To make multilateral development banks (MDBs) better, bolder and bigger, the Independent Expert Group (IEG) on strengthening MDBs in its second report suggested a road map for banks to shift away from individual projects towards programmes where national governments take a strong lead, scale up and engage with the private sector in order to triple MDB financing by 2030.
The IEG said MDBs should streamline and simplify business processes by halving the processing time from concept note to first disbursement, harmonize and mutually recognize safeguards and fiduciary requirements, channel operations through country systems in at least 50% of country clients, strengthen local capacity by allocating at least 25% of their technical assistance and work budget for this.
“Our first set of recommendations is that MDBs convert their operational model to shift away from individual projects towards programs where national governments take a strong lead in identifying multi-year transformations with sectoral focus, achieved through scaled-up investments,” the IEG said in its roadmap for better, bolder and bigger MDBs.
The IEG said MDBs should bring a whole-of-institution approach to mobilize and catalyze private finance by shifting culture from risk avoidance to informed risk-taking. It also asked MDBs to increase private capital mobilisation from $60 billion to $240 billion and make efforts to catalyze additional private finance.
In its first report in July, the expert group set up by the G20 Indian Presidency has estimated an additional spending requirement of $3 trillion per year by 2030 to address urgent global challenges and SDGs. Of the $3 trillion annual requirement, $2 trillion could come from domestic resource mobilization while the remaining $1 trillion in additional external financing. Of the $1 trillion in external financing, more than half could come from private financing, and the rest from official financing including MDBs.
“A target to triple MDB financing to $390 billion annually, $300 billion non-concessional and $90 billion concessional, by 2030 may seem ambitious but is essential if the emerging market and developing economies (EMDEs) are to make adequate progress towards SDGs and cope with climate change,” the IEG said.
The IEG, co-convened by NK Singh and Lawrence Summers submitted the report to the Finance Ministers and the Central Bank Governors meeting on October 12-13 in Morocco. FMCBG tasked the International Financial Architecture Working Group to deliberate on the IEG recommendations in consultation with MDBs and suggest a way forward, in their meeting in April 2024.
Key Policy Recommendations for MDBs
Triple financing levels to $390 billion per year to achieve transformational changes.
Convert operating models to co-create multi-year programs for transformative change.
Streamline and simplify business processes to halve processing time.
Work together better as a system with individual and collective key performance indicators, shared diagnostic tools and pool risks.
Bring a whole-of-institution approach to mobilize $240 billion in private capital.
Establish a mechanism to assess the first-year implementation of the proposed roadmap.