Independent Expert Group (IEG), appointed under the auspices of the India G20 Presidency, has recommended a triple agenda to harness the potential of multilateral development banks (MDBs). MDBs include World Bank and International Monetary Fund (IMF).
The group has two co-convenors – Professor Emeritus of Harvard University Lawrence Summers and former Chairperson of 15th Finance Commission NK Singh. Report of the group has already been circulated among the members and likely to be taken up in G20 Finance Ministers and Central Bank Governors (FMCBG) meeting under India’s Presidency.
About three elements of triple agenda, the report suggested adopting a triple mandate of eliminating extreme poverty, boosting shared prosperity, and contributing to global public goods, tripling sustainable lending levels by 2030 and creating a third funding mechanism which would permit flexible and innovative arrangements for purposefully engaging with investors willing to support elements of the MDB agenda.
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“We interpret global public goods (GPG) in a broad sense going beyond the conventional description of GPGs, focussed especially on climate change, the preservation of biodiversity and the global water cycle, and pandemic preparedness and response. Here, investing in these GPGs goes together with addressing transboundary challenges such as conflict and fragility, food security, cyber security and energy security,” the report said.
Further, it said that effective implementation of the triple agenda requires important changes in the ways that MDBs operate. Individually and collectively, MDBs must become effective agents in all developing countries for integrating the development and climate agendas, working with governments and the private sector to reduce, share and manage risks and thereby bring down the cost of capital. They must change their culture, become more client responsive, and take more risk.
“Timelines for project preparation should be shrunk and procedures rationalised. They must also increase the scale and nature of their activities. Relative to the GDP of borrowing countries, MDB gross disbursements are now just half as large as they were in 1990, and their net resource transfers are unacceptably low,” the report said.
It emphasised that engagement with the private sector will provide one of the greatest opportunities for transformation in MDB. There is considerable innovation and energy behind new ways of attracting private capital into sustainable infrastructure, and MDBs must complement, rather than compete with, these efforts. Helping to co-create country platforms that identify the nature and scale of investment climate reforms will be central to this. Coordination between private and public sector arms of the MDBs on the use of the Cascade principles, guarantees, blended finance, political risk insurance, and foreign exchange hedging should be systematic rather than episodic.
“We are mindful of the difficulty in assessing when public funds truly lead to a faster pace of additional private investment, but believe that with the right design and governance, public sector catalyzation can be significant. Today, MDBs only mobilise 0.6 dollars in private capital for each dollar they lend on their own account. They should aim to at least double this target,” it said.
The report called for the MDB system must become more than the sum of its individual entities. MDBs are heterogeneous, with their own mandates, governance and priorities. Much of their strength has come from the fact that heterogeneity permits innovations in different parts of the system.
- Additional spending of some $3 trillion per year needed by 2030, of which $1.8 trillion represents additional investments in climate action and $1.2 trillion in additional spending to attain other SDGs
- To support this, the international development finance system should be designed by providing $500 billion in additional annual official external financing by 2030
- Also help to mobilise and catalyse an equivalent amount of private capital, implying a total additional external financing package of $1 trillion.
- MDBs should provide an incremental $260 billion of the additional annual official financing, of which $200 billion in non-concessional lending, and help mobilise and catalyse most of the associated private finance.