Logo of G20 Summit 2023.
Credit: PTI Photo
At the G20 Leaders Summit in New Delhi, one of the key promises that world leaders committed to is to accelerate long pending reforms of multilateral development banks (MDBs) such as International Monetary Fund, World Bank, Asian Development Bank, and others. In this issue of DH Deciphers, Arup Roychoudhury decodes why outgoing G20 president - India - placed so much emphasis on reforming MDBs and what these reforms entail.
What does the G20 say on MDBs?
As per the New Delhi Declaration, unanimously adopted by all G20 members on September 9, the leaders committed to “Pursue reforms for better, bigger and more effective Multilateral Development Banks (MDBs) to address global challenges to maximise developmental impact.” The declaration stated that the aim is to pursue ambitious efforts to evolve and strengthen MDBs to address the global challenges of the 21st Century with a continued focus on addressing the development needs of low- and middle-income countries.
“We are working to deliver better, bigger and more effective MDBs by enhancing operating models, improving responsiveness and accessibility, and substantially increasing financing capacity to maximise development impact,” it said.
Why did India pick MDB reforms as an agenda item?
During its presidency of G-20, India has committed to be the voice of the global south. An important aspect of that is to gear MDBs, which fund billions of dollars worth of development projects, to be more sensitive to the needs of low and middle income nations. The charge against MDBs is that the ‘Bretton Woods’ institutions like IMF and World Bank, which were formed in the aftermath of the Second World War, have not kept pace with the times and changing developmental needs of the 21st Century, especially with regards to climate change.
How will these reforms be crafted?
Under India’s presidency, the G-20 had set up an independent group of experts to suggest the way forward on MDB reforms. The panel is headed by the 15th Finance Commission chairman NK Singh and former Federal Reserve chairman Larry Summers. Other notable members include Maria Ramos, chairperson of mining giant AngloGold Ashanti and the new President of Singapore Tharman Shanmugaratnam.
The panel, whose work will continue for the rest of this year, has in its first report suggested that MDBs need to adopt a ‘triple agenda’ of eliminating extreme poverty, boosting shared prosperity, contributing to global public goods, tripling sustainable lending levels by 2030 and creating new funding mechanisms. “Additional spending of some $3 trillion per year is needed by 2030, of which $1.8 trillion represents additional investments in climate action, a four-fold increase compared to 2019,” the report stated. It stated that up to $500 billion of this should come from the private sector and an equivalent amount from other external sources.
What next for MDB reforms?
Separately, the G20 has come up with a roadmap on the capital adequacy framework of MDBs. The G-20 has called for ‘ambitious implementation’ of the roadmap and regular review of the process, saying that these will unlock $200 billion worth of extra funding potential.
“Going forward, we also encourage MDBs to collaborate in areas such as hybrid capital, callable capital, and guarantees. Furthermore, we call on the MDBs to undertake comprehensive efforts to evolve their vision, incentive structures, operational approaches and financial capacities so that they are better equipped to maximize their impact in addressing a wide range of global challenges,” the declaration states.
“Scaling up investment to meet development needs and global challenges requires a big push on investments and, in this context, we ask the IMF and the World Bank, in coordination with other relevant international institutions, to support efforts at enhancing domestic resource mobilisation in emerging markets and developing economies,” it says.