Reforming Multilateral Development Banks, advocating for the Global South

Source– The post is based on the article “Reforming Multilateral Development Banks, advocating for the Global South” published in “Indian expres” on 27th June 2023.

Syllabus: GS3- Economy

Relevance: Multilateral Development Banks and the need to reform them

News –  President Joe Biden and PM Modi underscored the need to strengthen and reform the multilateral system to reflect contemporary realities.

What is the relevance of MDBs and the need to reform them?

World Bank Group (WBG)  was responsible for providing financial assistance for the post-war reconstruction and economic development of the less developed countries.

The WBG lends to low-and middle-income (LICs and MICs) countries , to the private sector and encourages private companies to invest in foreign countries.

These institutions are no longer suited in terms of the resources, cultural ethos and methods to address the emerging challenges. These relate to global public goods, climate change and pandemics.

MDBs are in a quagmire, trapped in their procedures, approach and methods of work and reticent to structural changes.

The new challenge is transboundary issues and the opportunities connected with climate change.

How do we secure credible sources of finance to meet these enhanced challenges?

The MDBs need to optimise their current balance sheets to create higher leverage from existing funds and to attract private capital.

They need to fix annual targets and judge performances by the outcomes secured in this altered framework of accountability.

De-risking approaches such as blended finance and guarantees aimed at tilting the balance do exist.

Financial channels for capital mobilisation need to be strengthened.

What is the way forward?

Broad and deep changes are required to significantly strengthen performance, such as first loss guarantees, realistic return targets and risk management.

For India, reforming MDBs would mean advocating the voice of the Global South.

Making MDBs more relevant for addressing 21st-century challenges would contribute towards enhancing human welfare.

Deeper integration with multiple stakeholders is crucial.