Criticism of the World Bank encompasses a whole range of issues but they generally centre on concern about the approaches adopted by the World Bank in formulating their policies, and the way they are governed. This includes the social and economic impact these policies have on the population of countries who avail themselves of financial assistance from these two institutions, and accountability for these impacts.
Critics of the World Bank are concerned about the ‘conditionalities’ imposed on borrower countries. The World Bank often attach loan conditionalities based on what is termed the ‘Washington Consensus’, focusing on liberalisation—of trade, investment and the financial sector—, deregulation and privatisation of nationalised industries. Often the conditionalities are attached without due regard for the borrower countries’ individual circumstances and the prescriptive recommendations by the World Bank to resolve the economic problems within the countries.
With the World Bank, there are concerns about the types of development projects funded. Many infrastructure projects financed by the World Bank Group have social and environmental implications for the populations in the affected areas and criticism has centred on the ethical issues of funding such projects. For example, World Bank-funded construction of hydroelectric dams in various countries has resulted in the displacement of indigenous peoples of the area.
The World Bank’s role in the global climate change finance architecture has also caused much controversy. Civil society groups see the Bank as unfit for a role in climate finance because of the conditionalities and advisory services usually attached to its loans. The Bank’s undemocratic governance structure – which is dominated by industrialised countries – its privileging of the private sector and the controversy over the performance of World Bank-housed Climate Investment Funds have also been subject to criticism in debates around this issue. Moreover, the Bank’s role as a central player in climate change mitigation and adaptation efforts is in direct conflict with its carbon-intensive lending portfolio and continuing financial support for heavily polluting industries, which includes coal power.
There are also concerns that the World Bank working in partnership with the private sector may undermine the role of the state as the primary provider of essential goods and services, such as healthcare and education, resulting in the shortfall of such services in countries badly in need of them. As an increasing shift from public to private funding in development finance has been observed recently, the Bank’s private sector lending arm – the International Finance Corporation (IFC) – has also been criticised for its business model, the increasing use of financial intermediaries such as private equity funds and funding of companies associated with tax havens.
Critics of the World Bank are also apprehensive about the role of the Bretton Woods institutions in shaping the development discourse through their research, training and publishing activities. As the World Bank are regarded as experts in the field of financial regulation and economic development, their views and prescriptions may undermine or eliminate alternative perspectives on development.
There are also criticisms against the World Bank governance structures which are dominated by industrialised countries. Decisions are made and policies implemented by leading industrialised countries—the G7—because they represent the largest donors without much consultation with poor and developing countries.
Over the past three decades, the World Bank has radically re-shaped the policies of developing countries. ‘Conditionality’ – stipulating policy changes governments must make in order to receive loans and unlock aid from other donors – has been instrumental in bringing about this change.
But the practice of conditionality has also attracted a welter of criticism; for closing down policy space, for failing to foster sustainable reform and for its negative impact on poverty. Clumsily executed and highly controversial reforms in areas such as privatisation and trade liberalisation have often carried a heavy social and economic cost for the poorest and most vulnerable, and severely undermined the credibility of the Bank in many developing countries.
There are three main problems with the Bank’s current use of economic policy conditionality. Firstly, it tends to take key decisions away from sovereign governments and put them in the hands of unelected World Bank officials. This can serve to undermine the development of domestic accountability processes in developing countries. Secondly, the use of conditionality to promote policy changes has proved to be an ineffective, clumsy and politically unsustainable method of bringing about change. Thirdly, some policies promoted by the World Bank have failed to reduce poverty, or have even made things worse. Clumsily designed and ill-timed policies to promote the liberalisation of trade, the privatisation of public services and the deregulation of economies have sometimes sparked political crises serious enough to derail a government’s commitment to a wider reform programme
A number of former World Bank employees, including former chief economist Joseph Stiglitz, publicly criticize both the World Bank and the IMF. Their voices add credibility and an "insider" perspective to worldwide opposition to the destructive orthodoxies of the two institutions. In response, the Bank has attempted to censor several leading employees and contractors who deviated from neoliberal models of growth, trade liberalization, and privatization.