G20: MDBs need nearly $3 trillion additional spend a year till 2030

It also said that an incremental $500 billion per year by 2030 is needed in official development finance, of which $260 billion should be channeled through MDBs

The G20 independent expert group on strengthening Multilateral Development Banks (MDBs) in its report said that an additional spending of around $3 trillion per year is needed till 2030, a part of which can come from leveraging the current balance sheets and implementing the capital adequacy framework.

The report, however, said that there is a need for a significant increase in fresh equity of $100 billion across all MDB institutions. 

It also said that an incremental $500 billion per year by 2030 is needed in official development finance, of which $260 billion should be channelled through MDBs.

The report is currently being considered by the finance and central bank deputies of the G20 countries. 

Lawrence Summers, President Emeritus of Harvard University, and Nand Kishore Singh, President, Institute of Economic Growth and Chairperson, Fifteenth Finance Commission of India are the co-convenors of the nine-member expert group, who have authored the report.  

Spending on climate action and sustainable infrastructure in developing countries, excluding China, should ideally increase by at least four-fold by 2030, and the spending on other SDGs, especially the human capital needs of health and education, should rise by at least 75 per cent, the report said. 

“MDBs have a key role to support the needed reforms and resources. However, to transform development, they will have to transform themselves,” the report stated.

The report also highlighted that one of the greatest opportunities for transformation is in MDB engagement with the private sector.

“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,” it said. 

“We also see potential for a new flexible legal and institutional mechanism that could crowd-in a coalition-of-the-willing among sovereign donors and non-sovereign investors wishing to be associated with specific MDB activities”

The report has suggested that the MDB leadership should be held accountable for progress on its agenda and should jointly report to the G20 on how their activities have contributed to improving the environment for scaled-up transformation investments in their clients. 

The report has shown concern that official development assistance to the Least Developed Countries has declined in real terms in 2022. 

“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,” it said. 

Triple agenda for MDBs

The expert group co-chaired by 15th finance commission, chairman N K Singh and Larry Summers have recommended “a triple mandate” for MDBs to acknowledge their role in providing support to the poorest people within each country, in fostering national economic growth and shared prosperity, and now, in expanding their borrowing countries’ contribution to planetary health in line with their international commitments.

It has also stressed that the size of MDB lending has to be made commensurate with their anticipated contributions to the global goals and country outcomes.

“We recommend that G20 members advocate for a tripling of sustainable lending levels in each of the MDBs where they are shareholders, as an initial step towards appropriate sizing of the system, starting with the proposals to be considered by IBRD Governors in October 2023.” 

Talking of triple funding mechanisms, the report has said that the G20 members should consider the establishment of a Global Challenges Funding mechanism as it could provide a range of financing options, including guarantees to MDBs, or mezzanine loans, equity among others. 

The second volume of the report on MDBs would focus on the modalities for establishing funding this mechanism that could result in at least $20 billion in additional annual lending.