With a massive $2.4 trillion per annum spending needed by developing countries to address various challenges, the G20 Expert Group on strengthening multilateral development banks (MDBs) is looking at ways to substantially enhance MDBs’ lending capacity with higher leverage and at a marginally increased level of risk, co-convenor of the group NK Singh said on Wednesday.

“It is imperative to leverage more of MDBs’ internal resources and optimize their balance sheets for higher lending. The present structure allows us to look at various methods for doing this,” Singh addressing the 18th Convocation of the Indira Gandhi Institute of Development Research.

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On March 28, G20 India Presidency set up the expert group co-convened by 15th Finance Commission chairman Singh and former US Treasury secretary Lawrence Summers. Singh and Summers have invited input from the public ahead of the submission of their report by early July ahead of the G20 Finance Ministers and Central Bank Governors meeting later in the month in Gandhinagar.

The expert group has a broad mandate to develop a roadmap for an updated MDB ecosystem, with milestones and timelines, that includes the vision, incentive structure, operational approaches and financial capacity. It will also evaluate estimates of the finance scale needed to and from the MDBs, including from capital adequacy reforms as well as from public and private sector sources. It will also propose mechanisms for coordination among MDBs.

The MDB financing targets set by the different committees will require the mobilization of private capital. “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,” Singh said.

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The panel intends to give suggestion on the optimization of the balance sheet strength of the World Bank. For the World Bank, the amount of capitalization, so far 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 recapitalization, in some form or the other, is inescapable. “It is curious that the International Bank for Reconstruction and Development (IBRD) is an institution which does not have any replenishment cycle. This deserves serious consideration,” Singh said.

The World Bank Group estimates that the total average annual public and private spending needs to address the global challenges of climate change, conflict, and pandemics is $2.4 trillion per year for developing countries between 2023 and 2030.

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