US welcomes expert panel report to strengthen MDBs
United States (US) has welcomed the report of the G20 independent expert group on strengthening multilateral development banks (MDBs)
Washington: The United States (US) has welcomed the report of the G20 independent expert group on strengthening multilateral development banks (MDBs), including its focus on expanding the mandate of banks to include global public goods, making their operating systems more responsive through changes in culture, incentives and risk-appetite, and ensuring greater public sector engagement.
While refraining from committing to a capital increase just yet, US treasury secretary Janet Yellen, speaking at a press conference in Gandhinagar where she is attending the third G20 finance ministers and central bank governors (FMCBG) meeting, also supported the swift implementation of the capital adequacy framework recommendations. But, she added: “I believe that we should only explore capital increases after considering the reforms that I laid out along with those in the report. We should build better banks, not just bigger ones.” Capital increase refers to the enhanced financial commitment by shareholders to banks to meet their growing needs.
Several factors have come together to make MDB reform a pressing agenda. Substantively, there is an effort to expand the World Bank’s mandate from eliminating extreme poverty and boosting shared prosperity to addressing transboundary challenges including the climate crisis. Under the Indian presidency, the G20 has set up an independent expert group on MDB reform, which is led by former US treasury secretary Larry Summers and veteran Indian policymaker and chairman of the 15th Finance Commission, NK Singh. The World Bank itself is in the middle of its evolution road map, which seeks to re-examine its objectives, operating modalities and finances. The Bank also has a new president, Ajay Banga, who has made reform a top agenda.
HT first reported that the first of a two-part report of the MDB expert group is complete and will be discussed at the Gandhinagar meet.
Providing the context, Yellen said that ahead of the annual meetings of the World Bank and the International Monetary Fund last year, the US had joined other shareholders to call for an evolution of the MDB system.
“The World Bank is updating its mission statement and refreshing its operating model. And we are working with the World Bank and the regional development banks to implement measures that will more efficiently leverage the resources they have. Our reforms to the World Bank’s balance sheet will responsibly unlock as much as $50 billion in additional lending capacity over the next decade.” Yellen added that the MDB system can unlock $200 billion over the next decade just from the measures already being implemented or under deliberation, as a part of what has come to be termed balance sheet optimisation.
“There is potential for even more if the MDBs undertake some of the longer-term and more complex recommendations in the G20 Capital Adequacy Framework report. This is $200 billion more in funding that we can use to advance key global priorities: spurring economic growth and reducing poverty, fighting climate change, and promoting human development.”
Yellen said at a summit on a new global financing pact last month, Banga had also announce a package of measures to assist countries in responding to natural disasters, including pausing debt payments. “This is particularly important for countries that are especially vulnerable to climate shocks. We now need to translate this momentum into further action.”
Outlining the next steps and priorities, Yellen mentioned four issues.
“First, I will work with the World Bank and my counterparts to push for a framework and principles for the targeted use of concessional financing for global challenges. This will enable us to deploy concessional financing toward areas of greatest impact. I will also be talking to counterparts about ideas for how we can help boost the World Bank’s concessional lending for both low-income countries and to support IBRD borrowers as they tackle global challenges like climate.” The International Development Association, part of the World Bank, provides concessional financing to low income countries while the International Bank of Reconstruction and Development that Yellen referred to lends to middle-income countries.
Yellen added, “Second, the World Bank should create a mechanism to allocate additional resources to countries that seek Bank financing to combat global challenges.” During his state visit to the US last month, Prime Minister Narendra Modi and President Joe Biden, in the joint statement, India and the US agreed to “secure G20 commitment to create a major new dedicated pool of funds at the World Bank to deploy concessional lending for global challenges”.
Yellen said the third priority was to see the Bank explore options for “lending to sub-sovereign and supra-sovereign actors, like COVAX, to address global challenges”. And the final priority, Yellen said, was to “streamline the climate finance architecture – a significant source of concessional finance – and to make sure that the development banks and specialized funds work together to deliver maximum impact”.
Acknowledging that public financing alone could not fully deliver on the massive challenges, Yellen said it was essential for MDBs to ramp up their private capital mobilisation rates.
This is when she welcomed the recent report of the G20 MDB expert group as a “useful input” to the above agenda.
“I am pleased with the report’s emphasis on incorporating global public goods into the mandates of the MDBs – along with its focus on making the operating model of the institutions more responsive through changes to culture, incentives, and risk appetite. I also share the call for much more ambitious private sector engagement and efforts to make the whole system work better together.”
