Development Futures: Reforming the Multilateral Development Banks

Published Oct 26, 2023, 11:24 PM

Multilateral institutions and the global financial system are on a transformative journey aimed at confronting the dual challenge of climate change and sustainable development. This multifaceted agenda involves substantial improvements to the governance structures of multilateral development banks, the redefinition of objectives and targets, and the creation of innovative financial instruments to mobilise both public and private capital for investments in climate and development. However, the journey is far from over, and many questions remain unanswered.

In this episode of Development Futures, Alexandre Dayant speaks with Clemence Landers, a senior policy fellow at the Center for Global Development. Together, they discuss ongoing reform efforts, explore innovative solutions to maximise the impact of MDBs, and analyse the implications of the US–China competition within the reform landscape. What steps can MDBs take to optimise their financial resources, and how can they navigate the potential trade-offs between climate and development financing? These are just a few of the questions covered in this wide-ranging discussion.

Hello and welcome to Development Futures, a podcast brought to you by the Indo-Pacific Development Center here at the Lowy Institute. My name is Alexander Dayan, the deputy director of the center, and I am your host for this episode. In this podcast, our researchers and some of the world's leading experts discuss fresh policy insights and ideas on the most pressing development issues in the world today. In this episode, we will be talking about the future of the multilateral development banks, often referred to as the MDGs. More than a year ago, the MDGs embarked on an ambitious reform agenda for them to tackle the pressing dual challenge of climate change and development. Items on the agenda involve improving MDB governance structures, objectives and targets, and creating new financial instruments to mobilise public and private capital for climate and development investments. And this week, finance ministers and other officials from around the world are in Marrakesh for the world Bank and IMF annual meetings, where a lot of attention is put on the reform efforts in the work. So to discuss those, I am joined by Clemens Landers, a senior policy fellow at the center for Global Development who focuses on multilateral development banks and sustainable development finance. Clemens previously worked at the US Treasury on US engagement with the NBS and also at the world Bank. So she's basically one of the best persons to discuss those issues. I had the pleasure of meeting Clemens a few months ago, when my colleague, Roland Rajan and I presented our work on development finance at CGD in Washington. And since that time, we've had the idea of having her as a guest on our new podcast. And I'm thrilled that this has finally become a reality. So, Clemens, thank you very much for taking the time to have a chat today.

Well, thank you, Alexander, and I'm so pleased to be here.

First, I would like to look at the big picture and ask you the following questions. What do we mean when we talk about MDB reforms generally? I mean, what are the primary topics of discussion concerning those reforms and in the context of the world Bank, IMF annual meeting is happening as we speak. What do you think is being discussed precisely on that specific topic?

