Multilateral Development Bank Spring 2024 Outcomes & Next Step

The World Bank Group (WBG) held its Spring 2024 meeting, with the Asian Development Bank (ADB), European Bank for Reconstruction and Development (EBRD), and the African Development Bank (AfDB) holding their annual meetings. These meetings continued the reform effort to make the multilateral development banks (MDBs) bigger, better, and more transformative. Yet, much work remains ahead as shareholders need to urgently advance additional actions.

Here is a brief rundown of where things stand on MDB reforms and what is next on some of the key reforms. 

Fully recognize callable capital to increase overall lending capacity

In a report to the G20 – called the Capital Adequacy Framework (CAF) review—a group of experts laid out a series of reforms that the MDBs could undertake to use their existing capital to increase overall investments. To date, implementation of the CAF reforms has unleashed over $20 billion per year ($200 billion over the next decade) in new investment ability from the MDBs:

• World Bank Group (WBG): $15 billion per year
• Asian Development Bank (ADB): $10 billion per year
• Inter-American Development Bank (IDB): $1.4 billion per year 

MDBs have been capitalized over the decades with various types of resources including “callable capital”. Callable capital is resources that the MDBs can tap into if the global system falls apart so badly that a whole bunch of countries can’t pay back their loans to the MDBs resulting in the MDBs running the risk of becoming bankrupt. This has never happened in the 80-year history of the MDBs. The MDB shareholders have committed $796 billion in callable capital to these institutions. Yet, the MDBs and the credit rating agencies (Fitch, Moody’s, and S&P) don’t fully account for this massive backstop of finance. 

So, fully accounting for “callable capital” is a critical next step to unleash the upward of $500 billion in additional overall lending capacity that can be achieved through full implementation of the CAF. At the 2024 Spring meetings:

• Independent assessments confirmed: (a) that a “call” was extremely unlikely to happen and that the MDBs would have plenty of time to plan for it; (b) the MDBs have processes and tools to address such a call in the unlikely scenario it would occur and it would be months/years before they needed to tap into callable capital; and (c) there is sufficient callable capital that is readily available (i.e., more than $60 billion could be made available in less than a month with $32.3 billion already appropriated and $30-50 billion that could be made available in weeks without needing to go back to parliaments) to address any likely needs if a call ever occurred.
• One recent study concluded that the WBG alone could increase its lending capacity by $50 billion by incorporating only $10 billion into its capital adequacy framework (of its $65 billion in total callable capital). 
• Each of the MDBs conducted and published: (a) a detailed stress test (i.e., how bad the global economy would need to be before such a call would be needed; (b) the process they would undertake before such a call would occur (i.e., what other tools they have), and (c) their process if such a call occurred. (See: ADB, AfDB, EBRD, IDB, WBG reports).
• Key shareholders representing more than 50 percent of the callable capital reaffirmed their commitment to their callable capital. These shareholders stated: “…we have demonstrated strong shareholder capacity to respond to a call if ever necessary. We have also demonstrated the strong legal foundations upon which our callable capital subscriptions rest, and we have reaffirmed our full recognition of and strong backing for those subscriptions”. 

Next Step:

While these steps are critical, the MDBs need to incorporate callable capital or a substantial share of it into their risk tolerance before the October WBG annual meeting. This could include:

• Shareholders calling upon the credit rating agencies to fully recognize callable capital based upon the analysis and clarifications to unleash the full magnitude in additional lending headroom; and
• The MDBs moving forward by the next meeting (e.g., WBG in October 2024) with adjusted risk profiles that fully recognize the value of callable capital and lead to an increase lending headroom that mobilizes the $500 billion or more in additional capacity.

Agree to revise the “financial framework” to create incentives for the uptake of climate investments in middle-income countries

Middle income countries (MICs) aren’t eligible for longer tenor loans and lower interest rate loans for projects. At the same time, some extremely vulnerable countries (e.g., island nations) have graduated from receiving longer tenor or more concessional loans. Yet, climate investments in these countries both address the development challenges within the country (e.g., by reducing air pollution or addressing energy access) and help address the global impact from climate change (e.g., the benefits are spread around the world). To address this, at the 2024 Spring meetings: 

• The World Bank Group (WBG) revised the “Framework for Financial Incentives” (FFI) for all International Bank for Reconstruction and Development (IBRD) countries for projects that simultaneously address one of the WBG eight global challenges and an externality (GC+E). The FFI uses hybrid capital and portfolio guarantees through the Global Solutions Accelerator Platform (GSAP) to offer higher volume and longer tenor/maturity loans. FFI will use the “Livable Planet Fund” (LPF) to support additional concessional finance for interest rate buy-downs for results, project preparation grants, and upfront grants. 
• A set of 11 countries announced commitments for the Portfolio Guarantee Platform, hybrid capital mechanism, and new Livable Planet Fund totaling $11 billion. Belgium, France, Japan, and the U.S. pledged to the Portfolio Guarantee Platform. Denmark, Germany, Italy, Latvia, the Netherlands, Norway, and the U.K. made commitments to hybrid capital. Japan committed to providing the first contribution to the Livable Planet Fund.
• Since April 1, 2024, the IBRD is providing 50-year loans for projects with cross-border benefits.

