In 2023, building on the Triple Agenda report, G20 Finance Ministers tasked the International Financial Architecture Working Group to put forward recommendations for better, bigger and more effective multilateral development banks (MDBs). The ensuing 2024 G20 Roadmap for MDBs laid out 13 recommendations on operational reforms and harmonization of processes to work as a system with national partners, on private capital mobilization, on expanding headroom through changing risk management policies and assessments, and on allocating concessional resources. This agenda was reinforced by the Circle of Finance Ministers led by Brazil with strong emphasis on the central role of MDBs in driving climate action and sustainable development.
The MDB response has been broad-based and under normal circumstances the actual changes could even be considered as dramatic compared to prior years of much talk and little action. MDB balance sheet headroom has been expanded while preserving credit ratings, mostly through internal policy changes on risk management. Hybrid capital instruments, portfolio guarantees, co-financing and guarantee platforms and new approaches to private capital mobilization are enabling MDBs to reach record levels. MDBs are also working more together: they routinely publish joint reports on climate finance, private mobilization, reform roadmaps, and digital platforms. They have signed mutual reliance agreements for procurement and safeguards that have been much appreciated by clients. A variable geometry of MDBs have made joint commitments on climate finance, dialogue with credit rating agencies, and sector specific initiatives such as M300 and Water Forward. Individual organizations have retooled knowledge and advisory functions, shortened internal lending processes (from 19 months to 9 months for some projects), and stepped-up partnerships in support of transformative change.
Welcome as it is, this pace of progress still falls short of what is necessary in 2026. In terms of direct financial support, aggregate MDB commitments have grown by only 1% per year in real terms since 2000 and much of the expanded headroom for additional lending remains unexploited. Private capital mobilization (PCM) shows more impressive progress in aggregate numbers but remains modest in comparison with needs and, more worryingly, has fallen in low-income countries.
Most importantly, developing countries have been caught in a downward spiral of decelerating growth and increased vulnerability. The World Bank laments that by end-2026 “one-quarter of developing economies, one-third of low-income economies, and half of fragile and conflict-affected economies will be poorer than they were in 2019 on the eve of the COVID-19 crisis.”
There is an urgent imperative to deliver on sustainable growth, climate and resilience through a push on investments in sustainable infrastructure and human capital. With sharp declines in investment, many developing countries are constrained in seizing this opportunity because of lack of fiscal space.
