To lower borrowing costs for vulnerable nations, the World Bank has announced the elimination of several loan fees. The action is a component of larger initiatives to increase financial capacity and tackle pressing global issues including inequality, climate change, and economic instability.

This was revealed by the international bank in a statement on Wednesday. The bank has extended its lowest pricing to tiny, fragile nations, removed the prepayment cost on International Bank for Reconstruction and Development loans, and instituted a grace period for commitment fees on undisbursed amounts.

“The bank is working hard to make it easier for countries to borrow and to pay back their loans more easily by removing some fees on IBRD loans,” the financial institution stated.

The financier claims that these adjustments are intended to relieve the financial strain on countries that require development funding the most.

“These measures are designed to make borrowing easier and more affordable for countries facing significant challenges,” the bank said. It added that the reforms align with its vision of building a “better, more efficient, and bigger” institution capable of addressing overlapping global crises.

The World Bank’s larger financial reforms, which include fee eliminations, are intended to boost lending capacity by $150 billion over the next ten years.

As part of the changes, the IBRD’s equity-to-loans ratio was lowered from 20% to 18%, allowing for an additional $70 billion in lending over ten years.

According to the statement, $1 billion was obtained through a guarantee from the Asian Infrastructure Investment Bank, and an additional $10 billion has been released through bilateral guarantees.

“The adjustments to our capital framework reflect our commitment to scaling up resources while maintaining financial stability,” the bank said.

The international lender highlighted that these adjustments are essential to tackling the billions of dollars that are required each year to help fragile governments, fight climate change, and advance digital inclusion.

It did concede, nevertheless, that states and multilateral organisations are insufficient to discharge these financial obligations on their own.

The Bank has created a Framework for Financial Incentives to close the gap, promoting investments in cross-border issues like pandemic prevention, energy access, water security, and biodiversity.

Some officials of the World Bank have questioned if the study supporting Ethiopia’s debt restructuring may be “faulty” after criticising an evaluation of the country’s finances done with the International Monetary Fund (IMF).

World Bank consultant, Brian Pinto, and its head economist, Indermit Gill, evaluated the July Debt Sustainability Analysis (DSA), which was created by the IMF and employees of the International Development Association (IDA), the World Bank’s fund for the world’s poorest countries, in an internal document seen by Reuters.

According to the authors, Ethiopia is experiencing a short-term cash shortage rather than a long-term solvency problem, which is a source of conflict between the government and holders of its $1 billion international bond that is in default, based on the DSA.

“We found that the bondholders have interpreted the DSA correctly, but the DSA itself may be faulty,” Pinto and Gill wrote in the paper from earlier this month. “The disagreements about Ethiopia’s debt sustainability will be repeated as other countries become debt distressed.”

A World Bank representative responded to a question regarding the paper by saying, “We generally don’t comment on internal deliberations between the World Bank and the IMF or any of our partner institutions.”

As part of the most recent review of the Fund’s loan program, Ethiopian State Finance Minister Eyob Tekalign told Reuters that the DSA had just been reviewed by IMF and World Bank teams and that the status had not changed significantly.

Without providing further details, an IMF representative acknowledged that its officials travelled to Ethiopia in November for the second review of the Fund’s loan program and added that every review incorporates an update to the DSA. Regarding the memo, the spokeswoman remained silent.

A request for comment from Pinto and Gill was not answered. There has been a tense confrontation between Ethiopian officials and bondholders.

The main point of contention is whether, as bondholders contend, Ethiopia is experiencing a liquidity shortage that may be resolved by rescheduling debt or if it is experiencing longer-term financial issues that necessitate haircuts, or debt write-downs.

According to the DSA, certain statistics on exports indicated pressures on both liquidity and solvency.

It was reported in October that the DSA indicated a solvency problem and that writedowns were inevitable. Investors have criticised a government proposal that suggests an 18% haircut in addition to rejecting the evaluation.