What are the implications of Congressional Appropriations for U.S. leadership at the MDBs?

In recent weeks, the Fiscal Year (FY) 2022 omnibus spending bill became law, and the Biden-Harris Administration released its Fiscal Year 2023 President’s Budget Request (FY23 PBR), which now goes to Congress for consideration. The FY22 omnibus spending bill provided meager support for climate finance and failed to authorize the Asian Development Fund (AsDF) or pay down arrears to the International Development Association (IDA). However, BIC commends the administration for showing greater ambition in the FY23 PBR. It is crucial that the administration works with Congress to pass the FY23 PBR before the midterm elections. Increased political uncertainty after November 2022 may jeopardize the ability of the U.S. to raise its climate commitments and fulfill its pledge to the multilateral development banks (MDBs), damaging U.S. credibility at the institutions and with international partners. 

BIC’s key takeaways and recommendations from the FY22 omnibus spending bill and FY23 PBR include:

1. Green Climate Fund: Congress failed to support the Green Climate Fund (GCF) in the FY22 omnibus spending bill, a disappointing outcome representing a broken promise to the international community. While the FY23 PBR includes $1.6 billion for the GCF, this is not enough funding for the U.S. to meet its Obama-era pledge of $3 billion. The missing U.S. GCF contribution underscores the longstanding failure of wealthy countries to appropriate adequate levels of climate finance. Still, the U.S. can work to close this gap by utilizing its leadership role at the MDBs to push the institutions to meet their climate commitments.
2. International Development Association: Due to COVID-19, IDA, the World Bank’s window for low-income countries, frontloaded funding from IDA19 to address the crisis and began the IDA20 replenishment process a year early to secure the necessary support to continue providing high levels of financing to the world’s poorest countries. The accelerated replenishment requires the U.S. to contribute an unprecedented level of funding this year toward the final year of IDA19 and the first year of IDA20. BIC is pleased that the FY22 omnibus spending bill includes total funding of $1.01 billion for the final year of the IDA19 replenishment. Further, the FY23 PBR includes $1.43 billion for IDA20 and details a plan for the U.S. to backload the remaining funding for IDA20 over the last two years, FY24 and FY25. Fulfilling its pledge to IDA is key for the U.S. to maintain its ability to push the World Bank to improve its environmental, social, and accountability standards.
   
   However, despite the administration's welcome inclusion of a strategy to meet its IDA20 pledge, we are concerned that backloading contributions risks adding more outstanding U.S. arrears to the institution, which were not paid down in either the FY22 omnibus spending bill or the FY23 PBR. Typically, pledges are appropriated equally over three years. The administration’s IDA20 funding strategy will require Congress to increase contributions to IDA over the next two years, which may be politically difficult after the midterm elections. We encourage the U.S. Treasury Department to communicate its IDA20 funding strategy and the importance of the U.S. fulfilling its IDA pledge to Capitol Hill and civil society stakeholders, emphasizing the need to preserve the unique leadership role of the U.S at the institution.
3. Asian Development Fund: The FY22 omnibus spending bill failed to secure authorization for the U.S. contribution towards the Asian Development Fund’s (AsDF) twelfth replenishment (AsDF-13). The failure of Congress to authorize AsDF-13 will impact the credibility and leadership role of the U.S. during policy negotiations, such as the ongoing Asian Development Bank (ADB) Safeguard Policy Review. However, the FY23 PBR seeks to correct this oversight and requests authorization for the AsDF-13 replenishment. We encourage Congress to meet this request, passing the necessary authorization to allow the institution to receive the $43.6 million appropriated in the FY22 omnibus spending bill for the first installment of the AsDF-13 replenishment. Further, passing replenishment authorizations is an opportunity for Congress to push the IFIs to improve their practices and policies. When authorizing AsDF-13, Congress should call on the ADB to meet the highest international standards in developing their new safeguard policies.

BIC encourages the administration and Capitol Hill to recognize the unique role of the U.S. at the MDBs in improving these institutions’ policies and practices. While BIC is disappointed that Congress failed to fund the GCF in the FY22 omnibus spending bill, the U.S. should seek to mitigate this by utilizing its leadership role at the MDBs to push these institutions to meet their climate commitments. However, for the U.S. to maintain its influence at the MDBs, Congress must appropriate enough funding to fulfill U.S. pledges, pay down arrears, and authorize new replenishments.