'MDBs push for lending expansion but fall short of tripling targets'

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Last Updated29/10/2024

On the group’s recommendation of a tripling of concessional finance channeled through MDBs to the poorest countries, the report card said there are few signs of any meaningful rise.

A year after the establishment of an expert group on MDBs under India’s G20 presidency, led by NK Singh and Lawrence Summers, the G20 Independent Expert Group Report Card on Strengthening MDBs has highlighted progress and shortcomings.
Although MDBs have increased lending capacity by 33% and improved capital utilization, these advances are insufficient for the ambitious goal of tripling their funding capacity. The report card acknowledges positive developments but stresses the need for “better, bigger, bolder” reforms.

The expert group outlined a triple mandate for MDBs: eliminating extreme poverty, fostering inclusive growth, and financing global public goods. The target was to triple funding commitments and establish a ‘Global Challenges Funding’ mechanism to support global public goods.
A significant focus was also placed on mobilizing private capital, estimating an annual requirement of $740 billion to meet climate and sustainable development goals (SDGs), which would necessitate an additional $500 billion over 2019 levels of private and sovereign finance.

MDBs have expanded private sector mobilization efforts, including greater use of guarantees and de-risking instruments like equity and first-loss capital. However, the volume of private financing, approximately $70 billion last year, falls far short of the $500 billion goal.
Efforts to improve local currency lending remain limited, and MDBs have struggled to engage the private sector at the scale required.

The report highlights the challenges MDBs face in attracting private capital, describing the process as “hard and difficult.” Efforts to shift MDB culture towards reducing perceived risks for private investors have been slow, with limited progress on building effective dialogues with rating agencies to improve conditions for private sector involvement.

While MDBs have made strides in introducing hybrid capital structures and enhancing guarantee mechanisms, the scale of private sector mobilization remains incremental rather than transformative. The report card assigns an “incomplete grade” to these efforts, emphasizing that MDBs need to advance further in adapting business models that align with private capital requirements.

To address financing gaps, MDBs have increased climate-related financing, reaching $75 billion in 2023, with $50 billion allocated to mitigation and $25 billion for adaptation. However, MDBs face challenges in harmonizing sustainability and procurement standards across institutions.
Efforts are underway to coordinate large projects through a new digital co-financing portal and mutual reliance agreements aimed at streamlining procurement.

The report notes a lack of significant increase in concessional finance channeled through MDBs for the poorest countries. Without adequate financial resources, MDBs’ efforts to address poverty and support global public goods may remain constrained. The report recommends MDBs co-create multi-year programs with individual countries to better align with their development priorities.

MDBs have adopted innovations to attract hybrid, non-voting capital, but the uptake has been slow despite interest from some member states. Additionally, MDBs have increased their climate-related funding, but harmonizing procurement practices and furthering sustainability remain ongoing challenges.

The expert group encourages MDBs to integrate private sector engagement into their core operations, create multi-year programs with individual nations, and continue to refine financing models to better align with sustainability goals.
Although MDBs have made meaningful progress, they must accelerate reforms to achieve the ambitious “triple agenda” and strengthen their role in global development.