Monday, July 17, 2023

One US dollar invested in development banks can increase lending by $90

 GANDHINAGAR: US treasury secretary Janet Yellen on Sunday backed reforms of the multilateral development banks (MDBs), including leveraging private sector finance to deal with global challenges such as climate change, but suggested that the $100-billion equity infusion proposed by the independent expert group could wait till other steps are taken — a position that is going to be discussed in the coming days.

The panel co-chaired by former US treasury secretary Larry Summers and 15th Finance Commission chairman N K Singh has suggested that the US could provide around $4 billion towards supporting International Bank for Reconstruction and Development that could go towards meeting the commitments towards sustainable development goals and also global public goods, including climate finance. India’s share will be around $750 million over seven years.

US support for equity to MDBs is seen to be critical as a $1 support, given its 16% shareholding, will result in $6 expansion in the equity base. This is estimated to result in $90 external funding.

The estimates are based on the expert group’s calculations, which suggest that $1 equity at the overall level, will support $15 additional external funding — around $7direct lending by the MDBs and $8 in additional direct and indirect mobilisation of external private capital.

With the entire equity infusion expected to be a fouryear exercise involving the US Congress, developing countries, led by India which set up the expert panel, are keen that a decision is taken quickly, instead of the capital adequacy framework to be implemented first, which in itself could take two-three years. The US has so far been reluctant to support any equity infusion, something that Yellen also pointed to. She was, however, positive on other issues.

“Over the past few months, our broad coalition has worked with the World Bank management to make significant changes. For example, the World Bank is updating its mission statement and refreshing its operating model. And we are working with the World Bank and the regional development banks to implement measures that will more efficiently leverage the resources they have.

Our reforms to the World Bank’s balance sheet will responsibly unlock as much as $50 billion in additional lending capacity over the next decade. As part of our evolution agenda, we estimate that the MDBs as a system could unlock $200 billion over the next decade just from the measures already being implemented or under deliberation,” she said at a press conference.

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