This chapter provides an overview of the global context surrounding and influencing the evolution of multilateral development finance, including the challenging economic and financial environment facing developing countries. It describes the increasing relevance of the multilateral development system in the development landscape, its current limitations and efforts by multilateral stakeholders to make it fit for future challenges. While emphasising that multilateral organisations are at the forefront of reforming the global financial architecture, the chapter argues that these reforms can only succeed with a robust multilateral development system, underscoring the need to balance efficiency-focused reforms with effectiveness considerations.
Multilateral Development Finance 2024
Abstract
2.1.1. The multilateral development system delivers the majority of official development finance to developing countries
Since its inception in the aftermath of the Second World War, the multilateral development system has expanded to include over 200 multilateral entities. These organisations, varying in form, mandate and size, form a multi-faceted web of institutions, funding and delivery mechanisms, often referred to as the multilateral development system. Over time, this composite architecture has evolved to adapt to new realities and needs. A previous edition of this report described the system’s gradual transformation since its inception after the Second World War in response to successive crises and development challenges, underscoring the system's adaptive and expansive nature (OECD, 2020[1]). While there are multiple ways to classify multilateral organisations, this report groups them into four broad categories: (i) entities that are part of the United Nations Development System (UNDS), (ii) multilateral development banks (MDBs), (iii) vertical funds and (iv) other multilateral organisations.
The multilateral development system is a core component of the global aid architecture. Multilateral organisations are key platforms for orchestrating collective responses to global development challenges such as poverty, climate change, and public health crises. They are also instrumental in delivering official development finance to developing countries (Figure 2.1). Thanks to their leverage capacity, some multilateral actors, such as the MDBs, are able to provide significantly more financing to ODA-eligible countries than the contributions they receive from donors.
Total flows by type of multilateral organisation, commitments, in billion USD, 2012-22
Note: Cumulative totals in USD billion, at 2022 constant prices. Grey non-dashed arrows represent core contributions to multilateral organisations (multilateral ODA). Grey dashed arrows correspond to DAC countries’ contributions earmarked through multilateral organisations (multi-bi aid or non-core contributions), which include both ODA and other official flows (OOF). Coloured arrows represent multilateral organisations’ outflows, which include concessional and non-concessional flows.
Source: OECD (2024[2]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
The comparative advantages and shortcomings of multilateral development cooperation are a subject of continuous debate. Previous editions of this report have outlined some of the main reasons DAC members choose to channel their aid through the multilateral system, including economies of scale, financial leverage, geographical reach, specialised expertise, and political legitimacy (OECD, 2020[1]; OECD, 2022[3]). Multilateral development finance plays a critical role in promoting sustainable development and provides vital support during crises, offering a countercyclical source of financing to help countries withstand external shocks. Through their normative role, multilateral organisations also promote governance based on global standards and encourage international co-operation. On the other hand, criticisms of the multilateral development system often highlight its institutional complexity, perceived lack of transparency and accountability, and high administrative costs. Ultimately, the key consideration is whether the efficiency gains from pooling resources and leveraging the system’s comparative advantages outweigh concerns over costs, accountability and control.
Approximately two-thirds of official development finance is provided by, or channelled through, multilateral organisations. These organisations have the extensive reach and capacity to implement programmes across multiple countries and sectors, making them indispensable for delivering on the global sustainable development agenda. Between 2012 and 2022, the “market share” of the multilateral development system in total official development finance (ODF) extended to ODA-eligible countries grew by 36%, from 45% to 61% (Figure 2.2). The substantial share of official development finance delivered by, or through, multilateral organisations underscores the international community’s reliance on these institutions to support developing countries. As examined in Chapters 3 and 4, the growth of multilateral outflows as a share of total ODF reflects both the increase in donors’ funding to multilateral organisations, and the growing use of MDBs’ capacity to leverage their resources by tapping into the capital markets.
Evolution of the share of official development finance (ODF) delivered by the multilateral system, 2012 versus 2022
Note: Official development finance (ODF) corresponds to the sum of concessional and non-concessional resources from official bilateral and multilateral sources.
Source: OECD (2024[2]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
2.1.2. By the early 2030s, the multilateral system could become the predominant channel of DAC members’ ODA
Multilateral organisations rely on financial contributions from their members to deliver on their mandates. Although there is a variety of multilateral organisations with different funding models and sources – including public donations and philanthropic contributions – members and shareholders represent a vital source of funding. In many organisations, these donor contributions are essential for sustaining core corporate functions and activities, and for pursuing the agendas and strategic directions established by their governing boards.
Multilateral ODA embodies the essence of investing in multilateral action. The term multilateral ODA refers to core financial contributions provided by donor governments to ODA-eligible multilateral organisations. This type of funding does not specify which projects and programmes are to be funded. Instead, these resources become an integral part of multilateral organisations’ financial assets and can be used to fulfil their core mandates within the parameters set by their governing board. These core resources are essential as they provide the financial foundation of most multilateral organisations. Their unearmarked nature allows multilateral organisations to decide strategically on the best possible use of these resources, ensuring they can respond effectively and flexibly to countries’ evolving needs.
