Shake-up of multilateral lenders urged to speed up development financing

Climate vulnerability must be a factor in global development lending decisions, Pakistani minister tells World Economic Forum discussion

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Reforming multilateral development banks (MDBs) is a key priority to fast-track the disbursement of sustainable development financing, amid the global climate and economic crises, experts have told a meeting at the World Economic Forum.

Emerging market and developing countries, excluding China, will need to secure $1 trillion annually by 2030 in external finance for climate action projects, Lord Nicholas Stern, chairman of the Grantham Research Institute on Climate Change and the Environment, said during the panel discussion in Davos on Friday

This requirement will help to reshape the role of MDBs.

“That tells you how to reform the MDBs, that's the rubric. It means multiplying by three, the flows from MDBs, relative to pre-pandemic levels, within five years and then increasing the multipliers,” he said.

“Then you discuss the reform around the purpose.”

Challenges such as climate change, recovery from the pandemic, and the growing numbers of refugees, require MDBs to work across countries rather than assessing lending on a country-by-country basis, said Masood Ahmed, president of the Washington-based Centre for Global Development.

“Everybody sees that the best route for scaling up financing for development and for climate-related development is by working on turbocharging the MDBs and the IMF,” Mr Ahmed said.

“With most other ways of going at it, many of the schemes people talk about, the world will be three degrees warmer before we put those in place.”

MDBs must not only change from within but also restructure as a sector to work collectively on their impact, he added.

Climate financing must be seen as part of the wider framework of sustainable development lending, the panellists said.

Climate change is unleashing “serial catastrophes” on developing nations such as Pakistan, and is putting these countries in “recovery traps”, meaning it costs more money to rebuild from these disasters, said Sherry Rehman, the Pakistani Minister for Climate Change.

“You're mobilising that capital — you create the tools, projects and bankable plans — but by the time you do that, the next crisis is on you,” she said.

“Climate vulnerability has got to be factored in, front and centre, as the first poly-crisis of the century,” she said. “We're running out of time, it's against the clock … we're in the front line.”

Emerging countries are being “submerged” in high levels of debt, while their infrastructure is damaged by climate-related disasters, but these nations are left to absorb all the risks, the minister of flood-ravaged Pakistan said.

“Getting your head above water literally is a challenge and we feel it is not being addressed by the MDBs as they should, we're paying high interest rates, the debt is piling up higher and higher,” Ms Rahman said.

She acknowledged the need for structural reforms within these countries but emphasised that “there has to be some sensitivity to the scale of vulnerability and human fragility” during these climate disasters such as food insecurity and energy shocks.

The discussion came against the backdrop of the UN reporting a $4 trillion financing gap annually for its Sustainable Development Goals.

The panel discussion, titled How to Turbocharge Development Finance, looked at the best ways for multilateral institutions such as the World Bank, International Monetary Fund and others to scale up financing to achieve sustainable economic and climate change goals, particularly in developing countries.

The session was moderated by The National's Editor-in-Chief, Mina Al-Oraibi.

Rania Al Mashat, Egypt's Minister of International Co-operation, said that climate financing and development financing “are not mutually exclusive” and this must be taken into consideration in MDB's decision-making on lending.

The panellists highlighted the urgency with which climate projects must be financed in order to ensure sustainable economic growth in the future.

“We cannot kick the can down the road,” Lord Stern said.

Friday is the final day of the World Economic Forum, where sustainability and development have been key themes. The annual gathering is attended by key business and political leaders from across the world.

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Updated: January 20, 2023, 3:17 PM