The new global agenda and the future of the multilateral development bank system

Editor's note:

This paper was produced as a joint effort by the Overseas Development Institute (ODI), the Center for Global Development (CGD), and the Global Economy and Development Program at the Brookings Institution.

The new global agenda, with Agenda 2030 at its core, is ambitious, comprehensive, and universal. The three central goals now are to reignite growth, deliver on the sustainable development goals (SDGs), and meet the ambitions of the Paris Agreement aimed at mitigating climate change and adapting to its effects.  Achieving these goals will require a significant scaling up and reorientation of investments, especially for sustainable infrastructure and human development. Implementing this agenda is urgent, as the world is witnessing the largest wave of urban expansion in history and more infrastructure will come on stream over the next 15 years than the world’s existing stock. This is also the last opportunity to manage remaining significant demographic transitions.

The capital investments and technological choices made in the coming two decades will lock-in carbonization, urbanization, and demographic trends that will determine the future of humanity and our planet for the rest of the century and beyond.

The backdrop for achieving these ambitions is challenging. In many countries, investment and productivity growth have decelerated, there is growing inequality and persistent unemployment, fragility and tensions are rising, and the incidence and vulnerability to shocks has grown. At the same time, major opportunities exist to tap the potential of new technologies and the growing capacity of the private sector. Today’s hyper-connected world requires a mix of activities spanning private goods, national public goods, and regional/global public goods to meet the challenges of sustainable development.

The agenda requires government intervention to reach adequate scale, to take social and environmental sustainability seriously, and to manage spillovers across sectors and borders. It also requires stepped up international cooperation to drive transformative change and mobilize financing on an unprecedented scale.

With their highly effective capacity to help countries strengthen policy and institutional foundations and to leverage finance, multilateral development banks (MDBs) have a central role to play. They are trying to respond, but human and financial constraints and unclear and expanded mandates from shareholders are holding them back. Clarifying their mandates and addressing the constraints are essential to enable them to scale up and make more effective their support for the new global agenda.

The unique financial structure of the MDBs allows them to leverage contributions from MDB shareholders and multiply them into financing at low cost. This financial capacity can in turn further crowd-in other sources of finance, especially from the private sector. With better system-wide coordination, MDBs can scale up their impact to deliver for increasingly differentiated clients, but this requires shareholder consensus on, and financial support for, expanded efforts.

Independent evaluations suggest that each MDB is individually performing well, but the system as a whole is not delivering enough.

This paper suggests ways to improve policy and operational coherence among MDBs and outlines how better shareholder governance could bring this about. It focuses on the need for stepped-up financing of investments in developing countries, but should be viewed in the broader context of managing globalization, especially with regard to trade and financial stability.