Next Steps:

• Secure the resources for the guarantees, hybrid capital, and Livable Planet Fund. 
• Mobilize other countries to support additional resources towards these mechanisms. This initial list could be expanded with other countries announcing new contributions to this toolkit. The initial pledges from countries is aiming to mobilize $70 billion in investments, with the aim to increase the contributions so that $100 billion can be mobilized from this new framework. 
• Develop and implement a series of projects that mobilize transformative action to utilize these new concessional resources.
• Reform the financial framework at the ADB to allow longer-term loans and interest rate buy-downs for climate investments for "group B" and "group C" countries.

Support increased replenishments for MDB concessional-based windows

In light of the increasing need across developing countries for concessional resources, several of the concessional based windows at the MDBs are set for a replenishment this year and next: International Development Assistance (IDA21) in December 2024, Asian Development Fund 14 in May 2024, and African Development Fund 17 in December 2025. In the past month these replenishments have received increased attention with:

• Ajay Banga calling for a IDA21 of $28-30 billion – a 25% increase from the last round – which allows the WBG to turn that into around $100 billion. IDA20 was $93 billion from $23.5 billion in donor contributions.
• Kenyan President Ruto called for an IDA21 of at least $120 billion – with $30 billion in contributions from the donor countries.
• G7 Finance Ministers and Central Bank Governors stating: “We support robust International Development Association (IDA21) and Asian Development Fund (AsDF14) replenishments, key to help putting LICs on a road to sustainable and resilient recovery and growth”.
• Key shareholders stressed the need for a strong and strategic IDA21 replenishment. US Secretary Yellen stated: “As the largest contributor to IDA-20, the United States looks forward to a successful IDA-21 replenishment this year”. German Minister Schulze stating: “Another vital factor for implementing the vision of the World Bank Group will be a strategically and financially ambitious IDA replenishment”. French Minister Le Maire stating that it: “reaffirms its support for this instrument, which remains the central multilateral tool to support low-income countries”. UK Ministers stating: “it is critical that we all deliver on the expectation of an ambitious replenishment of IDA21”. Africa constituencies stating (here and here): “securing a robust replenishment of IDA21 is paramount” and “it is imperative that we work together to achieve an ambitious IDA21 replenishment that is commensurate with the challenges that countries face”.
• Countries agreed to an increase for the Asian Development Fund (ADF14) and Technical Assistance Special Fund (TASF 8) totaling $5.048 billion at the ADB Annual Meeting held 2-5 May, 2024. This is made up of: (i) $2.663 billion from new donor contributions (an increase of 13% compared with ADF 13); (ii) $1.574 billion from net income transfers from ordinary capital resources subject to annual approvals by ADB’s Board of Directors (an increase of 35% compared with ADF 13); (iii) $0.351 billion from income from liquidity investments; and (iv) $0.460 billion from other sources. ADB also agreed to make available an overall indicative amount of $16.7 billion in concessional ordinary capital resources lending (COL) from ADB’s ordinary capital resources (OCR) balance sheet during ADF 14.

Ensure the MDBs work as a system, in a strategic manner with the other parts of the financial system

For decades the MDBs have been pushed to work as a system and with other parts of the financial framework (e.g., development finance institutions, national development banks, etc). For example, it is important that the diagnostics – such as the WBG’s country climate and development reports (CCDRs)—that are developed by one MDB is done in a collaborative manner and utilized by others. And given the scope of the investment need, it will be essential that the MDBs bring their collective tools together instead of competing over a small slice of projects. At the 2024 Spring meetings there was progress towards the aim of the MDBs working together with: 

• The leaders of ten MDBs jointly announcing an additional commitment to work together and laying out some next steps including a commitments around callable capital, country platforms, and scaling tools to address currency fluctuations.
• A coalition of ten MDBs launching a new “co-financing platform” to allow project developers to share information on project pipelines and create a platform to share co-financing opportunities amongst funders.
• 10 MDBs announcing a common approach to measuring climate results with the aim to track progress towards the “output” of investments (i.e., results), rather than the input (e.g., dollar flows). 
• The WBG and AfDB announcing a partnership to support 300 million people in Africa gaining access to distributed renewable energy or grid connected electricity.
• WBG and EBRD signing an MOU to better collaborate.

