Last year saw major contributions to the international finance reform agenda, including Finance for Climate Action (the “Songwe-Stern report”), the Bridgetown Agenda, and the Independent Review of Multilateral Development Banks’ Capital Adequacy Frameworks submitted to the G20 finance ministers.
2023 will be a critical period for implementing reforms to meet the scale and urgency of the climate crisis while also addressing the other crises facing developing countries – food and energy price inflation, debt sustainability, among others – as well as development priorities as targeted in the Sustainable Development Goals. International pressure and a leadership change at the World Bank have created an opportunity to dramatically increase the volume of finance that the international financial system can deploy. As shareholders look to reform the international financial architecture, it is important to consider not only where the additional capital will come from, but also how capital can be effectively spent for maximum climate and development impact.
This paper lays out key products and processes that need to be introduced, reformed, and/or scaled to effectively deploy existing and new volumes of climate finance. The paper focuses on the multilateral development banks (MDBs), notwithstanding the critical roles of other institutions such as the International Monetary Fund (IMF) and other public development banks (PDBs). It builds on seminal reports such as the “Songwe-Stern report” by zeroing in on the specific models that can be adopted and scaled with urgency.
This paper elaborates a set of discussions convened by CPI in March 2023 under the San Giorgio Group.
We divide the actions into three categories:
- Increased focus on the efficacy of country and sector platforms, moving away from the current project-by-project approach to more program-based funding facilities to drive systemic shifts. This implies focusing on the needs-based funding, which effectively uses international and domestic resources to improve the quality of finance, support shifts that incentivize domestic private capital, and advocate for the fiscal integration of key national and subnational institutions to pursue the domestic climate agenda.
- Deployment at scale of risk-sharing instruments to catalyze private capital and to address cost of capital, including through expanded and new guarantee products, mechanisms to address exchange rate risks, and project preparation facilities.
- A business model overhaul of the World Bank and other MDBs that repositions them as “mobilizers in chief,” including the standardization of multiple processes, balance sheet optimization through a new “originate to distribute” model, eligibility for concessional finance, cross-country data-sharing, and a response that meets the needs of the current polycrises.