Yeah. Well, you're right to point out that there's been a really strong spotlight on the MDGs since for the past year and the world Bank in particular about a year ago, actually, Secretary Janet Yellen, the US Treasury secretary, made a speech around what is now called MDB evolution, really focused on the fact that it was time for for some major changes within the system, with a particular focus on the world Bank. And she made she made the speech about a year ago at the center for Global Development. And this is really created an enormous amount of momentum, an enormous amount of political momentum around around reform. And there's been especially a lot of a lot of focus on the world Bank, which is which has been in a lot of ways accelerated by the fact that the world Bank also has a new, new president, AJ Banga. Um, so so what is meant and what what really drove drove the US Treasury secretary to, to start this whole process, I think was, was, was was really several things. Um, one, of course, was the Covid crisis really radically changed the global economic landscape. Um, we really saw a lot of countries really struggling to access capital markets and external financing. And the MDGs were really seen to be the global safety net. But their their response to Covid was was uneven. There's there's there's quite a bit of literature out there and including from from the center for Global Development just around you know, some for some countries, you know, disbursements, you know, weren't moving particularly fast. The institution for some countries was very good on the crisis response and for others was less good. And there's also a sense that that that the world Bank in particular slightly missed the boat on things like Covax, which was a multilateral funding for for vaccinations and simply because its own internal rules and procedures were too complicated for, for, for to participate. And it eventually actually did end up participating. But but just this feeling that that the world Bank really wasn't equipped for the challenges of the day, and if it was kind of missing the boat on the Covid crisis, what did that really say about the World Bank's response to the climate crisis, which in a lot of ways is like a slower, slower brewing Covid crisis, but equally as as existential in its nature? Um, and against that backdrop, there was also a lot of political changes afoot. Notably, you know, I've mentioned the United States quite a bit. You can see maybe a little bit of my Washington bias as I, as I sit here. But, you know, there were big changes in the US political landscape with with the election of Joe Biden and really, really sharp turn on in terms of foreign policy and economic policy priorities. And notably, you had you had an administration that was that was after the Trump administration that was coming in that really wanted to signal that it was multilateral, um, that that it was focused on international issues like foreign assistance and that it was also going to embrace the climate agenda. And so in a lot of ways, this really created a in a lot of ways, the stars were aligned for really big focus and a really big rethink of of the world Bank and the other MDGs by association. So what is what is what is kind of the meat? Meat on the bones here. You know, think it's a couple of different things, but in a lot of ways think, you know, you can this, this, this evolution. And we can talk about it a little bit further means a lot of different things to a lot of different shareholders. And there's not necessarily complete agreement amongst shareholders on on where the evolution and reform agenda should be, should be headed. But think a couple of areas where there is broad consensus and think this is the easiest and the hardest is the system is too small. The to the extent that the system is, is the global safety net and needs to be the source and should be the source of a lot of public global investment. These together, institutions that are together providing 100, $200 billion a year in financing. And that really is a drop bucket in the bucket compared to the climate and development challenges that a lot of low and middle income countries face. So that's that's one piece. The second piece is really thinking about how the these institutions can be more flexible and in particular, more readily to readily engaged on climate finance issues. And that kind of points to one of the complexities in these institutions models is that they're really demand driven institutions. It's not that the world Bank goes to a country and says, we want to invest in this project to the contrary, and this is really the kind of heart and soul of what distinguishes an MDB from a bilateral aid agency, for instance, is is it really is the country that originates the project and says, this is what we want to borrow for. So if there's this, this increasing realization that we live in a world where there are all these existential threats, you really want to think about how you're incentivizing countries to borrow to mitigate these existential threats, whether that's climate pandemic, you know, fragility, you know, kind of what's been put under this rubric of, of global public goods. And then the third piece, you know, and think this is getting a little bit less of a focus, but think remains incredibly important, is there is this unfinished business of development there? You know, we are nowhere out of the woods in terms of, you know, eradicating poverty, you know, think, you know, a couple of weeks ago, we had the Unga in New York. It was very clear how off track the international community is on pretty much every single SDG. So just as you're reinventing new missions for these institutions, you also have to ensure that they're staying in the course on their on their original ones. So, you know, that's a lot. So what is getting discussed in Marrakesh. And I really do want to emphasize think Marrakesh is really kind of the beginning and not the end point. One is, you know, these, again, are meetings that are particularly focused on the world Bank and not the broader system. One is that shareholders in the institution have endorsed a larger perspective on what the World Bank's mission is. So after many, many months of wordsmithing, they've decided to add the bank's original mandate. And the mandate is the twin goals of of eradicating poverty and boosting shared prosperity. They've they've they've agreed to add to a livable planet. So finance ministers who are shareholders in the institution are going to be formally endorsing this new mandate. So that's the big ticket item. But for many think that that simply isn't isn't going to be enough. It's it's the opening salvo in a reform process. But but a new mandate is in and of itself, not a reform agenda.

Okay, well, putting aside this new mandate, then what do you view as the low hanging fruit of the reform agenda? I mean, what changes to the development banks do you think will be the simplest to implement with the highest impact?

