Second Top Agency Warns of Trump Threat to World Bank's Triple-A Rating

In a recent report, Moody's, the second-largest credit rating agency, has warned that the World Bank's triple-A rating could be at risk if the United States significantly reduces its support for the institution. This warning comes amidst uncertainty surrounding the Trump administration's posture towards multilateral institutions and potential cuts to aid funding.

The World Bank, a key player in global development, relies heavily on U.S. support. The U.S. is the single biggest shareholder in the World Bank Group's institutions, with a 16.4% share in the International Bank for Reconstruction and Development (IBRD) and a 19% stake in the International Development Association (IDA). This substantial financial commitment allows the World Bank to provide critical funding to developing countries for various development projects and poverty reduction initiatives.

Moody's has explicitly stated that a material reduction in U.S. commitment to the World Bank would be "credit negative," implying that the institution's credit rating could be at risk. A downgrade in the World Bank's credit rating could significantly impact its borrowing costs and, consequently, the interest rates it charges to borrowers. The World Bank's triple-A rating is a testament to its strong financial position and low risk profile, which allows it to borrow at favorable terms in global capital markets. If the U.S. were to materially reduce its commitment to the World Bank, as warned by Moody's, it could lead to a downgrade in the institution's credit rating, making it more expensive for the World Bank to borrow.



A downgrade in the World Bank's credit rating could have significant implications for the institution's ability to support development projects and provide affordable financing to low- and middle-income countries. The World Bank's IBRD has an average maturity of 8.4 years for its loan portfolio, with some loans extending up to 50 years. A downgrade in the World Bank's credit rating could result in higher interest rates for these long-term loans, making it more expensive for borrowers to access financing from the institution.

Moreover, a downgrade in the World Bank's credit rating could also impact its ability to attract new investors and maintain its shareholder base. Other countries, such as China, which have long coveted a larger share in the World Bank, might seek to fill the void left by a U.S. withdrawal. This could lead to a shift in the World Bank's shareholder composition and potentially alter its lending policies, further impacting the interest rates it charges to borrowers.

In conclusion, the warning from Moody's highlights the potential risks to the World Bank's triple-A rating if the U.S. significantly reduces its support for the institution. A downgrade in the World Bank's credit rating could have significant implications for the institution's ability to support development projects and provide affordable financing to low- and middle-income countries. The geopolitical implications of other countries, such as China, potentially increasing their influence in the World Bank if the U.S. reduces its support could also have far-reaching consequences for global governance and the U.S.-China rivalry.