THE CONTEXT: Recently, the G20 expert panel on strengthening Multilateral Development Banks (MDBs) has discussed the need to shift the MDB’s focus from financing individual projects to prioritising programmes. This development has once again brought the issue of reform in MDBs into the forefront.
WHAT ARE MULTILATERAL DEVELOPMENT BANKS?
- Multilateral Development Banks are institutions whose members include multiple developed and developing countries, which have to fulfill certain lending obligations to facilitate developmental objectives.
- They provide financing and technical assistance to countries and organisations undertaking projects across sectors including transport, energy, urban infrastructure, and waste management.
- Usually, developed countries in MDBs contribute to the lending pool, while developing countries primarily borrow from these institutions to fund development projects.
- MDBs include the World Bank Group, the Asian Development Bank, the African Development Bank, the Inter-American Development Bank, etc.
NEED FOR REFORMING WITHIN MDBS
- Climate crisis: The G20 expert group cites the issue of climate crisis that there is a lack mechanisms for mitigation of crisis, especially in emerging markets and developing economies (EMDEs).
- Existing perception of MDBs: The expert group also notes that the existing perception and practices of MDBs have adversely impacted their engagement with the private sector. MDBs are often seen as possessing bureaucratic hurdles which deters the private sector from being more involved in assisting with financing.
- Outdated framework of MDBs: The current legal and institutional framework of MDBs is outdated and inadequate to deal with the rapid changes and complexities of the current global order.
- Inefficient resource: MDBs face resource constraints in meeting the increasing demands for development financing. The current funding levels are not sufficient to address the scale of challenges faced by developing countries.
MDBs AND INDIA
- As a leader of global south: India, as a leader and partner of the Global South, has a stake and a role in shaping the reforms of MDBs to make them more responsive and effective in addressing these issues and opportunities.
- As a major beneficiary, India is also a major borrower and beneficiary of MDBs, especially the World Bank Group and the Asian Development Bank. India has received loans and grants from these institutions for various sectors such as infrastructure, health, education, agriculture, etc. MDBs have played a crucial role in India’s development journey by financing key infrastructure projects with longer gestation periods.
- As a contributor: India is also a contributor and shareholder of MDBs. India has provided capital and resources to these institutions to support their operations and lending capacity. India has also participated in their governance and decision-making
THE WAY FORWARD:
- To better deal with global challenges: According to the expert group, a reformed MDB ecosystem can equip stakeholders to better deal with global challenges in effective ways. Therefore, MDBs should operate more in sync with the developmental priorities of individual nations.
- Private sector role: Given that MDBs need to ramp up financing to $390 billion by 2030, the private sector can play a pivotal role in making that happen by reversing the current trend of disappointingly low private financial flows to EMDEs.
- Achieving SDG: According to the expert group, MDBs should focus their operations financial as well as analytical on helping national governments to create and operationalise their respective country platforms for the highest priority sustainable development goals (SDG).
- Promoting Inclusive Growth and Shared Prosperity: MDBs can help Middle-income countries (MICs) address the challenges by supporting policies and programs that enhance productivity, competitiveness and
THE CONCLUSION: MDBs are facing several challenges and limitations that affect their relevance and performance in the changing global context. Therefore, there is a need to reform and strengthen MDBs to make them more responsive and effective in addressing the emerging challenges and opportunities.
PREVIOUS YEAR QUESTIONS
Q.1 India has recently signed to become a founding member of the New Development Bank (NDB) and also the Asian Infrastructure Investment Bank (AIIB). How will the role of the two Banks be different? Discuss the strategic significance of these two Banks for India. (2014)
Q.2 The World Bank and the IMF, collectively known as the Bretton Woods Institutions, are the two inter-governmental pillars supporting the structure of the world’s economic and financial order. Superficially, the World Bank and the IMF exhibit many common characteristics, yet their role, functions and mandate are distinctly different. Elucidate. (2013)
MAINS PRACTICE QUESTION
Q. Discuss the challenges faced by the Multilateral Development Banks in mobilizing the resources. What steps can be taken to address these challenges? Explain.
Spread the Word