The members and shareholders of multilateral organisations also allocate resources that are earmarked for specific purposes. In addition to their multilateral ODA, many donors provide multilateral organisations with non-core contributions assigned to specific sectors, themes, countries or regions. These earmarked resources, officially reported as bilateral ODA (also referred to as non-core contributions or multi-bi aid), allow donors to target their contributions more precisely and maintain greater control over their allocations. Despite being less predictable, these earmarked contributions are an important means for bilateral donors to respond to emerging crises or target specific geographic and thematic areas. Chapter 3 delves further into the trends, advantages and disadvantages of both core and non-core contributions to the multilateral development system.
Multilateral organisations play a more significant role in the international aid architecture than core contributions alone might suggest. The sum of core and non-core contributions constitutes official providers’ total use of the multilateral system. This combined total offers a more comprehensive indication of how donors use the multilateral development system, since it takes into account all types of funding provided to, or channelled through, multilateral organisations.
OECD DAC members’ total use of the multilateral development system has steadily increased over the past decade. From 37% in 2010, the share of ODA channelled to or through multilateral organisations rose to 45% in 2021, before slightly declining to 43% in 2022 (Figure 2.3, Panel A.). This upward trend reflects a growing recognition of the value of the multilateral system for delivering development co-operation projects to support countries’ sustainable development. It also underscores the importance DAC members place on pooling resources and leveraging multilateral expertise to tackle complex development challenges. The slight decline in the 2022 share of multilateral contributions is due both to a lower volume of multilateral ODA — following several years of increases — and a surge in direct bilateral and earmarked aid, driven by increased support for Ukraine and in-donor refugee costs. Despite this slight decline, if recent trends persist, the multilateral system could channel nearly half of DAC members’ ODA by 2030 (Figure 2.3, Panel B.).
Note: Direct bilateral ODA refers to DAC members’ bilateral ODA excluding multi-bi aid (non-core contributions to multilateral organisations). Calculations are based on gross disbursements in 2022 constant prices. In Panel B, values beyond 2022 are calculated using a linear forecast.
Source: Authors’ calculations based on OECD (2024[2]), OECD Data Explorer, DAC1 table, http://data-explorer.oecd.org/s/t.
Bilateral partners’ use of the multilateral system can be an important factor in their ability to fulfil ODA-related commitments. All countries that meet the UN target of spending 0.7% of their gross national income (GNI) on ODA make more significant use of the multilateral system than the DAC average. Specifically, these countries allocate more than 40% of their ODA to or through multilateral organisations (Figure 2.4). However, not all countries that make significant use of the multilateral system are close to meeting the 0.7% ODA/GNI target. This indicates that while the multilateral system can be a valuable conduit for delivering additional ODA, making significant use of the multilateral system is not sufficient to achieve this target without strong political leadership and commitment. Nevertheless, this finding does suggest that DAC countries aiming to close their gap to the target should consider how multilateral development co-operation can contribute.
DAC countries’ ODA as percent of GNI and total use of the multilateral system as percent of total ODA excluding contributions to EU Institutions, 2022
Note: The size of the bubbles reflects each country’s volume of total ODA, excluding contributions to EU Institutions.
Source: OECD (2024[2]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
Given the growing importance of the multilateral system in development co-operation, monitoring and analysing aid flows to, and from, the multilateral development system is an essential task. As the main shareholders and funders of the multilateral development system, DAC members have an inherent interest in ensuring that the resources channelled through the system are used effectively and invested where they can achieve the greatest results. Examining and analysing these flows provides a bird’s-eye view of the functioning of the multilateral development system and sheds light on the impact of public resources channelled to and through it. OECD DAC statistics on aid flows to and from the multilateral development system, described in Box 2.1, are a key source of multilateral development finance data.
The OECD DAC’s Creditor Reporting System (CRS) maintains official statistics on aid flows to, and from, the multilateral development system. DAC members and other official providers report to the OECD their contributions to, and through, the multilateral development system as part of an annual data cycle. These flows of DAC members and other official providers’ funding to the multilateral development system are examined in Chapter 3. Multilateral organisations, in turn, report their outflows to the OECD, including details on the allocation of these resources by recipient, sector and purpose. Chapter 4 analyses the financing flows from the multilateral development system, including multilateral outflows from these organisations’ core resources and earmarked aid channelled by bilateral providers through multilateral organisations.
OECD DAC statistics are continuously being improved to provide a more complete and accurate picture of multilateral development finance. Through its Working Party on Development Finance Statistics, the OECD DAC monitors and regularly reviews the statistical standards of development finance, including those pertinent to multilateral development finance. A significant recent improvement was the incorporation of new co-operation modalities into the CRS in 2022. This makes it possible to distinguish between single and multi-donor funding mechanisms, allowing for more granular statistics on donor contributions to multilateral organisations (DAC Working Party on Development Finance Statistics, 2023[4]). Additionally, the annual revision of the list of ODA-eligible international organisations remains crucial in ensuring the accuracy and relevance of multilateral development finance statistics (OECD, 2024[5]).
Note: The Creditor Reporting System and other OECD DAC statistics can be accessed on the OECD Data Explorer, OECD (2024[6]), http://data-explorer.oecd.org.
2.1.3. The challenging context underscores both the relevance and limitations of multilateral development finance
Multilateral development finance offers critical support to economies struggling with the impacts of global economic slowdowns and financial market volatility. In the current high-risk post-pandemic context, characterised by rising debt and high capital costs facing developing countries, multilateral institutions play a crucial role in mobilising resources to help countries maintain financial stability. In particular, their ability to channel significant volumes of concessional resources to developing countries makes them an essential source of affordable finance.
