Multilateral Development Banks need an institutional mechanism to work synchronously, co-chair of the Independent Expert Group of MDB reforms set up under India’s G20 presidency N K Singh said while stressing on the need for steps to mitigate risks, harness private capital and optimise their balance sheet.
Speaking at COP28 UAE, Singh said MDBs mobilising and galvanising private financing requires a multi-year strategic and whole-of-institution approach by MDBs.
He said they can become bolder by greater use of guarantees.
“In our report, we have set a numerical target – By 2030, guarantees should account for 25% of MDBs portfolio, and Multilateral Investment Guarantee Agency (MIGA) should triple its annual guarantee and distribution activity,” said Singh.
Singh also underscored the importance of increasing the capacity of MDBs as the new climate framework requires huge funding.
“Both – the first report of the Independent High Level Expert Group (IHLEG) report released last year and the Independent Expert Group (IEG) report have highlighted, MDBs will need to triple their lending to $390 billion by 2030 ($300 billion non-concessional, $90 billion concessional),” he added.
Risks should be mitigated when it comes to international financing, and MDBs can mitigate forex risks by building out off-shore hedging mechanisms and establishing a shared onshore MDB treasury platform, and offering more local currency options to clients.
He said the five critical areas were scaling up financing capacity by exploring financial innovations to further stretch their balance sheets, boosting joint action on climate, enhancing country-level collaboration by promoting work around country-led programs, strengthening co-financing through harmonizing, and catalyzing private sector engagement through joint innovative mechanisms.
The above recommendations did move the needle as the International Bank for Reconstruction and Development (IBRD) launched a pilot programme for issuing up to $1 billion of Hybrid Capital to capital market investors, the Asian Development Bank has announced the IF-CAP program that will add $100 billion to lending through expanded guarantees, and other such measures have been taken by MDBs. But, he said, operational models needed work.
