MDBs should improve engagement with private sector: G20 expert group

Report also highlights huge scope for augmenting capital via non-traditional mechanisms such as hybrid capital, and much greater use of portfolio and capital guarantees

Multilateral development banks (MDBs) should change their approach in partnering with the private sector by helping governments reduce policy and regulatory risk and align financial product offerings to private capital market gaps, the report of the G20 independent expert group on strengthening MDBs said.

It has urged the MDBs to take a deliberate and transparent approach that establishes principles that guide on how they should combine their financing with private financing. For instance, a structured set of questions before approving a blended finance mechanism to find out the impact of a project on sustainable development goals among other things.

MDBs should place the mobilisation and catalysation of private capital at the centre of their sustainable development strategies, the report has suggested.

While recommending that the G20 link the sustainable lending levels of the MDB system in 2030 to the financial support needed by developing countries to invest to achieve these goals, the expert group’s report has also said that G20 should review the adequacy of such lending every three years.

The report has also highlighted that there is a significant scope for augmenting capital through non-traditional mechanisms including hybrid capital, and much greater use of portfolio and capital guarantees.

The MDB report has also shown concerns that increase in ODA that has gone for unanticipated humanitarian needs including towards refugees in donor countries and Ukraine has constrained the level of concessional resources available for long-term investments in SDGs and climate-related activities.

“In the new growth agenda that we have proposed, concessional aid plays a central role, especially for health and education in low-income countries…We recommend a tripling in the size of international development association by 2030,” the expert group has said.

The report estimates that the overall concessional financing needs that should be channeled through MDBs at $90 billion per year in 2030, compared to around $30 billion in 2019.

“We recommend that G20 members restore their contributions, and then increase them sharply to achieve a tripling in the size of the International Development Association by 2030.”

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 that has authored the report.

The report has called for an additional spending of some $3 trillion per year is needed by 2030 a part of which can come from leveraging the current balance sheets and implementing the capital adequacy framework. The report has however, said that there is an inescapable need for a significant increase in new equity of $100 billion across all MDB institutions.