“We certainly intend to be cognizant of the leveraging ability of multilateral institutions,” he said.

The G20, under the aegis of India’s Presidency, in March 2023 set up the expert group on strengthening MDBs with Harvard University president emeritus Lawrence Summers and Institute of Economic Growth president Singh as co-conveners.

Also Read: NK Singh, Lawrence Summers co-conveners of G20 expert group on strengthening MDBs

The IEG is mandated to prepare a roadmap for an updated MDB ecosystem for the 21st century, covering all aspects of MDB evolution — vision, incentive structure, operational approaches, financial capacity, financing sustainable development goals (SDG) and trans-boundary challenges, Singh said at the 18th convocation of the Indira Gandhi Institute of Development Research.

Reserve Bank of India (RBI) governor and chairman of the institute Shaktikanta Das was also present on the occasion.

Speaking on the broad subject of reforming multilateral development banks, Singh said the IEG needs to address some of the following issues — how can the lending capability of MDBs be extended, how their balance sheets can be optimised, ways for mobilisation of greater private capital, and how can the MDBs as a system be reformed.

“The Multilateral Development Banks are, undoubtedly, in ferment. We must recognise that each of the MDBs have their own shareholding and governance structure. Therefore, while laying down a coherent set of rules and standards on important functions, we need to tread carefully in not impinging on their autonomy,” he said.

It is, however, required to put in place “institutional arrangements” that will entail a “coherence in the functioning of these multilateral institutions to optimise their inherent lending capability, and more importantly, contribute to global good”, he said highlighting three important functions — incentivising private capital, de-risking instruments, and providing greater concessional finance.

“In all this, of course, technology that is provided by multilateral institutions can be used to support developing countries to help them strengthen economic management and reduce poverty,” he added. The IEG is expected to submit its report to the Indian Presidency of the G20 by June 30, 2023.

Singh said IEG is not a research committee.

“We intend to come out with a set of recommendations, which are tangible and can make a decisive difference. We certainly intend to give suggestions on the optimisation of the balance sheet strength of the World Bank. We certainly intend to be cognizant of the leveraging ability of multilateral institutions,” he said citing example of the World Bank.

For the World Bank, the amount of capitalisation, so far, namely money put in, is just over $20 billion against which it has successfully undertaken lending operations of over $800 billion. “To increase the lending capacity, the need for recapitalisation, in some form or the other, is inescapable. It is curious that the IBRD [International Bank for Reconstruction and Development] is an institution which does not have any replenishment cycle. This deserves serious consideration,” he added.

Similarly, other multilateral institutions have effectively leveraged their somewhat modest capitalisation, he said. “We are examining how, given this ability of theirs, their lending capability can be substantially enhanced to meet the challenges that lie ahead; the challenge of meeting the SDGs, the original mission of eliminating extreme poverty, and shared prosperity,” he added.

It is imperative to leverage more of MDBs internal resources and optimise their balance sheets for a higher lending, he said.

The MDB financing targets set by the different committees, will require mobilization of private capital, he added. “However, for that, the committee has to evaluate the implications that it might have on the operating models of the MDBs. Broad and deep changes are likely required to significantly strengthen performance, such as first loss guarantees, realistic return targets and risk management, among others,” he added.

“The world is in ferment. We need to be innovative. We need to ensure that the MDBs rise up to the challenges which are contemporary and relevant to the 21st century,” he said.