Development banks can boost lending by $200 billion: Paris summit

Multilateral development banks are expected to unleash $200 billion in additional firepower for emerging economies by managing their balance sheets more tightly and taking more risks, world leaders said at a summit in Paris on Friday.

Many of the 40 or so leaders gathered in Paris expressed concern that the World Bank and the International Monetary Fund are increasingly out of step in tackling challenges such as climate change and post-COVID-19 debt burdens on poor countries.

“We … expect to increase the lending capacity of multilateral development banks by an overall $200 billion over the next decade through optimizing their balance sheets and taking on more risk,” said the summit’s final statement, obtained by Reuters.

“If these reforms are implemented, MDBs may need more capital,” it added.

U.S. Treasury Secretary Janet Yellen said ahead of the Paris summit that efforts must be made to squeeze more loans from development lenders before considering the possibility of a capital increase.

The United States is the largest shareholder of the International Monetary Fund and the World Bank.

The Paris summit, chaired by French President Emmanuel Macron, brought together more than two dozen leaders from Africa, China’s premier and Brazil’s president to push for a new global financial agenda.

At the summit, rich countries finalized pledges to provide overdue $100 billion in climate finance to developing countries and created biodiversity and forest conservation funds.

The summit aims to develop a multifaceted roadmap that can be used over the next 18-24 months, from debt relief to climate finance. Many of the topics on the agenda incorporate proposals from a group of developing countries led by Barbados Prime Minister Mia Motley, known as the Bridgetown Initiative.

“It’s accepted that the political consensus is that this issue is bigger than each of us, that we have to work together, and that multilateral development banks have to change the way they do business,” Motley said in a panel discussion at the summit’s finale.

“We left Paris not just with a speech, but with a commitment to go into the details to ensure that the agreements we reached here are carried out.”

Leaders also want to overhaul post-war financial institutions, free up funds to fight climate change, and agree on how to advance a number of struggling initiatives at the G20, the Conference of the Parties, the International Monetary Fund, the World Bank and the United Nations.

The pledge of $100 billion fell far short of what poor countries actually need, but became a symbol of climate finance that rich countries have failed to deliver on. This has fueled mistrust in wider climate negotiations among countries trying to step up measures to cut carbon dioxide emissions.

“If we don’t make the rules at this time, as we have done before, then we will be responsible for the worst possible reality for humanity,” Motley said.