Unlocking the potential of multilateral development banks: boosting lending capacity and operational efficiency

Lin Zhuo ()
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Lin Zhuo: Macroeconomic Policy and Financing for Development Division, United Nations Economic and Social Commission for Asia and the Pacific

No PB129, MPDD Policy Briefs from United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)

Abstract: Multilateral development banks (MDBs) can play a crucial role in financing sustainable development in Asia and the Pacific, yet their capacity is constrained by insufficient capital and conservative lending practices. To address this, MDB shareholders should consider boosting equity capital because the current funding levels fall significantly short of meeting development financing needs of developing countries. In addition to capital injections, MDBs should consider including callable capital in their capital adequacy frameworks. Although not guaranteed, callable capital is a large part of the subscribed capital and can strengthen their ability to handle risks. Including callable capital, as demonstrated by the Inter-American Development Bank, can expand lending capacity of an MDB without compromising credit ratings.

Date: 2024-12
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