While lending from multilateral creditors provides developing countries with a crucial lifeline in times of crisis, it was unable to fully offset the outflows of private capital experienced in 2022 (Diwan and Songwe, 2024[7]). Long-term debt from official creditors, especially multilateral ones, offers a stable and countercyclical source of financing. Over the past decade, net inflows from multilateral creditors to developing countries have consistently remained positive and relatively stable (Figure 2.5). Despite this, they were insufficient to counterbalance the substantial private capital outflows in 2022, which totalled USD 189.4 billion (World Bank, 2023[8]).
Net debt inflows to low and middle income countries, 2012-22
Note: Short-term debt includes all debt having an original maturity of one year or less and interest in arrears on long-term debt (such as treasury bills).
Source: World Bank Group (2024[9]), International Debt Statistics (database), https://www.worldbank.org/en/programs/debt-statistics/ids.
As the global financing context evolves and developing countries face mounting challenges, there is a continuous need for multilateral institutions to adapt, improve and innovate. The key role played by the multilateral development system in extending affordable financing to developing countries highlights its relevance, but also its need to keep improving. To continue playing an important role in the future, multilateral organisations must stay ahead of emerging issues and proactively look for ways to adapt their support to countries’ evolving needs. Section 2.2. delves into the ongoing evolution of the MDBs as part of broader efforts to reform the global financial architecture. It explores how MDBs are being reshaped to better serve the needs of developing countries in a rapidly changing world. Meanwhile, Section 2.3. focuses on the need to look beyond the ongoing MDB reform to achieve a coherent and well-balanced multilateral development architecture. By pursuing these concurrent agendas, the multilateral development system can continue to play a pivotal role in global development, ensuring that multilateral organisations remain relevant and effective in addressing present and future development challenges.
2.2.1. The multilateral development system is at the forefront of efforts to reform the global financial architecture
The widening gap between countries’ aspirations and their financial resources has sparked calls to reform the global financial architecture. Since 2021, multiple calls for reform have drawn attention to the need to scale up multilateral development finance and revisit the toolkit and operational model of the major international financial institutions, namely the International Monetary Fund (IMF) and the main MDBs (US Department of State, 2022[10]; Government of Barbados, 2022[11]). These calls underscore the need for a system better equipped to handle a growing number of development challenges in a context of multiple overlapping crises.
The success or failure of current efforts to reform the global financial architecture hinge in large part on the multilateral development system. Multilateral organisations are integral to the global financial architecture, providing essential financing, technical expertise and global knowledge. While the last major reform of the global financial architecture, in the aftermath of the 2009-2010 global financial crisis, focused on enhancing global governance to ensure macroeconomic and financial stability, the current reform drive aims to scale up and realign global efforts towards achieving the sustainable development agenda.
The current reform drive is part of a broader, dynamic process of continuous improvement within the multilateral development system. Since its inception, the multilateral development system has continuously evolved through the expansion of its architecture and the implementation of multilateral reform processes, many of which are still ongoing. Figure 2.6 illustrates some of the major reforms that have occurred within the multilateral development system since 2015. These include the creation of new multilateral entities such as the Asian Infrastructure Investment Bank (AIIB), the New Development Bank (NDB) and the Green Climate Fund (GCF). Additionally, significant agreements and processes have been implemented to enhance the policies and practices of multilateral stakeholders. This includes the 2016 Grand Bargain, which aims to enhance the funding of humanitarian activities, and the UNDS reform1 launched in 2018 (Inter-Agency Standing Committee, 2024[12]; United Nations, 2024[13]). However, specific components of these reforms aimed at improving the way multilateral organisations are funded, such as the recently updated UN Funding Compact, have so far shown mixed progress (United Nations, 2024[13]).
The current push for MDB reforms, although unprecedented in scale and ambition, follows on from prior efforts to achieve greater efficiency. Over the past decade, many MDBs have already made significant efforts to better leverage the resources entrusted to them. The G20 has steadily advocated for increased efficiency in the use of MDBs’ capital resources, including through the MDB Action Plan on Balance Sheet Optimisation approved in 2015 (G20, 2015[14]). The efforts undertaken include the mergers of MDBs’ windows, the introduction of hybrid funding models or risk transfers. These innovations have enabled MDBs to steadily increase the volume of financing commitments from their concessional windows, even though donor contributions remained flat (OECD, 2022[3]). These actions underscore that the MDB system is a dynamic and adaptive force in development finance. They also reflect the strong emphasis of previous and ongoing reforms on financial innovation as the engine of MDBs’ growth, leading to a growing financialisation of the multilateral development system. This financialisation refers to the increasing reliance on new financial instruments and financial innovations to expand the system’s financial capacity – a topic further discussed in Chapter 3.
As part of the current drive to reform the global financial architecture, the main international financial institutions have been asked by their shareholders and members to undergo a triple transformation. Current reforms are largely focused on strengthening the financing capacity of the system. They place high expectations on MDBs and aims to equip them to better meet 21st century challenges. The triple transformation encompasses changes in their mandates, operational models and toolbox:
1. The evolution of mandates involves expanding beyond their traditional focus on poverty and inequality to also address global challenges.
