This report presents the state of play in multilateral development finance, highlighting key trends and their implications. It examines recent and ongoing developments in multilateral development finance through the lenses of (1) the multilateral architecture and reforms; (2) funding to the multilateral system (inflows); and (3) financing from the multilateral system (outflows). The analysis sheds light on various shifts and challenges affecting the system, and feeds into policy recommendations, summarised at the end of this overview.
Multilateral Development Finance 2024
Multilateral Development Finance
Abstract
1.1.1. Multilateral finance occupies an increasingly central place in development co-operation
In an era of overlapping crises and development challenges, the multilateral system channels a large and growing share of official development assistance (ODA). The system encompasses more than 200 organisations mandated by their members and shareholders to promote international development. These include entities within the United Nations Development System (UNDS), multilateral development banks (MDBs) and vertical funds. OECD Development Assistance Committee (DAC) members’ contributions to multilateral organisations, representing inflows to the system, have steadily increased over the past decade. From 37% in 2010, the share of DAC members’ funding channelled to or through multilateral organisations rose to 45% in 2021, before slightly declining to 43% in 2022 (Figure 1.1, Panel A.). This overall upward trend in multilateral inflows reflects donors’ recognition of the multilateral system’s value in delivering aid projects to support sustainable development (OECD, 2020[1]).
Nearly two-thirds of official development finance is delivered by multilateral organisations. Multilateral organisations’ extensive reach, technical expertise and capacity make them indispensable for orchestrating collective responses to global development challenges (OECD, 2020[1]). As a result, through their outflows multilateral organisations deliver a large and growing share of total official development finance (ODF) to ODA-eligible countries. Between 2012 and 2022, the multilateral development system’s share of total ODF reached 61% (Figure 1.1, Panel B), up from 45% in 2012. This growth was driven both by the increase in donor contributions and by some multilateral organisations’ ability to leverage their resources by tapping into the capital markets.
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.
Source: Authors’ calculations based on OECD (2024[2]), OECD Data Explorer, DAC1 Table, http://data-explorer.oecd.org/s/t for Panel A and OECD (2024[3]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c for Panel B.
1.1.2. The multilateral development system is at the forefront of the global financial architecture reform
Faced with a growing array of development challenges, the multilateral development system is under pressure to accelerate its evolution. The widening gap between countries’ aspirations and their financial resources has sparked calls to reform the global financial architecture. Recent calls for reform have drawn attention to the financial limitations of the current system and the need to scale up multilateral development finance to ensure the system is equipped to fulfil expanded mandates in a context of multiple overlapping crises. Specifically, these calls for reform underscore the need to expand the scope of intervention and capacity of the major international financial institutions (IFIs), particularly the main MDBs and the International Monetary Fund (US Department of State, 2022[4]; Government of Barbados, 2022[5]).
As part of the current reform drive, the main IFIs have been asked by their shareholders and members to undergo a triple transformation. This involves: (1) expanding their mandates beyond their traditional focus on poverty and inequality to also address global challenges, including support to global public goods (GPGs) such as climate change; (2) improving how these institutions operate, including by transforming their country engagement, to ensure they deliver enhanced development outcomes; and (3) transforming the multilateral toolbox by leveraging financial innovation to increase MDBs’ lending capacity and accelerate the mobilisation of private finance.
However, the financial gains from current multilateral reforms – though significant – risk falling short of initial expectations. At the 2024 World Bank-IMF Spring meetings, ten MDBs1 estimated that they could collectively expand their lending headroom by an additional USD 300 billion to USD 400 billion over the coming ten years (African Development Bank et al., 2024[6]). This would represent a 30% increase on their pre-COVID-19 commitment levels. Even under this optimistic scenario, this equates to just USD 40 billion more per year – substantially less than the additional USD 260 billion per year called for by the G20 Independent Expert Group (IEG) to meet the Sustainable Development Goals. By 2030, this discrepancy could amount to a cumulative financing shortfall of around USD 755 billion (Figure 1.2). Bridging this substantial gap would require exploring new options – including additional donor contributions – beyond the balance sheet optimisation measures and financial innovations currently under consideration.