Well, think maybe maybe kind of going back to the financing side. I mean, think one of one of the lower hanging fruit is the fact that there was recently a report on this is going to sound very dry. So listeners, bear with me because I'll make this fun. But there was recently a report called the The Calf Report, which, which reviewed the capital adequacy frameworks of these institutions. And it basically found that most multilateral development banks manage their finances very conservatively. And because they manage their finances so conservatively, they're potentially holding back a lot of development finance. So one of the the interesting perspective that the authors of this report took was there were a few small changes that these banks can make, changing how they provision for loans, changing what's known as their equity to loan ratios, changing how they view something called callable capital, which I promise I won't get into. But a couple of things like this, actually not a couple of pretty sturdy list of things could be enough to really unlock quite a bit of financing. And so in a lot of ways, you know, this calf review and a lot of these findings are very easy ways of really increasing the amount of headroom that the multilateral development banks can be, then providing as loans to their client countries without necessarily having to go to shareholders to ask for more cash. The bigger difficulties in this reform agenda is everyone wants the institutions to do more and to change. But as you know, you know very well and everyone in the development finance space knows very well this is not a particularly this is not a particularly glorious time for general the generosity of bilateral donors to especially to multilateral institutions. So, so this, this, this capital adequacy review is kind of the way it's often described as the bank is, is a way of squeezing a little bit more out of the lemon and, and think in a lot of ways the institutions really have embraced these mean for some it's been a little bit too slow to embrace these reforms, but they have embraced these reforms and have put forward some pretty, you know, not enormous but good consequential new headroom numbers. I think the world Bank put out said that, that by implementing some of these reforms that could generate an extra 100 billion over the next ten years. So some, some pretty good ambitious numbers linked to the agenda. So, you know, and so hopefully that's something that, you know, the the momentum on on that side will continue.

Well very good. Now I would like to talk to you about the global public goods or the JRPGs that you mentioned earlier. So for our listeners, global public goods are goods and resources that benefit everyone. They are non excludable so no one can be excluded from using them. And they are non rivalrous, meaning that using them doesn't actually reduce their availability to others. Example of JRPGs include climate change mitigation, communicable disease prevention and global peace and security. Um, and the global public goods are, in my mind, at the centre of the MDB reform agenda, as the MDGs are under pressure to expand and adapt to address global needs, including through the provision of those global public goods. Now, the problem is that for some developing countries, borrowing for GPG programs at the domestic level can be challenging due to fiscal constraints, for instance, or different national priorities. And so to make these loans more appealing to these countries. Institutions like the world Bank may need to actually sweeten the deal, often involving subsidies, which translates into increased grant funding. But given the limited budget of organisations like the world Bank and other MDGs, allocating more grants for climate and similar global public goods could actually result in reduced grant funding available for other developmental issues. So my question to you is this is there a trade off between financing for climate and financing for development?

