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As the global policy community assembles in Washington DC to attend the IMF/World Bank Spring Meetings – from April 17 to 19 – one of the issues high on the agenda will be the reform of multilateral development banks (MDBs). The reform agenda encompasses efforts being undertaken by various MDBs to evolve their vision, incentive structures, operational approaches, and financial capacities so that they are well-equipped to address the challenges of the 21st century in addition to the development needs of low- and middle-income countries.

A key element is to enhance coordination among MDBs. While the diverse structures of MDBs have their own merits, addressing new global challenges will require resources and capabilities of a magnitude beyond the capability of any single MDB.

The current dynamism on the reform agenda stems primarily from the pressure exerted by the shareholders via various forums, including the UN, the G7, and the G20. Among these, the role of the G20 has been particularly crucial. Starting with balance sheet optimisation measures in 2015, the G20 has been slowly and steadily nudging the MDBs to identify necessary actions to strengthen themselves for meeting spiraling development financing needs. The 2022 recommendations from the Independent Review of MDBs’ Capital Adequacy Frameworks (CAF) were a significant outcome.

The 2023 G20 Indian Presidency infused more ambition and vision into the agenda, widening its ambit from a balance sheet optimisation effort to a more structural and transformational reform exercise. A G20 Independent Expert Group (IEG) report recommends comprehensive reform of the MDBs to enable them to contribute more effectively to global development financing and the 2023 CAF Roadmap provides guidance accelerating the implementation of CAF recommendations.

Across the MDB ecosystem, there is a concerted effort to move forward on reforms. The World Bank’s (WB’s) Evolution Agenda has been playing a crucial role in setting the tone. The new vision and mission statement of the WB prioritises global challenges along with existing goals of poverty eradication and shared prosperity.

There is considerable enthusiasm across the MDB ecosystem for innovative financing. The WB’s management has developed pilots for hybrid capital issuance and raising the limit for shareholder guarantees. Meanwhile, the African Development Bank has put forward a proposal to fund hybrid capital through SDR rechanneling. The Asian Development Bank launched its new Innovative Finance Facility for Climate in Asia and the Pacific.

While these are early successes, there is more in the pipeline. The WB will launch a one-stop-shop platform for simpler access to loan and investment guarantees. Efforts are also underway to shorten the loan processing time. MDBs are also exploring local currency financing.

Ensuring that MDBs are adequately resourced is at the core of the reform agenda. According to the WB, $1 of fresh capital yields $10 of new lending over 10 years; with capital efficiency measures in place, that multiplier would doubtless be even greater.

One of the key recommendations of the IEG was for the MDBs to shift from a project approach to a country approach, including on policy, finance, and capacity-building.

The reform agenda is mission-critical and points the way for the MDB ecosystem to become what the world needs it to be. The hope is that the Spring meetings provide more good news on this front.

(The authors are officers belonging to the Indian Economic Service. Views are personal.)

  • Published On Apr 18, 2024 at 08:00 PM IST

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