the Paris Agreement. Concerns are mounting that as renewable energy finance shifts, the Bank's ability to be a genuine partner for a just energy transition will hinge on robust environmental and social oversight, a conscious effort to avoid a new "resource curse" from critical minerals, and a commitment to providing substantial debt relief during ongoing crises.
Global Calls for Debt Relief and Systemic Reform Amplify
Amidst these critical discussions, civil society groups and nations from the Global South are intensifying their calls for unconditional debt relief and the establishment of a United Nations-led debt workout mechanism. This push is particularly strong during what is being termed a "critical Jubilee year" for global debt. The Bretton Woods Project, known for its critical analysis of the World Bank and IMF, highlights that even as the Global North obstructs progressive reforms at the upcoming Financing for Development (FfD4) conference, the World Bank's "billions to trillions" private sector-led approach to development continues to gain prominence, despite its perceived shortcomings.
These developments underscore the complex and often contentious interplay between international finance, national development goals, and the growing urgency of addressing global debt vulnerabilities, especially in the context of global energy transitions and the escalating climate crisis.
