India is hopeful of positive consideration by G20 leaders on experts group recommendations for reforms of Multilateral Development Banks (MDBs). The leadership summit will take place on Saturday and Sunday. MDBs include World Bank and International Monetary Fund.

“There has been a very rich and intense discussion, and we are highly hopeful that the discourse over the past nine months will get positive consideration from the leaders,” Economic Affairs Secretary Ajay Seth said in press conference. Seth along with RBI Deputy Governor Michale D Patra co-chaired G20 Finance and Central Bank Deputies (FCBD) meetings under India’s Presidency.

IEG report

In its first report, Independent Expert Group (IEG), appointed under the auspices of the India G20 Presidency, recommended a triple agenda to harness the potential of multilateral development banks (MDBs). The group has two co-convenors – Professor Emeritus of Harvard University Lawrence Summers and former Chairperson of 15th Finance Commission NK Singh.

The report suggested adopting a 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.

“We interpret global public goods (GPG) in a broad sense going beyond the conventional description of GPGs, focused especially on climate change, the preservation of biodiversity and the global water cycle, 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 agenda requires important changes in the ways that MDBs operate. “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.

Engaging with private sector

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 Cascading 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 catalysation 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.