NK Singh unveils MDB reform road map

Suggesting that the world was at an inflection point, NK Singh, the co-convener of the G20 independent expert group to strengthen and reform multilateral development banks (MDBs), has urged G20 countries and MDB shareholders to endorse the principles of MDBs working together and convey this mandate to their respective representatives on executive boards of MDBs.

Singh, who led the expert group along with former US treasury secretary Lawrence Summers, submitted volume two of the group’s report which offered a road map on how to create bigger, bolder and better MDBs this week. He was speaking at a working dinner of the fourth G20 finance ministers and central bank governors meeting held in Marrakech, during the annual meeting of the World Bank and International Monetary Fund, on Thursday.

He said that while volume one of the group’s report had highlighted the need to triple the annual lending levels to $390 billion per year by 2030, the group was heartened to see a number of MDBs making credible progress. These included the African Development Bank’s pioneering efforts on hybrid capital and the use of special drawing rights for this purpose, the Asian Development Bank’s programme to add $100 billion to lending through expanded guarantees, the Asian Infrastructure Investment Bank’s agreement to provide $1 billion in guarantees to International Bank for Reconstruction and Development, the harmonisation of lending procedures between the European Bank for Reconstruction and Development and European Investment Bank, the Inter-American Bank and World Bank memorandum of understanding to enhance impact in Latin America, the World Bank Group’s proposal to further $100 billion in lending headroom through balance sheet optimisation and its more granular proposals that could lead to a 25-50% increase in its lending, and the constitution of a private sector lab to enhance private sector participation.

Singh then highlighted the key recommendations of volume two of the group’s report.

To build better banks, he said the group had recommended converting MDB models to co-create multi-year programmes, focusing support on priority sustainable development goals and global public good themes, subjecting country platforms to 75% respondent satisfaction, channelling 50% of additional lending through country and regional platforms, and co-creating investment opportunities with private sector, national development banks, and bilateral development financial institutions (DFIs).

He also recommended that the external financing gap be broadly within an average of 3% of GDP, complementary global and regional priority programmes add an additional 20% to financing envelopes available to clients, and a tripling of the pipeline of bankable projects in tandem with Global Infrastructure Facility (GIF).

Better banks, Singh said, also meant streamlining and simplifying business processes to at least halve the processing time, strengthening country systems, strengthening local capacity by allocating 25% of technical assistance and analytical work budget for this purpose, and ensuring that MDBs work better as a system by harmonising and mutually recognising “their safeguards, procurement, audit, reporting requirements, monitoring and evaluation”.

Singh said that having bolder banks meant a mindset change “from risk avoidance to managing risk in a more informed way” which was consistent with preserving the AAA credit rating and enabling MDBs to play a useful counter-cyclical financing role during periods of market turmoil. He recommended that MDBs increase private capital mobilisation from $60 billion to $240 billion by 2030; make greater use of guarantees, accounting for 25% of MDBs portfolio by 2030; and that MIGA triple its annual guarantee and distribution activities by 2030. “MDBs should reinforce the ‘cascade principle’ by refraining from financing what should be done by the private sector,” Singh added.

And bigger MDBs, Singh said, required the establishment of a Global Challenges Funding Mechanism by one or more MDBs to leverage at least $20 billion per year by 2030. “The GCFM would nest supported projects within broader MDB programs and could serve as an “accelerator” for delivery of GPGs,” he added.

Reiterating the recommendations of the group, Singh said that to him, a more optimum MDB would see processing time between concept note and first disbursement shrink from 25 months to 12 months, private capital mobilisation increase from a ratio of 0.6 to a dollar to 1.5-2 to a dollar, concessional funding tripled to $90 billion, non-concessional lending tripled to $300 billion a year, among several other steps.