The current reform focus on the MDBs should not distract from the need to strengthen the other parts of the multilateral development system or to complete unfinished reforms. The 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 the reforms will fail to deliver if efforts remain narrowly focused on increasing the financial efficiency of the MDBs. A well-balanced and effectively governed multilateral development system 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). This will involve tackling unfinished reform processes in other parts of the system, such as the recently updated UN Funding Compact (United Nations, 2024[7]), and addressing often-neglected reform areas, such as funding quality and coherence of the multilateral architecture. These factors are gaining importance as the system’s constant growth introduces vulnerabilities that need to be balanced with structural and systemic improvements.
MDB commitments (2006-22) and pathways for scaling up MDB financing capacity (2022-32)
Source: Authors’ calculations based on OECD (2024[3]), OECD Data Explorer, Creditor Reporting System (database), https://stats.oecd.org/Index.aspx?DataSetCode=crs1; and African Development Bank et al. (2024[6]), MDBs Working as a System for Impact and Scale, https://www.iadb.org/document.cfm?id=EZIDB0000577-986313001-135.
1.1.3. Multilateral growth has contributed to an increasingly complex architecture
The growth of multilateral development finance in response to new development challenges has been accompanied by an expansion of the multilateral architecture. Stakeholders of the multilateral development system tend to establish new entities in response to each new crisis or development challenge: the number of entities on the list of ODA-eligible international organisations rose from 121 in 2000 to 212 in 2020. As new organisations are created and existing ones broaden their mandates and operational capabilities, the multilateral development architecture becomes more versatile, but also more intricate.
The continued expansion of the multilateral development system leads to fragmentation. Over time, a crowded and complex architecture can present significant challenges in terms of division of labour, co-ordination and overall effectiveness. At the country level, the presence of a growing number of multilateral providers can complicate co-ordination and undermine country ownership. Some multilateral organisations are stretching their resources across an increasing number of activities, sectors and recipients. This not only complicates the management and oversight of projects – it also reduces the potential for achieving substantial, transformative outcomes in recipient countries.
1.2.1. The crisis-induced growth in multilateral contributions exacerbates existing tensions in the system
Although there is a variety of multilateral organisations with different funding models, members and shareholders represent a vital source of funding. Their contributions to the multilateral development system can be divided into two types. The first are core contributions, also referred to as multilateral ODA, which consist of funding that multilateral organisations can allocate as they see fit, within the parameters set by their governing board. The second are earmarked contributions, also known as non-core or multi-bi aid, which are funds targeted to specific sectors, themes, countries or regions. 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.
In 2022, DAC members’ total use of the multilateral system reached a new record high, totalling USD 98.5 billion. This marks the seventh consecutive annual increase in total use of the multilateral system. This amount comprised USD 50.6 billion in core contributions (multilateral ODA), while earmarked contributions (non-core or multi-bi aid) amounted to USD 48 billion (Figure 1.3, Panel A).
Note: The two graphs present DAC countries’ total use of the multilateral development system, which covers both their core contributions (multilateral ODA) and their earmarked contributions (non-core, or multi-bi aid) to multilateral organisations. Calculations are based on disbursements, in 2022 constant prices.
Source: Authors’ calculations based on OECD (2024[8]), OECD Data Explorer, “Members’ total use of the multilateral system”, http://data-explorer.oecd.org/s/s.
Exceptional levels of support to Ukraine through earmarked contributions largely drove the 2022 increase in the total use of the multilateral development system. Several DAC members provided significant support to Ukraine, primarily as budget support through the MDBs. Overall, while earmarked contributions surged by 42% between 2021 and 2022, however, core contributions dipped by 6%. This led to a significant rise in the share of earmarked contributions as a percentage of total contributions observed in 2022. Over the past decade, earmarked contributions have gradually but steadily increased from 30% in 2010 to 38% in 2021. Between 2021 and 2022, however, this share surged by 11 percentage points, from 38% to 49% (Figure 1.3, Panel B).
