The high-level group has assumed critical importance in the backdrop of an intensified discussion on the reform of institutions such as the World Bank, a core theme of both the spring meeting discussions as well as India’s G20 finance track meeting. Finance minister Nirmala Sitharaman had said on Friday that India’s initiative in this regard was “very well appreciated” and the G20 FMs and central bank governors had accepted the formation of the group.

Besides Summers and Singh as co-conveners, the group includes Singapore’s senior minister Tharman Shanmugarathnam, former director general of the South African national treasury Maria Ramos, former governor of the Central Bank of Brazil Arminio Fraga, London School of Economics academic Nicholas Stern, former World Bank chief economist Justin Yifu Lin, former World Bank Vice President and current dean of the Fletcher School at Tufts University Rachel Kyte, and former executive secretary of the Economic Commission for Africa Vera Songwe.

The group’s objectives include preparing a road map for an updated MDB ecosystem for the 21st century in all its respects including “vision, incentive structure, operational approaches, and financial capacity” to ensure that such banks can finance both developmental and newer trans-boundary challenges such as climate. The group has also been tasked with evaluating the scale of funding required by MDBs and devise mechanisms for coordination among MDBs.

Contextual challenges

Explaining the wider context in which the group is operating, Singh said, “Multiple initiatives have taken place in tandem and they need to be taken full cognisance of.”

The first of these initiatives is the evolution road map prepared by the Bank’s executive directors, which was discussed by the Bank’s development committee last week. The report on the Bank’s evolution suggests reframing and expanding its mission, overhauling its operating model, and finding new ways to boost its financial capacity. But key decisions have been left for the annual meeting of the Fund and the Bank in Morocco in October.

The second is the French initiative announced by President Emanuel Macron. Paris is hosting a summit for a new global financial pact on June 22 and 23 this year.

The G20 group will also take into account the fact that United Arab Emirates is leading discussions in the run-up to the COP-28 on a “very large green pact that can be devoted to climate financing”.

Beyond this, the group will also take into account two other past G20 initiatives. Under the German presidency, the group set up eminent persons group on the issue under the leadership of Tharman Shanmugarathmam in 2017 — the report was finally submitted during the period of the Argentinian presidency. “That report contains some very important suggestions, particularly the way in which financing of MDBs, mainly the World Bank, can be used to incentivise, catalyse and guarantee private capital in green area. That report needs to be fully considered,” said Singh. The second G20 initiative in this regard was the report under the Italian presidency on the capital adequacy framework, which has been considered by the World Bank in its own evolution road map and has been reflected in the G20 chair summary.

Substantive challenges

Among the core fundamental challenges for the group is finding ways to balance and reconcile the traditional mandate of the MDBs, especially the World Bank, with newer challenges.

“The basic twin objective of the World Bank has been eradicating extreme poverty and boosting shared prosperity. Reconciling this traditional mission with adequacy of financing for green is key. What are the base numbers? Unless there is a very substantial augmentation, there would be a shuffling around with the same finances. This challenge has to be confronted.”

The second issue is concessional finance and the future of the International Development Association, which is the Bank’s arm to help the poorest countries through grants and low-interest loans.

Singh said, “The third issue is how much and in what manner can private capital be garnered. This is not a romantic notion. What guarantees will be required to getting substantial private finance?”

And the final issue will be around general capital increase. The Bank has spoken about the fact that its leveraging capability is high. With a $20 billion paid-in capital, it could provide finances of upto $800 billion. “If its leveraging capability is so high, why can’t there be a general capital increase? But this is embedded in geopolitics,” acknowledged Singh. Finding a way to ensure capital increase without affecting the balance of power will be the yet another challenge for the group.

It is in this backdrop of contextual and fundamental challenges that two of the world’s most distinguished policymakers, Summers and Singh, have set out with the agenda of reforming global institutions.