Next Steps:

• Turn the commitment from the MDB heads into real action as there is still resistance or ineffective implementation once this aim of “working together” gets below the level of the heads of the MDBs.
• Use the Financing in Commons Summit (later in 2024), the G20, and COP29 to ensure MDB follow-through to continue to implement this agenda with more detailed actions and cooperation. The Finance in Common Summit 2024 provides an opportunity to ensure integration across all of the financial system to deliver integrated investment plans that combine the various tools of the MDBs, NDBs, DFIs, and the private sector.

Supporting effective country-owned platforms

“Country-owned platforms” can serve as an important tool, if developed and implemented correctly, to help countries and financial institutions develop actionable, bankable, and transformative investments to meet climate and sustainable development goals. As these platforms develop, there is a lot that can be learned from the Just Energy Transition Partnerships. Additional country platform partnerships were announced last year in relation to North Macedonia and Bangladesh, with growing interest from a number of countries. MDB’s will likely play a role in a number of these country-owned platforms so there were discussions around this model at the WBG Spring 2024 meeting. At the 2024 Spring meetings:

• The Presidents of leading MDBs stated: “MDBs are engaged in discussions and supporting governments in the design of country platforms, which have significant potential to bring together key stakeholders to achieve better results around a country-led development program”.

Next Steps: 

• Countries announce new country-owned platforms that are effectively designed, bring together all the key internal and external stakeholders, and develop actionable investment plans.

Other areas announced around MDB reforms

In addition to the key areas above, recent MDB meetings advanced a number of additional areas that are high on the reform agenda list including: 

• The WBG releasing their “Revised Corporate Scorecard” which narrowed down the set of metrics to 22 (from 100) and shifted the focus to measuring the results.
• The database on sovereign repayment—the Global Emerging Markets Risk Database (GEMs)—published an initial tranche of data to show the real repayment rate of developing countries showing that in fact the risk is significantly lower than perceived. The World Bank Group also published data on repayment rates for two of their investment avenues. The aim is to help better show the private sector the “real risks” so that they can (hopefully) bring down the cost of borrowing for these countries and therefore enable more investments. This initial tranche is helpful, but stakeholders are calling for more detailed country-by-country, sector, and project-level data to be published. With WBG members stating that they: “look forward to further disaggregation, including by country and sector”.
• As an outgrowth of its focus on mobilizing private sector investments, the WBG reformed its guarantee business to put it into one place and streamline some of the processes. The Private Sector Lab has indicated that additional proposals will be coming forward including around five key areas: (a) guarantees, (b) foreign exchange risk; (c) country platforms; (d) equity and junior capital; and (e) originate to distribute. 
• The WBG President Banga announcing that he is aiming to speed-up the time of project conception to investment from the 19 months to around 12 months by the middle of next year. They believe that they have knocked about 3 months off of that timeline with the actions recently implemented. He has articulated that this needs to be done without sacrificing the safeguards that help ensure that these are smart investments. Towards this streamlining aim, the WBG announced that for 20 countries to start, there will be a single joint country representative for IBRD, IDA, IFC, and MIGA starting July 1 which should make it easier for an investment to combine the various tools of these institutions.
• EBRD announcing that Kenya and Nigeria will become members, joining Benin, Côte d’Ivoire, Ghana, and Senegal in being eligible for investments from EBRD.
• AfDB releasing their “Ten-Year Strategy: 2024-2033” which focuses around five key areas: (1) light up and power Africa; (2) feed Africa; (3) industrialize Africa; (4) integrate Africa; and (5) improve the quality of life, particularly for women and youth. Since climate change cuts across each of these themes, the AfDB Ten-Year Plan states: “climate change is one of the greatest threats facing Africa today”. 
• AfDB received a $117 billion of General Callable Capital Increase to allow it to maintain its investment levels given that one of the credit rating agencies had indicated it might need to downgrade the credit worthiness of the AfDB without the injection of new callable capital.

MDB Reform agenda still needs work

With the push from shareholders, the MDBs have begun to advance significant transforms to both unleash more and better investments. But this work is far from done as these institutions need to continue to evolve to drive even greater climate action with their investments (see Independent Expert Group, CGD, and E3G assessments).

Shareholders and the MDB leadership: keep it up, be bolder, and urgently finalize greater transformations.