Yeah. No. Thank you for this question. It's I think this question really just cuts right to the heart of the matter and right into the really where a lot of the the traffic jam is right now in a lot of ways, in terms of the reform agenda and in particular, I was making, you know, earlier this point around the fact that these organisations are demand driven organisations. So the question then becomes, well, how do you incentivise countries to want to do things differently and to borrow for different kinds of programs? But as you said, the it's hard to get countries to want to borrow for JPGs because you are basically taking out resources. Borrowing money for a project that does not necessarily generate or generally does not generate a cash flow. And for which you as a as a nation, may not be capturing the benefits of the project. And so there's a really core, really systemic change here in thinking and in models that the MDGs need to embrace if they're going to move towards this agenda. But as you also pointed out and think this is another element of real tension and negotiation and debate right now, is that the logical path towards financing more JRPGs is therefore not necessarily to finance them through loans, but to really use grants much more systematically, either to concessional loans to cheapen the terms of the loans or actually just pure grants to finance some of these projects. And then that creates a real trade off, because if you need to fundraise for grants and you're also needing to fundraise for your concessional lending windows for your for course countries, you create a trade off when a donor says, okay, well, do I give my dollar to help fight poverty in the lowest income countries? Or do I give my dollar to finance global public good that benefits everyone equally? And there's also an added element in the politics of climate change. Come in. Here is a lot of countries are saying to the rich countries at these institutions, as you're imposing this global public good agenda on us, but you, because of how you grew and how you prospered, created the global public bad that now you are using development resources to try to mitigate. And so there's there we're currently in a moment where there's a tremendous amount of debate, but also, I would say distrust within the system around, you know, the intentions of a lot of the advanced economies that are that are really pushing for these reforms of saying, you know, you're you're really using a dollars towards purposes that really aren't necessarily particularly aid related. They're very self-interested. So as a result, you know, there really isn't right now a very clear offer for how it is that these institutions will finance JRPGs. The has a small fund on its balance sheet called the fund, which was set up a couple of, I think, in 2018. And it's financed mainly through through net income. So that's the profit that the organization makes. Some of its profit goes into financing this fund. But it's it's very small. Think it's not more than 100 $100 million has gone into this. There are some proposals out there to create an entirely new window that would be completely financed, separate from the again, but by donors, and that those proposals create that new window, invite the kind of criticism that I that I presented earlier. Um, and then there are there is some interest in, in, in figuring out some other slightly more innovative quote unquote mechanisms to fund JRPGs. Um, you know, through, you know, guarantees, maybe things like debt for nature swaps. I'm again, a little bit more skeptical of the financial innovation around some of these things because I kind of, you know, you kind of have to go back to, you know, at its core, what is it? You know, it really is something where there's not a cash flow associated with it. I don't necessarily think, for instance, a solar farm in its pure sense of the terms is a global public good. I mean, that's a project that's economically viable generally with a cash flow that creates a return. I think much more of a is like telling a country, don't, you know, preserve your preserve your rainforest. Um, you know, there's not a cash flow really that's associated with that. But the benefits of us, the world having the Amazon rainforest are tremendous. Um, so, you know, think right now this is, you know, and this is why said this question is the heart of the matter is this is one of the impasses that we currently find ourselves in, on, on, on this kind of broader reform agenda around JRPGs. And, you know, it will be interesting to see where this comes out. But part of where this I don't see a successful road towards a focused MDB without much more grant resources. And I struggle with whether or not that is a politically realistic proposition in the day and age in which we are.

All right. Well, just to rebound on this example of the solar farm, you mentioned that you don't necessarily see it as a global public good, but actually, don't you think it really depends on where this project is being implemented? For instance, you know, a small solar farm in the Pacific might not necessarily have a similar impact to. A large scale one in Indonesia. Indonesia is a much larger theater emitter than Fiji. So what underlies the argument that a solar farm in Indonesia isn't necessarily considered a global public good, despite its potential to significantly reduce global emissions?

Yeah. Mean think think. It has components, especially if you can say the solar farm, you know, displaced a dirtier form of energy and think you can say there there are aspects that investment, but think in the purest term of the sense of what A is, I, I don't think it fully enters that box. And, and in particular, when you're thinking about this framework of, you know, grant financing, there are a lot of countries that borrow from the world Bank for solar. Let's stay with this example where these are very economically viable investments for the country. Now they have the added benefit. And this is the added benefit of renewables, of being good for the world. Right. But they are also economically. The country also reaps the economic advantage of that project and think this in a lot of ways. And this is this is, you know, you know, an interesting point you make is, is one of the approaches the bank is, is trying to take of kind of saying, you know, there aren't that many projects that in their purest, pure sense, RPGs. So let's think of ways that we can do a national project. And include a type component. So I'm going to wade into territory in which I'm not an expert. But, you know, my health colleagues would say, you know, you could think about this in the health sector of, you know, if the world Bank is doing a big health sector investment in a country to also have a component on that that's, you know, prevention focused, or maybe it's a prevention focused component that's linking into some sort of a regional prevent supervision network. And so you then have had this, this project that has strong national benefits and for which that makes absolute sense for the country to kind of finance and use its Ida allocation or its world Bank allocation to borrow from. But there's also a little layer of this project on top that has a regional or a slightly more global component, and that sits much more naturally within the world Bank MDB type model.

