Revamping multilateral development banks (MDBs) will be the key priority for India during the G20 Summit as it reflects the altered geopolitical landscape and the rise of the Global South.
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Senior officials have emphasized that India expects that the Leaders’ Declaration will include Multilateral development banks reforms, but they have also stated that such a reform process would be somewhat lengthy and not provide instant dividends. US President Joe Biden and other influential figures are anticipated to back the idea.
On September 9 and 10, the G20 Leaders’ Summit will be held in New Delhi and will be the conclusion of India’s 12-month G20 Presidency.
Multilateral development institutions like the World Bank and the International Monetary Fund, which were established over 80 years ago in the immediate post-World War II period, have been viewed as requiring a revision given the rapidly shifting global economic and financial dynamics.
Revamping Multilateral Development Banks
According to the report of the Independent Expert Group on MDB Reforms, which is led by Lawrence Summers, President Emeritus, Harvard University, and NK Singh, Chairperson of the Fifteenth Finance Commission of India, drastic changes and consolidation of MDBs are necessary to address the enormous global challenges of today’s world.
While climate change has emerged as an urgent issue requiring serious action and investment, sustainable development targets are also off course. By 2030, it is predicted that an additional $3 trillion in annual spending will be required. Of this, $1.8 trillion would need to be invested in climate action and $1.2 trillion would need to be spent on other SDGs.
The analysis has underlined how MDBs as a system are contracting even as the difficulties and gaps between developed and developing countries widen. In 2019, their gross expenditures represented less than 0.3% of the GDP of recipient countries outside of China, which is less than half of the amount of 0.55% in 1990.
It has been noted that net transfers from MDBs may potentially become negative in the present scenario of increasing interest rates.
Despite the absence of a clear definition for an MDB in the report of the independent expert group, it is anticipated that the proposed changes will have an impact on all such institutions, not only the bigger ones like the World Bank and the International Monetary Fund.
Additionally, the World Bank is already considering a number of reforms, including new financial tools like hybrid financing and asset assurance platforms to give the bank more leverage. These are anticipated to contribute to more resources being available for borrowing to developing nations.
Main Recommendations of Independent Expert Group
To maximize the potential of MDBs, the main recommendations of independent expert group included three bold strategies. Adopting a triple mandate to end extreme poverty by 2030, tripling sustainable lending levels, and developing a third funding mechanism are the three components of this agenda.
These would allow for creative and flexible arrangements for purposefully interacting with investors who would support the MDB agenda.
The fact that MDBs only mobilize $0.6 in private money for every dollar they lend on their own account has been noted as proof that engagement with the private sector could change the way they operate. They ought to attempt to at least double this goal.
Moreover, the establishment of a worldwide competitive funding system for global public goods is one of the group’s main recommendations. This might lead to an increase in yearly loans of at least $20 billion.
In order to do this, it has proposed a novel, adaptable legal and institutional framework that might attract a coalition of willing independent donors and non-sovereign investors from the private sector, such as pension and sovereign wealth fund investors, who want to be involved with particular MDB operations.
