The global architecture of development finance is grappling with dual pressures: supporting the unfinished global development agenda and scaling up investments in climate action and biodiversity finance.
The G7, G20, international development organisations along with multilateral development banks are leading the way in intellectually and practically evolving the global development finance architecture – particularly via the reform of MDBs.
At the upcoming International Monetary Fund and World Bank Spring meetings, MDB reform will be a key topic of discussion. The meetings will kick off a summer of internal and external reflection by the IMF, including discussions on quota reform for the Fund, reconsidering how much access countries can have to IMF lending and funding of the IMF’s concessional lending facilities.
Multilateral reform remains complex and demands patience to ensure that the process is transparent and inclusive. The procedure can broaden to become a more exacting exercise in geoeconomic and geopolitical contestations. However, multilateral-level reforms require significant changes in the behaviour of multilateral constituents, which takes time to adopt.
Tracking progress
Ahead of the Spring meetings, the Center for Global Development has released an updated MDB reform tracker, which analyses MDBs’ progress in implementing reforms. It reveals that MDBs have made significant strides in incorporating global challenges like climate change into their agendas. But they still have a long way to go in implementing other necessary changes.
Innovative platforms, like the CDG’s tracker, are emerging as powerful tools for structured analysis of progress in critical areas, such as capital to meet needs, manage risks and considerable expansion in private finance mobilisation.
Also reporting on progress with reform is the International Expert Group on MDBs, established by India as part of its G20 Presidency. The IEG recommended ambitious expansion in MDB activities to enable swift and large-scale economic transitions in emerging markets and developing economies.
The latest IEG stocktake report highlights two key findings. In 2023, challenges facing the developing world intensified, with about half of the International Development Association-eligible countries failing to recover to pre-pandemic income levels. Additionally, gross investment in most EMDCs barely covers the depreciation of the existing capital stock, underscoring the urgent need for increased investment to stimulate growth and development in these economies.
A more pragmatic approach to addressing these issues was offered in ORF America’s study ‘Rebooting Development Finance: An Agenda for Reforming Multilateral Development Banks’. The report argued that immediate gains could be achieved instead of building a new architecture if MDBs collectively confronted challenges around the allocative efficiency of current development financing. It emphasised the immutable need to scale up funding in the climate area more broadly and had taken a firm view that MDBs are, and must remain, pivotal players in the dynamic landscape of global development finance.
Making stocktake exercises more inclusive
As tracking and monitoring exercises become a staple in MDB reform, several considerations could enhance the value of these exercises and ensure that reform progress remains on track and brings about the desired results.
Firstly, tracking and evaluation exercises must be coherent with standard methodological features to shape the reform agenda. Constructing operational bridges that allow feedback from such reports to feed into the design and delivery of MDB responses could also be beneficial.
Secondly, while most papers and reports on MDB reform focus on broader issues and challenges related to MDBs, delving into case studies that offer insights into the impact of development finance reform is crucial.
Lastly, categorising reforms based on complexity would help stakeholders understand why some changes take time, as they depend on various factors, including the specific contexts and needs of the countries and regions involved. While measuring the impact of reforms on the satisfaction of all stakeholders is a complex process. Tracking exercises are crucial for better understanding stakeholders’ views, especially those of borrowers and local civil society, and tracking their stance on reform areas to see how their stance is changing.
Development finance is not just a one-way street of money flow but a two-way process of flow and return. Through frequent reporting, explaining and outreach as well as information management and categorisation, it’s clear that reforming MDBs is a complex but necessary process. It requires a comprehensive approach that includes tracking progress, understanding different regions’ specific needs and ensuring transparency and accountability. Working towards more effective and responsive development of finance architecture is reliant on coordinated efforts needed now. As Mahatma Gandhi aptly said, ‘The future depends on what we do in the present.’
Udaibir Das is a Visiting Professor at the National Council of Applied Economic Research, a Senior Non-Resident Adviser at the Bank of England, a Senior Adviser of the International Forum for Sovereign Wealth Funds, and a Distinguished Fellow at the Observer Research Foundation America.
