By David Lawder
WASHINGTON (Reuters) - The Trump administration is expected to support a $13 billion capital increase for the World Bank in a deal that will reform the development bank's lending rules and increase China's shareholding, three people close to the matter said on Friday.
U.S. Treasury Secretary Steven Mnuchin is expected to lend his support for the plan at next week's World Bank and International Monetary Fund spring meetings, the sources said. But the deal will need an endorsement from the World Bank's shareholders and approval from its board of directors.
"Barring unforeseen challenges, there will be a capital increase," one of the sources told Reuters.
U.S. backing for the capital increase was first reported by the Financial Times.
The Trump administration was initially skeptical of the World Bank's long-running effort to boost its capital, proposing major cuts to multilateral development banks last year.
U.S. Treasury Undersecretary David Malpass has long criticized multilateral development banks for contributing to the build-up of debt in poor countries, and has chided the World Bank's lending to higher income countries such as China, saying they should "graduate" to non-concessional loans.
"When the World Bank does not graduate these countries, less funding is available to reach countries with greater development needs and there is an excess burden placed on shareholder capital," Malpass, who heads international affairs at the Treasury, said in congressional testimony last year.
The sources, who spoke on condition of anonymity because the plan has not been formally announced, said it would include reforms that would raise financing costs for higher-income countries.
Scott Morris, a former Treasury official who now heads the Center for Global Development, said the capital increase deal is a victory for World Bank President Jim Yong Kim, an Obama administration nominee who has cultivated a relationship with the Trump administration, launching a women's empowerment fund in cooperation with President Donald Trump's daughter Ivanka.
Morris said the increase in shareholding for China "reflects reality of the global economy" with China's growing economic clout. But it is unclear how Mnuchin will characterize the shift given Trump's threats to impose steep tariffs on Chinese goods over China's intellectual property practices, he added.
Under terms of the deal, according to the sources familiar with it, China's shareholding in the World Bank would rise to about 5.7 percent from 4.68 percent currently. China would still be in third place behind the United States and Japan.
About $7.5 billion of the capital increase would go to the World Bank's main concessional lending arm, the International Bank for Reconstruction and Development, with $5.5 billion going to the International Finance Corp, the group's private sector lending arm.
A U.S. Treasury spokesman declined to comment, while a World Bank spokesman could not immediately be reached for comment.