Well. Well that's interesting. You know, at the institute, we do have some projects tracing what we call climate development finance in Southeast Asia and in the Pacific. And what we found is that sometimes what constitutes a climate adaptation and mitigation projects can actually vary from one development partners to the next. There's quite a bit of inconsistency which makes the quantification of climate development finance challenging. And so listening to you make me think that, you know, we might face the same problems with global public goods in the future. And so I really hope that standards of transparency will be improved across the board in the future. But that's that's another issue. Look, earlier you talked about the fact that the world Bank and other MDGs are demand driven. But what we've seen is that for many countries, borrowing for from MDGs can be a complex and actually resource intensive exercise which sometimes discourage borrowers. For instance, infrastructure lending can be complex to navigate. You know, MDB is applying stringent environmental and social safeguards, which, you know, play a critical role in protecting vulnerable groups and environments. But they often fail to provide the time and financial resources needed. So how can we improve the demand for MDB financing, making them more cost effective with maybe less red tape, but at the same time ensuring the high quality of those funding?

Yeah. This is this is a fascinating question and I. I think you're seeing this, this play out in a lot of different contexts. A lot of countries prefer to go to China to borrow for infrastructure projects, though, that type of borrowing seems to be going down. But they're faster, less strings attached. For a country know you're operating in real time and and you you want to have a project built not in geological time, but in real, actual human time. And, you know, another another example of this is, you know, we especially, you know, during Covid saw a lot of countries going to the bond markets for emergency financing, even if, you know, spreads were, you know, 300 basis points over what they could have been getting from the world Bank. And again, it's, you know, that's just faster money. And countries seem very much it's, you know, with certain countries at certain moments in time, seem very willing to pay extra for faster money with fewer strings attached. I think this is actually a problem that is not gone unnoticed. And it was interesting. AJ Banga, who was the new president of the world Bank, was recently at the Council for Foreign Relations, which is another US based think tank. And at the end someone asked him what? What are what is your big priority for the institution? And one of the things he said is I want to fix the plumbing, which doesn't sound particularly glorious until you really actually think, you know, moving, moving things forward and faster is is in itself a really important part of development. And the organization in a lot of ways, especially, you know, especially the world Bank is under a lot of pressure to adhere to very strong safeguard standards and standards, which are, you know, obviously important and obviously kind of how part, you know, part and parcel of the model that the world Bank offers that differs from China and may make world Bank financing more sustainable than China financing over the longer term, that's a whole different podcast, but you really need to think of a way of how do you reconcile these high standards with moving, moving forward faster, because this is clearly part of what client countries are demanding from the institution. And it's and it's quite frankly, I think it's very encouraging to have a world Bank president who's, who's talking about this early on in the presidency. We'll see. You know, a lot of this, you know, is going to be very political to unlock. But, you know, there's I think this is you know, you were asking a little bit earlier about low hanging fruit. I do think there are there are elements here of that that that just can be advanced a lot faster. And I'll just say one one more thing. Um, during during the Covid crisis, a colleague and I did did a little bit of a piece of research on world Bank budget support operations and budgets. World. The MDGs basically provide two main kinds of programs. One is projects based financing and the other one is just unrestricted financing for a country's country's budget. And budget support tends to have policy conditionality. And we went through all the different budget support operations during Covid and found that operations were full of policy conditionality that had nothing to do with the Covid crisis. And that just seems like an enormous, again, missed opportunity, right? I mean, you don't you don't want to be forcing countries to do all of these complicated things in an emergency. The complicated things are for another moment in time. So again, think this, this kind of thing needs to be part of the rethink of the plumbing.

Okay. Well just to rebound on this comments on on budget support. During the pandemic, we've seen a resurgence of the use of direct budget support in the Pacific as a swift way for development partners to provide emergency financing to those countries in the in the region at a time where international borders were closed and travel was restricted. And now today, most Pacific Island countries are actually facing high risk of distress, according to the IMF. Yet our analysis of early numbers show that the use of budget support is here to stay. So how do we make sure that we continue to use budget support, which actually provides quick and in the case of the Pacific, concessional financing, while also considering the debt sustainability issue in the Pacific, but also in the broader developing world.