2. The shift in operational model aims to improve the ways these institutions work, including by transforming their country engagement, to ensure they deliver enhanced development outcomes.
3. Transforming the multilateral toolbox involves leveraging financial innovation to increase MDBs’ lending capacity and accelerate the mobilisation of private finance.
2.2.2. Despite gaining significant prominence, the MDB reform has experienced uneven progress
A change of scale in MDBs’ capabilities is required to meet their expanded mandates. A 2023 report on MDB reform by the G20 Independent Expert Group (IEG) highlighted the need for a substantial increase in MDBs’ financing capacity (G20 IEG, 2023[15]). The report suggested that MDBs should gradually increase their annual financing to reach USD 260 billion by 2030, effectively tripling their 2019 financing volume from approximately USD 130 billion to USD 390 billion annually. In addition, the report suggested that MDBs need to mobilise five times more private capital and recommended that they adopt new financial instruments and strategies to achieve these goals.
Although reforms are still ongoing, recent estimates suggest that MDBs could potentially increase their lending capacity by up to 30%. The World Bank Group’s Evolution Roadmap, updated in September 2023, indicates that the institution could boost its lending capacity by USD 50 billion to USD 150 billion over the next decade, representing an annual average increase of USD 5 billion to USD 15 billion (Development Committee, 2023[16]). On the occasion of the 2024 World Bank-IMF Spring meetings, the heads of ten MDBs released a joint Viewpoint Note (African Development Bank et al., 2024[17]), which estimates that their institutions could collectively expand their lending headroom by an additional USD 300 billion to USD 400 billion over the coming ten years, equating to an annual average increase of USD 30 billion to USD 40 billion. Figure 2.7 lays out various scenarios based on these estimates. It illustrates that the current MDB reform could lead to up to a 30% increase in MDB financing, compared to their commitment levels of 2019.
Scenarios of annual MDB reform gains
Note: The ten major MDBs considered for this analysis include the World Bank Group (WBG), the African Development Bank, the Asian Development Bank, the Asian Infrastructure Investment Bank, the Council of Europe Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank, the Islamic Development Bank and the New Development Bank.
Source: Authors’ calculations based on information from Development Committee (2023[16]), Ending Poverty on a Livable Planet: Report to Governors on World Bank Evolution, https://www.devcommittee.org/content/dam/sites/devcommittee/doc/documents/2023/Final%20Updated%20Evolution%20Paper%20DC2023-0003.pdf and African Development Bank et al, (2024[17]), MDBs Working as a System for Impact and Scale, https://www.iadb.org/document.cfm?id=EZIDB0000577-986313001-135.
While significant, these financial gains from current multilateral reforms fall short of initial expectations. An analysis comparing current reform pathways with the G20 IEG target reveals a significant gap (Figure 2.8). Even under the optimistic scenario of USD 400 billion in additional lending capacity from MDB reforms over ten years, which corresponds to the upper range of the estimate provided in the joint MDB Viewpoint Note, this translates into an average of USD 40 billion per year (Figure 2.7) – substantially less than the additional USD 260 billion per year targeted by the G20 IEG. By 2030, this discrepancy could amount to a cumulative financing shortfall of around USD 755 billion. Bridging this substantial gap would require exploring additional options beyond the balance sheet optimisation measures and financial innovations currently under consideration. Among other things, this could involve ensuring successful replenishments of MDBs’ concessional windows and securing capital increases from these institutions’ shareholders.
MDB commitments (2006-22) and pathways for scaling MDB financing capacity (2022-32)
Source: Authors’ calculations based on OECD (2024[2]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c and information from African Development Bank et al. (2024[17]), MDBs Working as a System for Impact and Scale, https://www.iadb.org/document.cfm?id=EZIDB0000577-986313001-135.
Following three years of ambitious discussions on MDB reforms, tangible impacts on sustainable development have yet to materialise. The slow progress is understandable given the complexity and technicality of the proposed reforms, their political implications, and the challenging geopolitical context. Nonetheless, these global discussions have at least facilitated a notable convergence among the main MDBs around a shared reform agenda. All MDBs are making efforts to implement various components of this agenda, indicating a collective commitment to advancing these critical reforms despite the inherent challenges.
Progress has been uneven across reform areas. Recent research has tracked the progress made by MDBs across five reform areas to operationalise the triple transformation (Center for Global Development, 2024[18]). This includes expanding MDBs’ mandates beyond their traditional focus on poverty reduction to include global challenges, such as climate action and pandemic prevention (evolution of mandates); adding and making more efficient use of shareholders’ capital, including by increasing private finance mobilisation (transforming the multilateral toolbox); and strengthening country engagement and operational efficiency (shift in operational model). As summarised in Table 2.1, the most significant and consistent progress has been made in expanding MDBs' mandates. Nearly all major MDBs (86%) have made considerable strides in incorporating global challenges into their mission statements. Other aspects of the reform agenda are advancing more slowly and have shown mixed or insufficient results. For instance, efforts to increase the mobilisation of private finance and to use capital more efficiently have respectively seen significant progress in only 57% and 47% of the main MDBs. Furthermore, progress has been notably insufficient in two crucial reform areas. Efforts to strengthen engagement with countries have only seen significant progress in 45% of MDBs, while attempts to increase their capital have lagged, with just 39% making headway.
