NK Singh, the co-chair of the expert group on strengthening multilateral development banks (MDBs), tells TOIthat these agencies, including the World Bank (WB), will need to double or treble lending to ensure that there is no dearth of funds for addressing poverty as well as for providing funds for climate finance. Singh said, MDBs can tap private sources of funds to meet higher funding requirement. Excerpts:
With a month to go, how much progress have you made and what are the timelines for submitting your report?
We are in a position to meet the June 30 timeline stipulated by the G20. We have had wide-ranging consultations and this process is continuing of calibrating some very difficult choices and numbers and seeking re-conciliation of what would be asymmetrical objectives. One must harmonise the conflicting objectives to ensure that concessional finance, which is targeted at low-income countries, is not compromised in any way. Whatever resources must be given for IBRD (International Bank for Reconstruction and Development) and for the new challenges on climate and global public goods should not in any way compromise the availability of resources to meet the first important goal of removing poverty.
The second important goal is shared prosperity. This is a somewhat an innovative report as this will be the first report for MDB reforms commissioned by an important developing country holding the presidency of G20. This represents the aspirations of the Indian leadership, particularly the PM, who has repeatedly talked of India being the voice of the South and reform of multilateral institutions.
Past reports have talked about the scale of funding, but they haven’t addressed the issue of where the money is going to come from. Will you address this issue?
That is the principal challenge. We also have to take a call on the scale of financing that is required. The WB evolution road map estimated the requirement at $500 billion annually. Currently, roughly $125 billion is the annual funding from MDBs and that needs to be doubled or trebled. We want a significant increase in IDA (WB’s International Development Association for the poorest nations), substantially beef up IBRD lendingand the challenge of global public goods. We also have to ensure that other MDBs follow the lead that is laid out in the report. We need to see what can be done to harness the lending capabilities of institutions from the existing balance sheets. It is no secret that there is a suggestion to improve the equity-loan ratio, harness hybrid capital, bring innovative financing mechanisms and address the opaqueness of callable capital.
Also, one of the unique features of the WB family, particularly IBRD, has been its ability to leverage very successfully. Looking at this track record, one has to see how it can be leveraged further. Can you incentivise private capital flows into renewable energy, which requires risk mitigation? Where do you draw the line to ensure that you don’t have a situation where profits are private, and risks are public. We are closely looking into how compelling is further recapitalisation of the WB group, particularly IBRD, and other MDBs, while respecting their autonomy. I had the opportunity to meet Sultan AlJabbar, and as chairman of COP28, they are evaluating arrangements where some of the resources can be harnessed to innovatively seek private capital in renewable energy. There will be others looking at similar opportunities.
So, things like leveraging sovereign wealth funds?
Not just that. Instead of direct lending, can you offer guarantees to leverage? There are other countries which want to put additional capital, provided it is directed towards global public goods. The ability of MDBs to harness private capital has been rather limited.
What’s the timeline to increase the annual funding?
We will provide timelines. It will be naive to say it is happening tomorrow as some things are in the pipeline, such as some decisions on the equity-loan ratio, removing the statutory lending limit. Some of the decisions based on what we recommend may take a longer timeframe. We will recommend the procedures in the timeframe. It also requires some changes in the working of banks to ensure that resources are properly utilised. It may need a change of mindset.
What is the scale of equity required to meet this funding requirement?
A lot of this is not based on additional equity, but on optimisation of the existing balance sheet. We are also evaluating how much inescapable equity will be needed.