Yeah. No. And that's a very. It's very timely question to. Mean one of the things about how the world Bank and MDPs provide financing to lower income countries. And this is, I think, one of their real strengths and why they're very, very reliable partner for a lot of these countries is when these countries enter into what's called high distress. All of their loans automatically switch to grants. So the idea behind this is that the MDB should not be contributing to the country's debt distressed position. One of the weaknesses here, though, is that doesn't mean even though Ida can start providing as grants which come with a cost because grants at the end of the day do decrease the amount of volume over time that you can obtain. It doesn't necessarily mean that the country has to pursue grant financing from all of their creditors. So it creates this, this, this strange situation sometimes where a country is simultaneously getting its money from Ida in the form of grants, but also, you know, issuing Eurobond Eurobonds that, you know, 10%. And and and I do think this is this is something where there is an opportunity for, for a little bit of a rethink is, is, you know, what is what is Ida's role and not just itself being responsible lender. But have helped a bit of encouraging countries to kind of, once they've flipped into that high debt distress territory where, you know, their debt is no longer on a sustainable path. How does that also change their relationship with with the rest of the creditors? And and this isn't really fully something that has been been worked out. The institutions have, you know, both the IMF and world Bank have rules that are supposed to limit how much non-concessional debt a country can take out. They also have little carrots and sticks that can either penalize a country if it goes beyond its non-concessional lending headroom. But think these carrots and sticks in particular are actually pretty. Not not necessarily as as effective as as they could be. But, you know, in a lot of ways, I do think, you know, we are, you know, in terms of debt, really seeing a breakdown in terms of how creditors cooperate and in terms of multilateralism. And one of the things that I, you know, would really love to see amongst major creditors, especially like let's put the commercial creditors aside because this isn't going to happen, but, you know, official creditors, so multilateral and bilateral is just an agreement to follow the Ida rules. Once a country has gone into high levels of debt distress, the automatic rule is that should be triggering grants.

Well, that's a great idea actually, and would definitely help making the current high debt situation in developing countries more manageable. Thanks. Thanks for sharing. Now, you mentioned China in your previous answer. And so I'd like to ask you about the impact of the US-China competition in the context of reforms. Both countries compete not only economically but also in the area of development finance. In the world Bank, for instance, the United States is the largest shareholders in China is the rising number two, but also the major borrowers and in turn the largest voice for the bank's borrowers. And so the deteriorating bilateral relationship between the United States and China poses a threat to the governance of the bank. In this context, do you think the US-China competition make makes the broader MDB reforms impossible? And if this is the case, what action should be taken by both parties to address the situation effectively?

Yeah, that's that's a. That's an intense question, and I'm going to answer you very bluntly, is I think the biggest risk for a successful reform agenda is actually the state of the relationship. As you said, the bilateral relationship is not good. And in previous iterations of the relationship when it had been better. US-China cooperation were really an important motor, especially for the world Bank. And and you really saw China. Especially in the context of of Ida replenishment. China really stepping up increasingly as a more and more important source of grant financing for for a lot of the concessional windows. So so there really did seem to be on the part of a willingness. And this was this was much more prevalent under the Obama administration, a willingness to bring China into these international institutions. And then China wanted to act as a good participant in these institutions. And and that, you know, was was, I think, a really important motor for the world, frankly, that has stopped. The two countries are not seeking cooperation and coordination on on reform the way they were there. That level of partnership just does not seem to be there anymore and think that is that is a big risk for the institutions, frankly, think it's a big risk for the world. You know, I mean, we are talking about global public goods and climate change and all of these things that require collective action. And if the two largest global economies don't see eye to eye on these issues or aren't willing to cooperate on them, I just don't see how we can hope to really solve them in the swift and effective way we need to. Now, more specifically on on the world Bank side, one of the issues that I was mentioning earlier was, was funding and how important thought funding was. So the historically world Bank and this is the so that part of the world Bank that lends to middle income countries is funded through capital increases. And generally what happens is during a capital increase, there's there's a shareholder realignment. So you look at a country's shareholding and then you decide, okay, based on the World Bank's shareholding formula, or are they overweight, underweight and the latest shareholding exercise that has shown that China's China is really underweight at the world Bank, it's currently the third largest shareholder. It should be the second largest shareholder, which would allow it, which would actually allow it to overtake Japan. So there's huge there's huge geopolitical implications here. I think one of the reasons for which the US has been reluctant to pursue a capital increase negotiation in the context of this reform agenda. So it has really been reluctant to talk about financing or growing the institution through a capital increase. Is is because they're afraid of this can of worms that a shareholder realignment opens up. And I think that's I think that's frankly, you know, very unfortunate. I think it's very unfortunate for, for the institution because I do think, you know, there are a lot of different you know, we talked about the CAF reforms and we you know, there are a lot of different ways that you can grow a balance sheet. But the most tried and trusted in effective way is through capital. So, you know, and so think in a lot of ways that leaves the organization at a little bit of an impasse, because there's not unity of vision amongst China and the United States towards where these negotiations and where the reform agenda should be heading in terms of policy. But there's also a huge disunity in terms of how do you financially grow the organization. And that just unity, as I was saying, is, you know, there's a lot of geo complex geopolitical linkages there. So I, I am not optimistic on on this front.

