G20 expert group on MDBs suggests greater engagement with private sector

“Today, MDBs only mobilise 0.6 dollars in private capital for each dollar they lend on their own account. They should aim to at least double this target,” it said. The group was set up in March with Fifteenth Finance Commission Chairman NK Singh and former US Treasury secretary Lawrence Summers as co-convenors.

“We anticipate that private financing amounting to $740 billion per year will be required to reach overall goals for additional climate and SDG-related finance, an increase of $500 billion over the 2019 level of sovereign borrowing and private participation in infrastructure. Most of this additional private capital, perhaps $425 billion, would go towards sustainable infrastructure and other investments where profitable opportunities are already available, and to geographies where income levels are higher and macro-fundamentals are stronger. The big-ticket items for private investment are in the transformation of the energy system, both in the greening of electricity supply, and in the electrification of end-use applications,” the report said.

Calling for better coordination between MDBs, the report said some MDBs have been leaner and faster (AIIB), others are experimenting with raising new forms of capital (AfDB and IDB), engaging with the private sector (EBRD and IFC) or better utilising their balance sheets in other ways (IBRD and ADB).

The report said that the MDBs should adopt a triple mandate to address eliminating extreme poverty, inclusive growth and the financing of global public goods involving tripling of the level of financing commitments, and establishing a third funding mechanism and constitute a ‘Global Challenges Funding’ mechanism for ‘Global Public Goods’, for which the modalities will be detailed in the second volume of the report to be released later.

Additional spending of about $3 trillion per year would be needed by 2030, of which $1.8 trillion will be for additional investments in climate action (a four-fold increase compared to 2019), mostly in sustainable infrastructure, and $1.2 trillion in additional spending to attain other SDGs (a 75 per cent increase in health and education).

“The international development finance system should be designed to support this spending by providing $500 billion in additional annual official external financing by 2030, of which one-third in concessional funds and non-debt-creating financing and two-thirds in the form of non-concessional official lending. It should also help mobilise and catalyse an equivalent amount of private capital, implying a total additional external financing package of $1 trillion. MDBs should provide an incremental $260 billion of the additional annual official financing, of which $200 billion in non-concessional lending, and help mobilise and catalyse most of the associated private finance,” the report said.

The G20 Expert Group has submitted its report in two parts, with the second report expected to come out in October. The G20 Outcome document and the Chair summary from the Gandhinagar meeting took note of Volume 1’s recommendations and stated that the “MDBs may choose to discuss these recommendations as relevant and appropriate, within their governance frameworks, in due course, with a view to enhancing the effectiveness of MDBs”.