The Eurasian Development Bank (EDB) and South American FONPLATA Development Bank have jointly published a policy paper titled "One Size Does Not Fit All – Analyzing the Applicability of Options for Expanding Lending Capacity Across MDBs", which calls for more customised strategies to enhance the lending capabilities of multilateral development banks (MDBs).

The policy brief was presented under the aegis of T20, a G20 engagement group that brings together global think-tanks and research centres.

The research, led by Evgeny Vinokurov, Vice Chairman and Chief Economist of the EDB, and Oscar Llamosas, Vice President for Strategic Development at FONPLATA, focused on regional and sub-regional MDBs, whose specific needs and capacities often differ significantly from larger global institutions. The authors examined how varying approaches to capital mobilisation could be applied across MDBs, highlighting the importance of tailoring strategies to fit the unique characteristics of each institution.

"The G20 Independent Review of MDBs’ Capital Adequacy Frameworks estimates that MDBs will need to provide an additional $260bn in annual official financing to achieve the Sustainable Development Goals by 2030," the report notes. This would require both an increase in available capital and more efficient utilisation of MDBs’ resources.

Unique role of regional MDBs

Vinokurov underscored the advantages that regional and sub-regional MDBs bring to the development landscape, noting their flexibility and deep understanding of local conditions. "Regional and sub-regional MDBs are generally more flexible, have a better understanding of the conditions of member countries and regions, and can therefore be very helpful to their member states. Adequate capital is a major prerequisite along this way," he said.

The policy paper proposes several strategies for capital enhancement, including increasing shareholders’ capital, expanding membership to include both regional and non-regional countries, attracting institutional investors, and exploring partnerships with other MDBs. It also examines more unconventional methods, such as channelling IMF special drawing rights (SDRs) to MDBs, though these have yet to be fully tested.

The recommendations encourage G20 nations to support MDBs in adopting a "lending-capacity-expansion strategy consistent with their specific strengths and weaknesses" in order to mobilise more resources for their member states.

Importance of global cooperation

Vinokurov praised the collaborative nature of the research between EDB and FONPLATA. "When MDBs from around the world collaborate on joint research projects, they combine forces and perspectives to produce more balanced and convincing conclusions. MDB cooperation, including in research, is a powerful tool. We should nurture it," he said. He also noted that despite the geographical distance between Eurasia and Latin America, the two MDBs face similar challenges and have much to learn from each other.

Llamosas echoed this sentiment, noting that the diverse characteristics of MDBs must be acknowledged when considering reforms. "Acknowledging that while facing similar challenges, multilateral development banks have diverse characteristics is crucial to advancing the goal of making not only each of them but the entire international financial architecture bigger, better and more effective," he said.

Their joint research highlights the need for flexibility and innovation in expanding MDBs’ lending capacities while offering a roadmap for greater collaboration among these institutions.

A broader vision for the future

The findings come at a critical time, as the G20’s International Financial Architecture Working Group (IFA-WG) has prioritised making MDBs "better, bigger and more efficient" as part of the global agenda for 2024. The EDB and FONPLATA’s policy paper adds momentum to these efforts, offering practical solutions that consider the unique needs of smaller, regional MDBs alongside their larger counterparts.

The full policy paper can be accessed here.