All right. Well, now I would like to talk about the billions to trillions concept. The billions to trillions concept was first introduced at the third International Conference on Financing for Development in Addis Ababa in 2015. The idea is basically that billions of multilateral finance and official development assistance should be used to mobilize trillions of private investments for climate and development. But even though AJ Banga, the new world Bank president, seems to be very enthusiastic about encouraging private capital to contribute to development, progress in that regard has been limited so far. So what are your thoughts on the potential for this to happen, and what strategies can be employed to achieve this?

Yeah, the built in the billions to trillions agenda. You know, one of one of the ideas animating that was really, you know, $1. In development finance and public finance can mobilise about $10 in private finance, which is just an enormous ratio. The latest numbers that I've seen is at best we're on. We're at 1 to 1. More generally think it's about 1 to 0.7. So so the billions to trillions agenda has not has not materialised. And there isn't a lot of focus on it. It's been it's been re renamed as private capital mobilisation now. And it's very clearly a priority of of of the new world Bank president. He's created a lab focus specifically on this this issue with a lot of eminent private sector representatives. You know. I'm of two minds, frankly, on this gender. I think, you know, from a political perspective. Think the billions, trillions agenda was a little bit of a of a donor agenda saying, you know, we need all this money for the world. There are huge challenges, but we aren't really fully going to pay for it. And ergo, let's kind of create this, you know, self-fulfilling prophecy that our dollars can really stretch and bring in, bring in all of this private capital.

And.

And I think that in a lot of ways has done a lot of damage, because a lot of countries, you know, especially a lot of developing countries, kind of look back and say. Where is it? Where did it come? Where what? What happened? And and so, you know, think part of the let's call billions of trillions 2.0 private capital mobilization. Sorry for the acronym. Is to really think about this in the context of much more anchored targets. I think that 1 to 10 ratio is a little bit. You know, unrealistic. So let's ground this conversation in more realistic terms. So think that's that's a first start. And you know of course you know you know think there's a big actually. And this allows me to say this is think, you know, one of one of the pieces that's a little bit overlooked when you look at some of the literature that's come out around the evolution roadmap, is there's not so much discussion of the IFC and of Miga, and these are the private sector financing arms of the world Bank. But there's also an interesting question about financing instruments. We've been talking throughout this entire conversation about loans and grants, but there are other kinds of instruments that these MDGs provide, for instance, guarantees. And when you go back to the articles of agreement of, of the, for instance, the international Bank for Reconstruction and Development, they were really intended to be an institution that was mainly providing guarantees, and guarantees are much more effective at leveraging private finance than loans are. So one of the points that I'm really making is that, you know, if you really want to kind of focus on, you know, getting more private capital in, it really does require changing a lot of the instrument mix that these institutions are using. And I really do think move a little bit more towards guarantee financing through guarantees could be a very appealing one for a lot of the different client countries of the bank. The second thing, though, that I will say is, you know, one of the other really big shifts that we've had over over the past several years is, you know, we're now in a very high interest rate global environment. And I do wonder, it was, you know, during a time of benign interest rates when investors were starving for yield and really looking for investments in emerging markets and low income countries, you know, and this was a time when interest rates were low. Now there's a whole change in kind of global risk appetite with interest rates going up. And it really that search for yield changes. Investors can stay you know in advanced economies and get that yield. You know that really can change a lot of the equation to around around the billions of trillions agenda and around private capital mobilization. And if we couldn't do it in a benign interest rate environment, the higher interest rate environment, I think, also makes it that much more complicated. And just one more point on this. This is also an interesting conversation because it does link back to some of the conversation that we were talking had, were having earlier around global public goods. And in particular, you know, if you want to use your concessional financing or your grant financing to bring in private capital, is that the best use of your money? Is it is it really on private sector investments, or is it on the public sector side? And, you know, a lot of a lot of criticism of the billions of trillions, it's you're using a lot of development finance to de-risk and ultimately subsidize private sector, taking a lot of the putting a lot of the risk on the public sector, but not the upside and putting, you know, really de-risking the private sector. So so this is this is really turned into quite a complicated, ferocious debate in a lot of ways and can say it's in particular, we do not have a unified view on this. And this is one of the topics in development finance where we are often internally most most in disagreement.