Note: “Significant progress” means that MDBs have already implemented, or started implementing, relevant actions. The analysis covers seven of the largest MDBs: African Development Bank, Asian Development Bank, Asian Infrastructure Investment Bank, European Bank for Reconstruction and Development, European Investment Bank Global, Inter-American Development Bank Group, and World Bank Group.
Source: Center for Global Development (2024[18]), Multilateral Development Bank Reform Tracker, https://www.cgdev.org/page/mdb-reform-tracker.
Progress on various reform areas is also uneven across the MDBs. The variations in progress and focus across MDBs reflect their different characteristics and comparative advantages, but also suggest an opportunity for these institutions to share knowledge and experiences. For example, the African Development Bank (AfDB) already meets several of the requirements of the current MDB reform agenda to enhance MDBs’ country engagement. These include targets to improve operational efficiency and shorten its project approval process. Another example is provided by the European Bank for Reconstruction and Development (EBRD), which has achieved notable results in mobilising private finance. Unlike many other MDBs, the EBRD has established targets for private capital mobilisation and makes extensive use of subordinated instruments (guarantees, equity, subordinated debt) as part of its portfolio. These examples illustrate that while progress may vary, there are valuable lessons and strategies within individual MDBs that could benefit the broader system.
Beyond the current emphasis on MDB reform, it is crucial to ensure that the broader multilateral development system works coherently and effectively. The MDB focus of ongoing reforms should not distract from the need to strengthen the other parts of the multilateral development system and to continue to pursue unfinished reforms, such as the UNDS reform. A well-balanced and effectively governed multilateral development system is vital for the success of global reform efforts and for providing the necessary support to developing countries as they strive to achieve their sustainable development goals. Section 2.3 shows that the continued expansion of the multilateral development architecture has introduced some vulnerabilities and challenges in the system, which, if left unaddressed, could undermine its capacity to deliver.
While the emphasis of current reforms on expanding the mandates and capacity of MDBs is positive, the resulting increase in complexity needs to be managed. MDBs play a crucial role in financing sustainable development, and enhancing their operational capabilities can significantly boost progress. However, it is equally important to address the vulnerabilities that emerge as the multilateral development system expands and evolves. In particular, this expansion has led to increased complexity and fragmentation over time, as examined in this section. Moreover, the pivotal roles of other parts of this system, including entities with important normative functions, must not be overlooked. Previous editions of this report have also examined the reform processes undertaken by other components of the multilateral development system, including the UNDS, highlighting recent and ongoing efforts and remaining challenges to enhancing its effectiveness (OECD, 2022[3]; OECD, 2020[1]). This systemic perspective is crucial to ensure that the multilateral development system can address the multifaceted issues facing developing countries effectively.
2.3.1. Multilateral growth and innovation have increased the complexity of the system’s architecture
The growth of multilateral development finance in response to new development challenges has been accompanied by an expansion of the multilateral architecture. The number of entities listed in the list of ODA-eligible international organisations has risen from 121 in 2000 to 212 in 2020 (Figure 2.9). This constant expansion reflects a tendency among stakeholders of the multilateral development system to establish new entities in response to each new crisis or development challenge.
Number of ODA-eligible international organisations, 2010-22
Note: Each square corresponds to an ODA-eligible international organisation. The List of ODA-eligible organisations is reviewed annually by the DAC Working Party on Development Finance Statistics (WP-STAT).
Source: Historical records of the list of ODA-eligible international organisations (OECD, not published).
The existence of numerous multilateral organisations is not inherently negative and can be preferable to a proliferation of individual bilateral initiatives. In fact, these international organisations are often established as vehicles to pool resources and tackle regional or global issues more effectively. For example, development partners’ support to a vertical fund like Gavi, the Vaccine Alliance, often reflects their conviction that such collective initiatives will yield better development impact than pursuing the same goals through bilateral approaches.
As new entities are created and existing ones broaden their mandates and operational capabilities, the multilateral development architecture becomes more versatile but also more intricate. Over time, this expansion leads to a crowded and multi-layered architecture that can present significant challenges in terms of division of labour, co-ordination and overall effectiveness. Managing this growth effectively is essential for maintaining a coherent and robust multilateral system. However, this requires a proactive stance to identify areas that may be overcrowded or where the division of labour could be improved. Building consensus on solutions to streamline and optimise the system represents a significant challenge, demonstrated by the scarcity of instances in which the multilateral development architecture has been rationalised. A notable exception is the successful merger of four entities into UN Women in 2010, which underscored both the feasibility and complexity of such restructuring efforts. In addition, the growing complexity of the multilateral development system also requires co-ordination to ensure multilateral organisations are better able to help deliver on the ambitious global development agenda (Box 2.2).
Over time, the creation of new multilateral organisations has contributed to donor proliferation at the country level. Donor proliferation is a significant issue within the entire development co-operation landscape, not just within the multilateral development system. In fact, research suggests that this proliferation may be even more pronounced in bilateral development co-operation (World Bank Group, 2022[19]). However, the multilateral sphere is increasingly affected as well. Between 2010 and 2022, the number of multilateral donors active in each country has risen substantially. Whereas the majority of developing countries hosted 16 to 20 multilateral donors between 2010 and 2022, this number increased to between 26 to 30 donors per country from 2020 to 2022 (Figure 2.10). And while no country hosted more than 25 multilateral donors in 2010-2012, 82 countries had surpassed this threshold by 2020-2022. Research has shown that growing donor proliferation can complicate co-ordination, hamper country ownership and strain the administrative capacities of recipient countries, underscoring the need to strive for greater systemic coherence (World Bank Group, 2022[19]).
