G20 expert group calls for plan to garner extra $20 billion
NK Singh, co-convener of the G20 independent expert group, emphasised the need to constitute a “global challenges funding” mechanism that can garner an additional $20 billion for global public goods.
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NK Singh, co-convener of the G20 independent expert group (IEG) on reforms in multilateral development banks (MDBs), on Tuesday evoked the outcome of the Paris Summit and emphasised the need to constitute a “global challenges funding” mechanism that can garner an additional $20 billion for global public goods.
He said IEG, which already submitted the first volume of the report, would present the second volume at the next meeting of the Finance Ministers and Central Bank Governors (FMCBGs). Singh was speaking on “International Financial Architecture” at the third FMCBG meeting in Gandhinagar on Tuesday. The G20, under the aegis of India’s presidency, in March set up the expert group on strengthening MDBs with Harvard University president emeritus Lawrence Summers and Institute of Economic Growth president NK Singh as co-conveners.
Speaking about the first volume of the report, Singh said: “A rather innovative part of this report is the suggestion to constitute a Global Challenges Funding mechanism” that will “crowd-in ‘a coalition-of-the-willing’ among sovereign donors and non-sovereign investors. We believe this mechanism could garner, at least, an additional $20 billion.”
He said IEG undertook wide-ranging consultations with over 200 stakeholders and policy makers to finalise the report that recommended MDBs adopt a “Triple Mandate” -- eliminate extreme poverty, focus on inclusive growth, and work towards the financing of Global Public Goods. Referring to the second volume of the report, he said: “Both reports are independent, but inevitably integral to each other.” The reports seek to “rewrite the script on MDB transformation”, he added.
{{/usCountry}}He said IEG undertook wide-ranging consultations with over 200 stakeholders and policy makers to finalise the report that recommended MDBs adopt a “Triple Mandate” -- eliminate extreme poverty, focus on inclusive growth, and work towards the financing of Global Public Goods. Referring to the second volume of the report, he said: “Both reports are independent, but inevitably integral to each other.” The reports seek to “rewrite the script on MDB transformation”, he added.
{{/usCountry}}Singh said the first volume seeks to establish more definite linkages between mandate, finance, operating model, and congruency in the MDB system.
{{/usCountry}}Singh said the first volume seeks to establish more definite linkages between mandate, finance, operating model, and congruency in the MDB system.
{{/usCountry}}Highlighting the vision and mandate of the MDBs, he said the World Bank’s evolution road-map recognises, as does the outcome of the Paris Summit, that “no country should have to choose between reducing poverty and protecting the planet”.
{{/usCountry}}Highlighting the vision and mandate of the MDBs, he said the World Bank’s evolution road-map recognises, as does the outcome of the Paris Summit, that “no country should have to choose between reducing poverty and protecting the planet”.
{{/usCountry}}He said momentum must be restored to address urgent global challenges and Sustainable Development Goals (SDGs). “Based on broadly consistent analyses from a number of sources it is estimated that an additional spending of $3 trillion per year by 2030 is needed. These sources include the Independent High-Level Expert Group on Climate Finance, the World Bank, the OECD and others.”
“We believe that two-thirds of this could come from domestic resource mobilization, which needs a separate strategy. There remains a gap of $1 trillion in additional external financing. We believe that more than half could come from private financing, and the rest from official financing. This division is corroborated by country-level assessments including the South Africa, Indonesia and Vietnam JET-P’s [Just Energy Transition Partnership],” he said.
MDBs have a critical role in the scaling up of official finance, he said. “MDBs’ advantages are well known for the delivery of development impact and the financial leveraging of public capital investment. We stress that this is not about bigger MDBs, but better and, therefore, different MDBs. These institutions face a daunting challenge of operational and cultural transformation to maximize of developmental impact, enhanced technical expertise and financial leveraging. There is need for changes in the processes, procedures, and systems of work,” he added.
It is expected that the increase in official financing should be split between concessional and non-concessional funds. MDBs should be the preferred institutions; expanding to $90 billion per year for concessional finance and $300 billion in nonconcessional lending, he said. “On the concessional side, we recommend that donors reorient aid programs towards multilateral channels to enhance coherence and leverage,” he added.
Speaking on non-concessional finance, he said, “We must fully implement CAF recommendations on balance sheet optimisation and innovative capital. This could underpin $80 billion in new lending but still leave MDBs $120 billion short of the $300 billion lending target.” His reference is to the recommendations of a 2022 expert panel set up under the G20 on capital adequacy frameworks.
“The most efficient and fair solution would be a general capital increase. Given the timelines for capital increase, the new equity cannot be concurrent, nor congruent with Balance Sheet Optimisation. However, an early initiation would send the right signal to credit rating agencies, the market and other stakeholders. Equally, it would comfort developing countries seeking enhanced international support,” he said. “The capital increases that we are proposing remain modest in terms of overall resources and undoubtedly spread over some years.”
He stressed on the need for concerted action for the required level of private sector participation. “MDBs have a decisive role to play in mobilizing and catalyzing such capital. Much of our discussion revolved around how MDBs can mitigate risk through sectoral and macro policy reforms, and how it could be responsibly shared with the private sector,” he said.
“They ought to engage differently to co-create investment programs. For example, some of their guarantee and insurance instruments are eminently scalable. In their New Operating model, MDB targets, evaluations and outcome assessments must reflect proactive harnessing of private flows,” he added.
Singh said: “MDBs need to work better as a family. To work in tandem on risk mitigation; to develop project pipelines and strengthen country platforms; to institutionalise reporting mechanisms; and streamline co-financing across MDBs. Broadly speaking, this would make it easier for clients to work with multiple entities interchangeably.”
Briefing media after conclusion of the two-day meeting of the third FMCBG, Union finance minister Nirmala Sitharaman said strengthening MDBs to address the emerging challenges of future was one of the key agenda items. “The G20 endorsed a ‘Roadmap for Implementation of Recommendations of the G20 Independent Review of MDBs’ Capital Adequacy Frameworks (CAF)’. This Roadmap will help unlock more lending resources in MDBs,” she said.
She said the expert group on the matter submitted the first volume of the report to the G20 members, which “took note of its recommendations” and discussed them in “great” detail. Its recommendations are aimed at making MDBs capable of addressing “transboundary challenges” and also ensuring “fulfilment of development financing”, she said. According to an official statement, it is planned to hold a high-level seminar on the sidelines of the fourth FMCBG meeting on strengthening the financial capacity of MDBs in October 2023.