All right. Well, look, I hope this, this Lowy Institute podcast will not contribute to additional disagreement at committee. I have two last questions for you. For the first one, I would like to take a step back and look at the MDB reforms overall. Do you think the current reforms go far enough, and if not, what else needs to be done?

Look, I mean, as it as it stands right now, I don't think that the institutions have done enough. I don't think shareholders have done enough. I think there's this is this is a little bit more of a marathon than a sprint. And and again, you know, I really do repeat myself here, but I really think part of this is I think these institutions need to be a lot bigger. I think these are this is the global safety net. We need a bigger global safety net. And there was a lot of. Speed bumps to growing these. These organizations and think until there's there's an agreement on on what big or how to get these organizations bigger. We're going to be at an impasse around the reform agenda. And that makes me very, very concerned.

Okay. Well, that's actually a very good segment to my last question. So in this podcast, we'd like to conclude by asking our guests for their big ideas on the topic that we've covered in the show. I would like to ask you this. What is your big ideas for reshaping the multilateral development banks and making them more efficient and better tailored for tackling global challenges in supporting sustainable development?

Well, you know, think we've touched on all aspects of this in a lot of ways. So I'm going to give you a slightly provocative answer. I mean, think, you know, faster institutions, bigger institutions, more agile institutions, institutions that can finance different kinds of projects, but that are also still focused on the poorest of the poor and really on development. I think we need all of that. And I think there's there's right now, because of the year of focus, we are not at a time where there's a dearth of good ideas. I don't think that there's ever been so much written about the multilateral development banks than there has in the past years, whether it's by the institutions, by by the governments that are shareholders, by, you know, think tanks, some think tanks. So my wish for the world is I think and and and this is you know, this is inspired by, by a suggestion of a former colleague, you know, was kind of making slyly on Twitter is I think we need an international moratorium for a year on all of these high level global convenings and think we need to start getting some work done. This year has been frenetic, uh, traveling from capital to capital. When you look at the declarations and the statements that are coming out of these summits, they are very mushy. They are both promising the world and promising the moon and promising the universe without really anything concrete behind them. And I think it's time to start talking a little bit less and doing a little bit more, because we are really inhabiting this time where we have some very lofty rhetoric out there and not a huge amount to show for it. So I would like us all to get to work.

Yeah, well, that's actually a great idea. And you could also argue that such a moratorium would also drastically reduce the carbon footprint of NDB. So overall, it'd be very good for the planet.

There are there are many good externalities that could come from this. We can start by doing it for six months and then see how that goes.

Well, this is all what we have time for today, Clémence. Merci book. We thank you very much for sharing your thoughts on those topics. This this was really fascinating.

My pleasure. This was a wonderful conversation.

You've been listening to Development Features, a podcast from the Indo-Pacific Development Center at the Lowy Institute, hosted by institute experts and produced by my colleague Josh Goodwin. Development futures is part of the Lowy Institute Podcast Network. Find all our podcast series on our website. Lowe institute.org/publications. Thanks for listening.