Expert group may seek quick recap of MDBs
New Delhi, April 18, 2023
With the expert group on strengthening multilateral development banks (MDBs) backing finance minister Nirmala Sitharaman's call for "transformational changes", the focus has now shifted to higher capital requirement in these entities, which panel members believe should come in an accelerated manner, instead of being staggered.
The need for higher capital, which has also been underlined in the road map for the World Bank's future, is seen to be critical for the agencies to meet the requirements of the poor economies in their quest for greater prosperity as well as meeting challenges such as global public goods. The issues of climate are also embedded in this.
Following a meeting with Sitharaman on Saturday, a significant increase in the capital base of the MDBs was discussed by the expert group co-chaired by Larry Summers, professor emeritus at Harvard University, and N K Singh, chairman of the 15th Finance Commission. "The inescapable priority is significant enhancement of the World Bank Group acting in tandem with other MDBs," a source told TOI.
Besides, some of the recommendations of the Capital Adequacy Framework report, such as enhancing the leverage as well as removing the statutory lending limits, may be backed by the group.
But as the revamp road map prepared by the World Bank staff has suggested, these changes will only add around $50 billion additional lending capacity over a decade with hybrid capital also playing a part. The expert group also recognises that there is a need to ensure that the share of concessional finance, most importantly International Development Association, critical for the African nations, is retained.
During the panel's discussions with the other multilateral development banks such as ADB, the African Development Bank and the New Development Bank, it emerged that there was a need for systemic changes that can help them retain their identity while also creating complementarities. One of the questions is whether the headroom available with one can be shared with another MDB, said a source.
Further, the role of private capital is being examined, especially to ensure that it does not walk away with the rewards or high returns from green finance, while the risk is borne by the others, including the sovereign.
In this context, earlier recommendations of the Eminent Persons Group headed by Singapore senior minister Tharman Shanmugaratnam as well as some of the suggestions contained in the World Bank paper would be considered.
The expert group is expected to expand its consultations to include domain experts and NGOs.
[The Times of India]