A Bank for G20

UPSC Syllabus Topic: GS Paper 3 –Economy

Introduction

South Africa’s G20 presidency comes at a time of conflicts, climate stress, and a wider development crisis. The pandemic has reversed earlier gains against poverty and hunger and pushed 93 million more people into poverty. With earlier presidencies of Brazil and India refocusing the G20 on SDGs, finance, food security, digital public infrastructure and climate action, the central question now is how to plug the huge SDG financing gap.

Need for a Bank for G20

1. Massive SDG financing gap: UN estimates show that developing countries face a $4 trillion gap in financing the SDGs. This gap makes it very hard to carry out the scale of change required across countries and sectors.
2. Debt distress and pressure on basic services: Much of the developing world is reeling under debt distress. Many countries are not able to sustain essential social services because a large part of their resources goes towards managing debt.
3. Decline in development aid and bilateral flows: Development aid has suffered a severe setback as many big donors, especially the United States, have withdrawn from the international development scene. Net bilateral flows to low-income countries have fallen steadily after the initial rise during the pandemic.
4. Very low private investment in SDGs: Private sector support for SDGs is very weak. Only 4 per cent of the $410 trillion in global private assets invested in developing countries is directed towards SDG-related sectors. This level of investment is too low for stable, long-term SDG and climate financing.
5. Rigid and slow multilateral financial institutions: Existing multilateral financial institutions are seen as structurally rigid and slow to respond during crises. Their functioning has not matched the urgent financing needs of developing countries for SDGs.
6. Imbalance between Global North and Global South: These institutions are dominated by the Global North, while the Global South is underrepresented in decision-making. This imbalance weakens trust and limits the ability of developing countries to shape financing rules and priorities.
7. Country-focused model not suited to SDGs: The World Bank and IMF follow a country-focused operating model. SDG financing, however, needs a broader focus across countries and sectors, which this model does not provide.
8. Narrow growth-based lending approach: Multilateral development banks have prioritised economic rate of return and often ignored environmental and social concerns. Their record in climate finance is poor, and they have mainly pushed a growth-based approach to poverty reduction, which does not align well with the SDG and Paris Agreement agenda.

Initiatives taken for the development of a Bank for G20

1. Think-tank proposals under G20 presidencies: A Think-20 policy brief under India’s G20 Presidency proposes creating a Development Financial Institution under the G20 to bridge the SDG financing gap and support the Global South during crises.
2. Idea of a Global Public Goods Bank: A written submission by the G20 Expert Group (IEG) for a new Global Public Goods Bank within the World Bank, with its own balance sheet and governance, sitting alongside IBRD and IDA.
3. United nation technical note: A UN Technical Note on refugee hosting as a global public good calls for reform of MDBs toward GPGs and explicitly mentions creating a dedicated Global Public Goods (GPG) Bank with its own balance sheet and governance. . These ideas strengthen the intellectual case for a G20-led bank.
4. Norad 2025 report: It calls for new “tiers” and additional funding streams for global public goods and planetary challenges, arguing that traditional ODA must be complemented by new international public finance mechanisms—this supports the case for GPG-type institutions.
5. UN “Our Common Agenda” Policy: Calls for new mechanisms and reformed institutions to mobilise large-scale finance for SDGs and global public goods and for changing MDB business models; expert proposals like a GPG Bank / G20 Bank are emerging within this reform track and feeding into G20 MDB discussions

Challenges to a Bank for G20

1. Complex governance and power balance: G20 members have different interests and priorities. Designing a governance structure that is fair to both Global North and Global South will be politically difficult.
2. Overlap with existing institutions: A new G20 bank may duplicate the roles of the World Bank, regional development banks, and funds already working on SDGs and climate, leading to more fragmentation.
3. Uncertain and uneven capital contributions: The bank will need large and predictable capital and guarantees. Securing strong commitments from all G20 members, especially at a time of strained budgets, is a major challenge.
4. Risk of reinforcing old conditionalities: If the new bank copies the lending practices and conditionalities of existing institutions, it may fail to correct current problems of slow disbursement, rigid conditions, and limited country ownership.
5. Exclusion of non-G20 countries in decision-making: Although the bank would serve the wider developing world, its core decision-making may remain with G20 states, raising questions about representation and voice for non-G20 borrowers.
6. Time lag between idea and implementation:Negotiating the mandate, structure, capital, and governance of such a bank can take years, while the SDG and climate crises require urgent action.

Conclusion

A G20 Development Bank is shown as essential to bridge the SDG financing gap, ease debt distress and overcome failures of the current financial order. With long-term, stable finance for development, climate action and other global public goods, and with greater voice for the Global South, it could decide whether the SDGs succeed and reshape global finance.

Question for practice:

Examine why there is a growing demand for a dedicated G20 Development Bank to finance the Sustainable Development Goals (SDGs)

Source: Businessline