Number of multilateral donors per ODA-eligible country, 2010-12 versus 2020-22
Source: Authors’ calculations, based on OECD (2024[2]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c, adapted from World Bank Group (2022[19]), Understanding Trends in Donor Proliferation and Fragmentation for Aid Effectiveness During Crises, https://thedocs.worldbank.org/en/doc/ef73fb3d1d33e3bf0e2c23bdf49b4907-0060012022/understanding-trends-in-proliferation-and-fragmentation-for-aid-effectiveness-during-crises.
The challenge is that as most funding is allocated at the country level, many multilateral organisations seek a presence in country. Even multilateral organisations with a mandate to primarily conduct normative work at the global level have set up country offices. Examples include the United Nations Environment Program (UNEP) and the United Nations Human Settlements Programme (UN Habitat). Establishing new country-level structures incurs significant transaction costs for donors and recipients. Instead, multilateral stakeholders should explore whether and how one entity could represent others or handle implementation. While since 2018 the UN system has been taking steps through the UNDS reform to increase co-ordination, mainstreaming such approaches would ultimately necessitate a change in how member states fund UNDS entities, to encourage more integrated and efficient use of resources, thereby reducing transaction costs and maximising impact at the country level.
Recent assessments by the Multilateral Organisation Performance Assessment Network (MOPAN) have highlighted the need for the multilateral development system to work more holistically to help achieve common goals. While a healthy dose of competition in the multilateral system can foster innovation, continued fragmentation may lead to incoherence, gaps and duplication, particularly at the country level.
A coherent approach to collaboration is often lacking within multilateral organisations or sectors. MOPAN’s recent World Bank assessment identified challenges for MDBs in engaging in strategic, systematic and results-based partnerships rather than ad-hoc approaches (MOPAN, 2023[20]). In contrast, the assessment of the World Bank Group’s private arm, IFC, revealed that its operated its partnerships in a structured manner around key strategic issues (MOPAN, 2021[21]). While MDBs are increasingly identifying new platforms for partnerships as part of their ongoing evolution, they remain more likely to compete than collaborate. When trade-offs need to be made, investment activities are given priority over co-ordination because the latter is currently not resourced, measured or incentivised. There also remains important challenges in coordination between the MDBs, the IMF and the UN.
To support collaboration, it is key to see how organisations are structured internally. MOPAN’s assessment of the International Fund for Agricultural Development (IFAD) shows how it has improved its collaboration with national governments and development partners through increased decentralisation of staff posts and decision-making (MOPAN, 2024[22]). This has improved the relevance of its interventions and their alignment with community needs and national government strategies. Improved collaboration and strategic engagement with other Rome-based agencies has also helped. Other MDBs need to co-ordinate better internally, particularly for creating an enabling environment for private sector mobilisation, which has been a key feature of MDB reforms.
Partnership-based operating models are conducive to collaboration. MOPAN’s forthcoming assessment of Gavi highlights how the structure of the alliance and its engagement with external partners allows it to benefit from their complementary skills and areas of expertise. It also supports agility, efficiency and effectiveness as well as synergies and common standards. The Global Partnership for Education’s (GPE) diverse constituency-based board, is another example, playing an important role in strengthening collaboration in the increasingly complex and crowded global architecture for education. In addition, GPE’s participation in the SDG4 Education 2030 High-Level Steering Committee (HLSC) helps reinforce collaboration at a global level by providing a forum to optimise roles and responsibilities.
Collaboration also relies on incentives from system-level reforms. MOPAN’s current assessment of UN-Habitat shows how it has helped smaller UN entities to increase their contribution at the country level via the UN Sustainable Development Cooperation Frameworks. UN-Habitat also strengthened inter-agency collaboration through ten new memorandums of understanding (MoUs) with other UN entities since 2018.
Multilateral organisations also need to work closely as a system to respond to the complex, multi-dimensional challenges inherent in crisis contexts. MOPAN’s recent assessments of IOM, UNHCR and WFP show that these organisations are making efforts to strengthen co-ordination, clarify roles, and enable joined-up country planning and resourcing (MOPAN, 2024[23]; MOPAN, 2022[24]). However, a report on the implementation of the humanitarian-development-peace nexus points to more work required to strengthen system-wide coherence and learning, as well as complementarity between humanitarian assistance, development co-operation and peace efforts in crisis contexts (OECD, 2022[25]).
Note: The assessments cited in this box can be found on MOPAN’s website (MOPAN, 2024[26]), https://www.mopanonline.org/.
2.3.2. The expansion of the multilateral architecture contributes to fragmentation
The fragmentation of the multilateral architecture poses a significant challenge to aid effectiveness. The multilateral development system reflects the broader development co-operation landscape, marked by geopolitical polarisation and reduced trust, resulting in more fragmented and piecemeal approaches. This means that development efforts are scattered across numerous initiatives, often resulting in diminished impact and increased transaction costs. As a result, aligning support with the priorities of recipient countries becomes more difficult, undermining country ownership and the effectiveness of development interventions.
