We will commence the session.
Articles of Agreement of the International Finance Corporation: Minister of State at the Department of Finance
I ask the committee to consider a proposed amendment to the Articles of Agreement of the International Financial Corporation, IFC, which is part of the World Bank Group. In summary, the change to the articles is to increase the voting threshold for approval of future capital increases at the IFC. The Government seeks Dáil approval for this change under Article 29.5.2o of the Constitution as the IFC's Articles of Agreement are an international agreement involving a charge upon public funds. I will now set out for the committee some background on the IFC and the reasons for this proposed change.
IFC is the part of the World Bank which seeks to promote private sector development in developing countries. It does so by providing loans, investments and advisory services to companies engaged in projects with development impact. In April 2018, shareholders of the World Bank agreed on a capital increase for the bank. The agreed financial package includes a $7.5 billion capital increase for IBRD, the World Bank's main lending arm, and a $5.5 billion capital increase for the IFC. The capital increase for the IFC is a response to the ambition of the sustainable development goals and the increased levels of finance required. Simply put, the sustainable development goals will not be met through existing domestic resources or traditional overseas aid. The annual funding gap is estimated to be $2.5 trillion. It is, therefore, essential to leverage private sector capital to have a realistic chance of achieving the sustainable development goals. Standing between policymakers and private finance, IFC is well-positioned to bridge this gap and encourage investment in developing countries. The proposed capital increase has the potential to double IFC investment to $25 billion by 2030. Under the agreed package, this increased investment will be targeted toward the world's most disadvantaged countries and to address gender equality and climate change. The capital package also includes reforms to increase efficiencies at the bank.
The Government is supportive of the capital increase for the bank which is the largest development actor globally with the scale, expertise and experience to deliver transformative development impact. The deliverables of the capital increase are closely aligned with Ireland's priorities as articulated in our new development policy, A Better World. Ireland has the option to take up shares in the IFC under the capital increase which would require a total subscription of $12.6 million over five years. Our subscription to IFC would count toward the UN target of providing 0.7% of GNP for overseas development assistance. While we are supportive of the overall capital package, at this stage, a final decision on our take-up of shareholding has not been taken by the Minister for Finance.
An essential part of the agreement on the capital package was the proposed amendment to the IFC's Articles of Agreement which we are here today to discuss. Specifically, this amendment would increase the voting threshold for approval of future capital increases from 80% to 85%. This change will maintain the veto power of the USA in relation to future capital increases at the IFC. During negotiations, the USA indicated that while it would not contribute to the capital increase, it would not oppose the increase provided that it did not reduce the USA's voting power below the level at which it could exercise a veto. This was an essential condition for the final agreement. The Office of the Attorney General has advised that the proposed change requires Dáil approval. This is in line with Article 29.5.2o of the Constitution which outlines that the State will not be bound by any international agreement involving a charge on public funds unless the terms of the agreement, including any amendments, have been approved by Dáil Éireann. To be clear, the proposed amendment to the IFC's articles does not in itself result in any new immediate charge upon public funds. However, as the amendment will ultimately create a charge on public funds, the Government is seeking Dáil approval. A Dáil resolution to approve the proposed change to the IFC's Articles of Agreement will allow Ireland to vote in favour of the amendment. This will assist in paving the way for the IFC to complete this capital increase and allow it to progress its important mission.
I thank the Minister of State for his opening statement. The committee very much supports the proposal. The work of the World Bank and, in particular, of the International Finance Corporation is important in the developing world. The proposal is focused very much on the sustainable development goals, climate action and poverty. While the proposal must ultimate go before the Dáil, is it the case that passing this provides Ireland with an option rather than an obligation?
The potential additional amount is $12.6 million.
Over five years.
Will a decision to implement this come back to the House or the select committee, or is it a matter for the Minister?
It does not come back. Once it is sanctioned by the Dáil, it is a matter for the Minister for Finance to conclude at the appropriate time.
As such, this is the approval to give the Minister the right to proceed. That is fine. I am happy with it and do not have any further questions.
The proposed amendment of the Articles of Agreement of the International Finance Corporation, which is part of the World Bank Group, was referred to the select committee for consideration on Tuesday, 18 June 2018. The committee has completed its consideration of the matter.