Meeting the Moment—Addressing the Foreign Assistance Cliff | Opinion

With each new headline, a gaping hole opens wider around the world—as capitals dramatically cut assistance to the world's poorest countries. The estimated scale of these cuts vary—with predictions ranging from $54 billion to $70 billion. This digging did not start, but was certainly accelerated by the U.S. decision to cut 83 percent of all foreign assistance programs. The cuts may not stop there, with reductions in other countries that could result in at least a 37 percent decline in foreign assistance from 2023 to 2027.

The impact of these cuts is already emerging, including potential surges of HIV/AIDS, malaria, tuberculosis, measles, diphtheria, and even polio, drug trafficking, and migration. But the response has been slow to materialize because there is no silver bullet. One change, however, is ready today and can meaningfully change the calculus. At the IMF/World Bank Group Spring Meetings, World Bank shareholders could approve changes to its balance sheet practices to enable it to deploy $30-40 billion in new lending, staving off human suffering and crowding in other investments.

The World Bank and other Bretton Woods institutions were created in 1944 in anticipation of the monumental tasks needed to launch a European economic rebirth from the ashes of World War II. The needs were daunting. Yet, these institutions delivered well beyond their original mission. Over the last 80 years, they helped lift a billion people out of extreme poverty and helped provide people in more than 87 countries with basic hygiene, water, and sanitation services.

These institutions continue to matter today. During the pandemic, they deployed an initial record $157 billion to help countries fight COVID-19's impacts. And, even more recently, the World Bank—partnering with the African Development Bank—has led an innovative public-private effort to connect 300 million people in Africa to electricity by 2030. This Mission 300 will increase jobs and opportunity, decrease the risks of uncontrolled migration, and spur economic growth throughout Africa—all of which will bolster global stability and other nations' security and prosperity.

Now, in the face of collapsing aid budgets, the World Bank must once again step up. To do this, World Bank shareholders could reduce the "equity-to-loan" ratio of its primary development lending arm by 1 percentage point (to 17 percent), allowing the Bank to deploy $30-40 billion without burdening taxpayers or shareholders, or jeopardizing the Bank's capital reserves. This ratio reflects how much leverage it gets for equity—a level that is determined by the Bank and its shareholders.

Much of these new resources, perhaps $25-30 billion, could be used to expand "development policy loans"—which help governments rapidly address actual or anticipated budget gaps—in order to shore up health care networks, water and sanitation systems, or other critical public systems impacted by foreign aid cuts. In other words, to save lives.

With the remaining new resources, the Bank could offer short-term, low-interest loans to non-governmental organizations (NGOs) facing program cancellations, layoffs, and even bankruptcy. These loans could help bridge to new long-term funding models. Home or recipient governments could be required to guarantee some portion of these loans, effectively forcing a prioritization of which NGOs the World Bank should support. Such an innovative finance facility for NGOs would borrow a page from the Bank's Civil Society and Social Innovation Alliance (CIVIC) facility and offer a welcome salve to the fragility of the NGO sector.

This is not exactly novel. The World Bank has changed the equity-to-loan ratio twice in the last two years. At the 2023 Spring Meetings and the 2024 Annual Meetings, it announced two separate steps to increase in its lending capacity by a combined $70 billion. The Bank can go a percentage point further. A 2023 report by independent analytics firm Risk Control showed that balance sheet changes could unlock at least $162 billion in more funding ($92 billion after the 2023 and 2024 moves). Fitch Ratings released its own report in 2024 suggesting that that the World Bank has $116.7 billion in additional lending headroom.

Inaction will have concrete consequences. One study showed that U.S. foreign aid cuts could put at risk anywhere from 2.3 to 5.6 million lives annually—not including those lives saved annually by U.S. foreign assistance supporting water and sanitation, family planning, and nutrition. This does not begin to capture what happens if long-since vanquished diseases re-ignite or migration surges.

Some will counter that this is not the Bank's role—that it was made to undertake longer-term investments. But the Bretton Woods institutions were created during a war to prevent crises from accelerating out of control. As such, the Bank has occasionally pivoted to respond to urgent and short-term needs. Moreover, the long-term only matters if you are around to see it.

A decision by World Bank shareholders to change the equity-to-loan ratio will not solve all of today's challenges. But it will start to fill a gap, without triggering new burdens for taxpayers anywhere. And it will signal that help is on the way.

Eric Pelofsky is vice president at The Rockefeller Foundation and previously held senior roles at the National Security Council and the Departments of State and Defense.

The views expressed in this article are the writer's own.