Efforts to mitigate aid fragmentation were prominent in international agreements at the beginning of the century but have not yielded tangible results. Development partners and developing countries pledged to reduce fragmentation through commitments made in the Paris Declaration in 2005, the Accra Agenda for Action in 2008 and the Busan Declaration in 2011 (OECD, 2011[27]; OECD, 2008[28]; OECD, 2005[29]). Research indicates that despite the efforts outlined in these international agreements, there has been a significant increase in fragmentation since the early 1970s. Notably, there has been no observed reduction in fragmentation following the Paris Declaration (Gehring et al., 2017[30]). Going forward, such agreements are unlikely to yield results without understanding the underlying reasons for the continued proliferation of multilateral initiatives.
Fragmentation can lead to a proliferation of smaller projects, spreading resources across an increasing number of activities, sectors and recipients. For instance, while the average MDB project size increased by 52% between 2010 and 2022 (Figure 2.11), the average project size of vertical funds decreased by 30% while UNDS projects saw a slight decrease (of 6%). This variation highlights that the various components of the multilateral development system experience and manage fragmentation differently, reflecting their unique operational contexts and mandates. Understanding these differences is crucial for devising targeted strategies to address fragmentation and ensure that development aid remains effective and impactful.
Average project size by type of multilateral organisation, 2010-12 versus 2020-22
Note: The colours indicate whether the change in average project size is positive (green) or negative (red).
Source: Authors’ calculations, based on OECD (2024[2]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
A well-balanced and effectively governed multilateral development system requires complementing efficiency with effectiveness and adopting a system-wide perspective. This involves considering the role of all multilateral actors and addressing often-neglected or unfinished areas of reform, such as system-wide coherence, co-ordination, transparency and accountability. These factors are gaining importance as the system’s constant growth introduces vulnerabilities that need to be balanced with architecture and systemic improvements, as well as efforts to strengthen multilateral effectiveness. To support this effort, it is important to generate evidence for the quality aspects of multilateral development co-operation. This is the role of initiatives such as the Global Partnership for Effective Development Co-operation (GPEDC) monitoring exercise (Box 2.3).
The monitoring exercise of the Global Partnership for Effective Development Co-operation (GPEDC) generates evidence to assess the quality of development co-operation and partnerships for development, including for bilateral and multilateral development partners. The exercise also provides evidence to follow-up on the implementation of the UN Funding Compact.
By engaging in the monitoring exercise and participating in country-level data collection, multilateral organisations can benchmark their performance on the implementation of the internationally agreed effectiveness principles. Evidence is generated across four dimensions: (1) whole of society approach to development: assesses whether multilateral organisations engage a diversity of country-level stakeholder groups in the development process and the quality of private sector engagement in development co-operation; (2) use of country systems: evaluates how multilateral organisations align with and use partner countries' core systems for development co-operation; (3) transparency: explores public availability of information on development co-operation; and (4) leaving no one behind: assesses how multilateral organisations ensure that everyone, including the vulnerable and marginalised, is consulted in development co-operation efforts.
Results provide multilateral organisations with valuable insights into their strengths and weaknesses, enabling them and their shareholders to allocate funding and resources more effectively. The results also contribute to transparency, dialogue and trust among stakeholders, and foster accountability in the multilateral development system.
Results for Burkina Faso and Bosnia and Herzegovina from the 2023-2026 round of the Global Partnership monitoring exercise offer early examples of how multilateral organisations are performing in these specific contexts.2 The 2023-2026 round of the Global Partnership monitoring is taking place on a rolling basis, with countries undertaking the exercise at different times based on their preference and context. In both Burkina Faso and Bosnia and Herzegovina, multilateral organisations outperformed bilateral partners on average across multiple metrics of the monitoring framework:
Whole-of-society approach: multilateral organisations engaged a broader range of country-level stakeholders in developing their country-level strategies than bilateral partners – including government, civil society organisations (CSOs), and private sector representatives. In Burkina Faso, multilateral organisations reported slightly higher inclusiveness of dialogues related to private sector engagement (PSE) in development co-operation than their bilateral counterparts. Additionally, a greater proportion of multilateral organisations track and share the results of PSE in development co-operation projects and programmes publicly. They also have more PSE-related grievance processes or mechanisms in place than bilateral partners.
Use of country systems: multilateral organisations show greater alignment with partner country results frameworks and planning tools than bilateral partners. In line with overall results from the 2018 round, in both countries multilateral organisations considerably outperformed bilateral partners in using government data and statistics to track progress on implementing their country-level interventions. However, results are mixed for the use of Public Financial Management (PFM) systems when channelling development co-operation to the public sector. In Burkina Faso, multilateral organisations used PFM systems more frequently than bilateral partners, whereas in Bosnia and Herzegovina, they used PFM systems much less than bilateral partners.
Transparency: in Burkina Faso, multilateral organisations lag behind bilateral partners in reporting to country-level information management systems for development co-operation and in sharing forward spending plans with the government (covering the next one to three years). The proportion of multilateral partners who make their country-level strategies publicly available is also significantly lower than for bilateral partners. This indicates a substantial opportunity to improve information sharing and transparency at the country level.
