National Council of Applied Economic Research
Opinion: Udaibir Das.
The G20’s “Roadmap Towards Better, Bigger, and More Effective Multilateral Development Banks (MDBs)” is an ambitious blueprint for transforming MDBs to address global development challenges. The roadmap sets bold objectives: scaling MDBs’ financing capacity, fostering collaboration, and integrating climate-related goals into development strategies. These priorities underscore a strategic shift toward a more responsive, impactful multilateral finance system. Yet, while this roadmap reflects significant forward-thinking, several areas call for more specific attention and clearer pathways for actionable outcomes. These gaps — especially regarding governance, private sector engagement, and debt sustainability — are crucial if MDBs are to realize their full potential in aiding low-income and developing economies.
Among the roadmap’s most promising aspects is its target of enhancing MDB lending capacity by $300–400 billion over the coming decade. This increase is essential to meet the financing needs of developing economies, aligning with the G20’s Capital Adequacy Framework (CAF) Review, which promotes the optimal use of MDB balance sheets. Expanding MDB capacity can address a broad spectrum of urgent needs, from poverty alleviation and infrastructure to climate adaptation. However, the roadmap stops short of outlining how these funds will be generated — a critical element for effective implementation. Another strength lies in the roadmap’s call for enhanced collaboration among MDBs. By promoting synergy, the G20 aims to optimize each institution’s unique strengths, mitigate operational redundancies, and amplify collective impact. Such an approach is increasingly relevant as MDBs tackle intertwined issues like climate change and financial stability. The roadmap’s focus on aligning MDBs with the Paris Agreement objectives acknowledges climate risks as systemic threats, ensuring that MDB resources are directed toward sustainable and resilient growth. Notably, the World Bank set up the Global Collaborative Co-Financing platform as a convening mechanism earlier this year to help improve coordination among Multilateral Development Banks and other co-financing partners. One objective is that, in its mature form, the platform will enable it to channel additional capital for development scale and impact.
However, some crucial gaps in the roadmap may hinder its implementation and broader effectiveness. A primary concern is the lack of a concrete governance reform framework. Current MDB governance structures often underrepresent the interests and voices of developing nations, risking an imbalance that could undermine MDBs’ ability to address diverse global challenges. Historical precedents, such as the Bretton Woods institutions’ reform after WWII, underscore how governance restructuring has been critical in adapting to shifting global economic power. A lack of representation for developing economies risks perpetuating an imbalance that could impede the MDBs’ effectiveness. This aspect ties directly to themes from the recent BRICS Kazan Declaration. The role of underrepresented voices in multilateral settings is increasingly seen as pivotal for effectiveness.
Furthermore, while the roadmap acknowledges the need for private-sector engagement, it does not offer specific, actionable strategies. The private sector is crucial to scaling climate and infrastructure investments but mobilizing private capital requires more than intentions. The roadmap could benefit from clear strategies for risk-sharing mechanisms, public-private partnerships, and blended finance models. As discussed in ORF America’s Background Paper #13, Rebooting Development Finance: An Agenda for Reforming Multilateral Development Banks, private sector confidence hinges on robust instruments that effectively mitigate risks while aligning with their investment return expectations. The Asian Development Bank’s recent success in leveraging private finance for climate projects is a testament to the power of such mechanisms when tailored to investor needs. For MDBs to attract substantial private capital, they must introduce a sophisticated financial instrument toolkit that bridges the public and private sectors.
Debt sustainability is another crucial area where the roadmap needs to catch up. Many developing countries already grapple with high debt burdens, and MDBs play a critical role in providing concessional finance and supporting debt restructuring. While institutions like the IMF and World Bank have advanced global debt discussions, MDBs must engage actively to prevent their financing from aggravating existing debt challenges. The interconnectedness of MDB lending and debt sustainability makes it essential for MDBs to incorporate debt assessments into project planning, ensuring that lending practices support long-term financial health.
Realizing the roadmap’s ambitions will entail significant operational shifts within MDBs. Resource mobilization, for instance, is essential for scaling up lending, but the roadmap lacks clear strategies for securing additional capital or leveraging innovative financing. The G20’s Independent Expert Group has underscored the need for actionable plans. MDBs could struggle to translate the roadmap’s targets into effective financial solutions without tangible commitments from major shareholders. Operational efficiency is another area crucial to the roadmap’s success. To meet expanded mandates, MDBs must improve processes to facilitate faster project approval and disbursement, particularly for climate and infrastructure projects that require agility. The G20 sustainable finance working group’s recommendations on streamlining accreditation and reducing approval times are critical if MDBs are to respond effectively in an evolving financial landscape. The roadmap also lacks a comprehensive monitoring and evaluation framework, essential for tracking progress and adjusting strategies. Establishing metrics and timelines is necessary to assess reform implementation and identify potential obstacles. The Center for Global Development’s MDB Reform Tracker offers a helpful benchmark model, highlighting areas where MDBs have succeeded or need improvement.
The roadmap’s impact extends significantly to low-income and developing countries. The proposed increase in MDB financing could give these countries greater access to affordable capital for critical projects, accelerating their progress toward Sustainable Development Goals (SDGs). Integrating climate considerations into MDB mandates allows for targeted climate adaptation and resilience support, helping vulnerable nations manage climate-related risks. Enhanced MDB collaboration could strengthen capacity-building efforts, enabling low-income countries to build the skills and institutions needed for sustainable development. By making MDB resources more accessible and tailored to local needs, the roadmap offers the potential to bolster long-term economic stability and resilience across regions where it is most needed.
The roadmap’s success will have profound implications for global finance. By addressing systemic risks such as climate change, MDBs can contribute to deepening global capital markets and a more resilient international financial system, mitigating potential economic shocks from climate events. Effective private sector mobilization, if realized, could redirect capital flows towards sustainable projects worldwide, fostering a more balanced and resilient global finance landscape. Furthermore, the emphasis on collaboration could serve as a precedent for more robust multilateral responses to shared challenges, potentially setting a new standard for international financial cooperation to aid global financial stability.
The G20’s roadmap for MDB reform is a bold step toward reimagining multilateral finance for a world facing unprecedented challenges. However, the roadmap’s success will depend on closing critical gaps. Governance reforms that give developing countries a greater voice, concrete strategies to mobilize private capital and comprehensive debt sustainability measures are essential for realizing its vision. Drawing from institutional evolution and recent financial crises, MDBs have a unique opportunity to align more closely with global needs. By addressing these areas, MDBs can become “better, bigger, and more effective,” driving meaningful progress toward a stable and equitable global future.
Udaibir Das is Visiting Professor NCAER and Distinguished Fellow at ORF America. Views are personal.