The multilateral system is a significant and growing player in development co-operation. Encompassing more than 200 organisations – including those within the United Nations Development System (UNDS), as well as multilateral development banks (MDBs) and vertical funds – today the system delivers nearly two-thirds of all official development finance. This report, the fourth edition since 2018, presents the state of play in multilateral development finance, highlighting key trends and their implications, and making recommendations for sustaining its development impact in increasingly challenging times.
Multilateral Development Finance 2024
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Executive summary
Copy link to Executive summaryThe risk of financialisation: losing sight of development goals
Copy link to The risk of financialisation: losing sight of development goalsThe growing array of development challenges – from poverty reduction to climate change, and the impact of Russia’s war of aggression against Ukraine – is accentuating the pressure on the multilateral development system to evolve more quickly. The current reform drive, largely focused on strengthening the system’s financing capacity, is placing hefty expectations on the MDBs, pushing them to do more with the same or fewer resources. These institutions are urged to rely on financial innovation, extending a decade-long trend of “financialisation” which has seen them increasingly leverage their balance sheets to offset stagnating donor contributions. As a result, outflows from the World Bank Group and other MDBs rose substantially between 2012 and 2020, by 72% in the case of the World Bank Group (USD 35.3 billion) and by 155% for other MDBs (USD 61.8 billion).
Yet, relying on financial innovation will not be sufficient to meet expanded multilateral mandates, including tackling climate change, while maintaining support for traditional and vital areas such as poverty reduction. While MDBs have taken steps to grow their lending capacity, analysis in this report finds that these measures could at best allow for a 30% increase by 2030 – far short of the G20 Independent Expert Group’s call for tripling MDB lending capacity by that date.
The financialisation process behind the expansion of the multilateral development system’s financing capacities has seen a rise in non-concessional lending. This is particularly concerning amid heightened debt risks in developing countries: concessional finance must be preserved to ensure the continuity of multilateral support in challenging contexts, and fight poverty, which remains central to multilateral organisations’ mandates. Financial innovation must be balanced with additional donor contributions to manage the trade-off between scaling up overall financing and ensuring that concessional resources are available for the poorest and most vulnerable countries.
Investing in the system to deliver on expanded multilateral mandates
Copy link to Investing in the system to deliver on expanded multilateral mandatesThe expansion of the system raises other threats. Multilateral growth has contributed to an increasingly complex and crowded architecture, leading to fragmentation and presenting significant challenges to division of labour, co-ordination and overall effectiveness. Despite ambitious calls to strengthen the multilateral development system, the recent funding increases have predominantly come from contributions earmarked for crisis response, while the share of core funding for long-term development has fallen. Thus, although OECD DAC members are channelling more aid through the multilateral system than ever before, they appear less inclined to invest in its core, strategic functions, as evidenced by the 6% decline in core contributions registered in 2022. Although the system’s ability to pivot swiftly between crises is important, it should not detract from the need to invest in the system through core contributions, which ensure that multilateral organisations can maintain a focus on key long-term sustainable development goals, such as poverty and climate.
Balancing efficiency with effectiveness: an agenda for multilateral fitness
Copy link to Balancing efficiency with effectiveness: an agenda for multilateral fitnessThe current reform momentum offers a rare opportunity to strengthen the multilateral development system and equip it to achieve the global development agenda. However, there is a risk that reforms will fail if they remain narrowly focused on increasing financial efficiency.
DAC members, as the main shareholders and funders of the multilateral development system, can help support a well-balanced and effectively governed multilateral development system. This requires complementing efficiency (doing more with existing resources) with effectiveness (allocating more and better resources to deliver on mandates while ensuring transparency and accountability) and adopting a system-wide perspective (reforming other parts of the system beyond MDBs and promoting greater co-ordination and coherence).
Outlining solutions for a future-fit multilateral development system
Copy link to Outlining solutions for a future-fit multilateral development systemBuilding on the analysis, the report makes recommendations organised around the three dimensions of multilateral development finance outlined in its three main chapters:
1. Multilateral architecture and reform processes
Prioritise the rationalisation of the multilateral architecture in global discussions, such as the Fourth Financing for Development (FfD4) Conference and G20 meetings.
Promote greater collaboration in multilateral reforms, using existing fora to share experiences and lessons from organisations engaged in reform processes.
Strengthen dialogue in capitals among aid agencies, ministries of foreign affairs and treasuries on cross-cutting issues such as MDB reform, to balance financial and development considerations.
Address the lack of standardisation in bilateral and multilateral donors’ reporting requirements to reduce the burden on multilateral organisations and recipient countries.
Reinvigorate the dialogue between multilateral and bilateral providers on the aid effectiveness principles and accelerate and monitor their implementation in multilateral development co-operation.
2. Funding to the multilateral system (inflows)
Ensure successful replenishments of MDB concessional windows and global funds, and additional capital contributions, capitalising on their multiplier effect.
Secure adequate funding for core strategic functions, including by increasing the level of core contributions to rebalance core and earmarked contributions to UN organisations.
Prioritise flexible funding, such as contributions to multi-donor and inter-agency pooled funds, which foster co-ordination and enable organisations to adapt to countries’ needs.
Engage with emerging donors on multilateral development finance, using existing OECD DAC outreach mechanisms, such as regional policy dialogues, to develop common ground for good practices.
3. Financing from the multilateral system (outflows)
Safeguard the system’s capacity to support the poorest and most vulnerable. Assess the allocative impact of multilateral organisations’ reforms and increase their concessional resources.
Promote greater complementarity of multilateral aid portfolios by supporting research on multilateral aid portfolios to inform reforms and programming.
Support a greater role for multilateral organisations in creating a conducive environment for private investment at the country level to complement the current focus on deploying financial instruments at the project level.
Accelerate climate action, strengthening efforts to expand adaptation finance, including by mainstreaming climate into sectors beyond infrastructure and production.