Leaving no one behind: multilateral organisations also performed better on consulting women and girls, youth and children and vulnerable and marginalised groups of the population. Similarly to bilateral partners, multilateral organisations show a high degree of inclusion of development priorities for a diversity of population groups in their country-level strategies. This signals important steps towards meeting the pledge of leaving no one behind.
Source: Analysis by the Global Partnership for Effective Development Co-operation (GPEDC) based on information and data from the 2023-2026 GPEDC monitoring round, in particular the Burkina Faso Monitoring Results 2023-2026 (GPEDC, 2024[31]) and the Bosnia and Herzegovina Monitoring Results 2023-2026 (GPEDC, 2024[32]).
2.4.1. Key findings
The chapter has outlined the growing relevance of multilateral development finance in development co-operation, and highlights significant evolutions in the multilateral development architecture:
Multilateral finance is assuming an increasingly central role in development co-operation, as evidenced by the growing “market share” of the multilateral development system in total official development finance, from 45% to 61% between 2012 and 2022. In addition, OECD DAC members’ total use of the multilateral development system has seen a gradual but steady increase over the past decade. From 37% in 2010, the share of funding channelled to or through multilateral organisations rose to 45% in 2021, before slightly declining to 43% in 2022. In the current high-risk post-pandemic context, characterised by a complex global financial environment with rising debt and high capital costs, multilateral institutions also play a crucial role in mobilising resources to help countries maintain financial stability.
There is a pressing need to expand the focus and capabilities of multilateral development finance in response to new global challenges. Recent calls to reform multilateral development finance seek to triple MDBs’ financing capacity and substantially scale up the mobilisation of private finance by 2030. These reforms highlight the need to adapt MDBs’ mandates, operational models, and financial tools to tackle contemporary issues, such as climate change and pandemics, effectively. While significant progress has been made in expanding MDBs’ mandates, other areas such as private finance mobilisation and capital utilisation require further attention and improvement to meet the ambitious targets set out.
For multilateral reform efforts to deliver on their promises, it is crucial to maintain a coherent and well-balanced multilateral development architecture. The system must evolve in a way that avoids the pitfalls of increased complexity and fragmentation, ensuring that all parts of the system work in harmony. Effective management of this growth, alongside a focus on enhancing coordination and reducing transaction costs, is essential. The analysis in this chapter underscores the importance of a systemic perspective in which reforms are not limited to MDBs but also consider the roles of other multilateral entities and the need for system-wide co-ordination. Ensuring a balance between efficiency and effectiveness will allow the multilateral development system to respond effectively to current and future global challenges.
2.4.2. Key recommendations:
Prioritise the rationalisation of the multilateral architecture in global discussions: Make systemic issues related to the expansion and fragmentation of the multilateral architecture a key agenda item in global fora, such as the FfD4 Conference and G20 meetings. Engage the heads of major IFIs, UN agencies, multilateral funds, and key official providers (e.g. G20 members) in this effort to provide guidance an co-ordinate actions according to their respective mandates. Promote and support global initiatives aimed at rationalising the multilateral architecture, especially in crowded sectors such as multilateral climate finance.
Promote greater collaboration in multilateral reforms: Ensure a collaborative approach to MDB and UN reforms. Use existing fora to share experiences and lessons from individual organisations engaged in reform processes to benefit the broader system and avoid a siloed approach to multilateral reforms. Opportunities for MDB learning include the AfDB’s transformation of country engagement, as well as EBRD’s experience in private finance mobilisation. Similarly, ensure that UNDS entities learn from the successes and challenges of ongoing special agency reforms, such as WHO’s.
Ensure coherence in multilateral development co-operation through whole-of-government approaches: Strengthen dialogue among government functions (aid agencies, treasuries, ministries of foreign affairs) on cross-cutting multilateral issues, such as the MDB reform. This can ensure coherence and balance between financial considerations promoted by treasuries and the focus on development impact central to foreign relations and aid agencies’ missions.
Harmonise donor requirements: Address the lack of standardisation in bilateral and multilateral donor requirements to reduce the burden on multilateral organisations and recipient countries:
Use discussions at the governing body of each organisation to agree on common reporting needs from bilateral donors. This is increasingly important given the growing role of emerging donors, which could otherwise impose additional burdens on multilateral organisations.
Ensure multilateral organisations and funds harmonise their requirements to reduce transaction costs in accessing multilateral funds for recipient countries and mitigate the impact of donor proliferation.
Bring effectiveness principles to scale: With close to half of ODA channelled through the multilateral system, it is important that the effectiveness principles adopted by bilateral donors – country ownership, focus on results, inclusive partnerships, transparency and mutual accountability – are not lost in the new global financing architecture. Reinvigorate the dialogue among and between multilateral and bilateral providers to operationalise and monitor the implementation of these principles in multilateral development co-operation.
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← 1. The UNDS Reform is an comprehensive change process, launched in 2018, with the aim to align UNDS capabilities, organisation, co-ordination mechanisms, skillsets, and resources with the needs of the 2030 Agenda.
← 2. Results for Bosnia and Herzegovina are based on reporting from 17 multilateral organisations, including 13 UN agencies, 2 Multilateral Development Banks, the European Union Institutions and the Organisation for Security and Co-operation in Europe. Results for Burkina Faso are based on reporting from 15 multilateral organisations, including 12 UN agencies, 2 Multilateral Development Banks and the European Union Institutions.