Earmarked contributions, already entrenched in the UNDS, are becoming more apparent across the rest of the multilateral development system. Previous editions of the report have shown that reliance on earmarked contributions varies across multilateral organisations, with the practice of earmarking being particularly prevalent within the UNDS (OECD, 2015[9]). Successive crises in recent years have led to a widespread increase in earmarking across the entire multilateral development system. Figure 1.4 depicts how earmarked contributions to the World Bank Group rapidly rose in 2022, in large part as a means to channel finance to Ukraine. Earmarking to the IMF also surged, as donors channelled funds through the Poverty Reduction and Growth Trust (PRGT), likely with the aim to support countries affected by successive crises.
DAC countries’ core and earmarked contributions to multilateral organisations, 2010-22
Note: The graphs present DAC countries’ total use of the multilateral development system, which covers both their core contributions (multilateral ODA) and their earmarked contributions (non-core, or multi-bi aid) to multilateral organisations. Calculations are based on gross disbursements, in 2022 constant prices.
Source: Authors’ calculations based on OECD (2024[8]), OECD Data Explorer, Members’ total use of the multilateral system (database), http://data-explorer.oecd.org/s/s.
The growth in multilateral contributions is driven by crisis response, rather than long-term sustainable development priorities. When excluding funds earmarked for recent crises, contributions to the multilateral development system remained relatively flat between 2012 and 2022 (Figure 1.5). In fact, multilateral contributions would have stagnated if not for the funding earmarked for crisis response. Notably, contributions earmarked for humanitarian assistance, the response to the COVID-19 pandemic and Ukraine rose by more than 400% over the ten-year period, compared to a more limited 43% increase in other multilateral contributions.
DAC countries’ core contributions and earmarked contributions for humanitarian, COVID-19, Ukraine and other development purposes, 2012-22
Note: Calculations are based on DAC countries’ gross disbursements, in 2022 constant prices. Contributions earmarked for humanitarian aid correspond to those reported to the Creditor Reporting System under sector codes 720, 730 and 740. Contributions earmarked for COVID-19 correspond to those reported under the purpose code 12264. Contributions earmarked for Ukraine are those reported under the recipient code 85.
Source: Authors’ calculations based on OECD (2024[8]), OECD Data Explorer, Members’ total use of the multilateral system (database), http://data-explorer.oecd.org/s/s.
To deliver on the global sustainable development agenda, multilateral organisations need resources that enable them to tackle long-term development challenges. While the multilateral development system’s ability to pivot swiftly between crises is an important feature, maintaining a focus on other key sustainable development goals requiring a long-term horizon, such as poverty reduction and climate, is equally important. The recent rise of earmarked contributions for crisis response should not detract from the need to invest in the system through core contributions, which ensure that multilateral organisations can help developing countries achieve vital long-term objectives. These core resources are essential as they provide multilateral organisations with the flexibility to allocate funding according to the evolving needs of recipient countries. Moreover, a strong base of core funding helps safeguard the financial health and operational integrity of multilateral institutions by providing the financial foundation for their corporate functions, such as human resources management, strategic planning, and monitoring and evaluation. Ultimately, a continued shift towards earmarked funding can undermine the capacity of these institutions to pursue their core mandates effectively and sustainably.
Maintaining a critical mass of core contributions thus remains essential for ensuring the system’s ability to respond to global development challenges. Some organisations, such as the World Health Organization (WHO), are making efforts to rebalance the share of core versus earmarked contributions. These demonstrate that though challenging, rebalancing funding models to reduce over-reliance on earmarked contributions is feasible with concerted effort and commitment from all multilateral stakeholders.
1.2.2. Stagnating donor contributions to the MDBs are driving the financialisation of the system
Funding to UN entities and vertical funds saw a sharp increase, driven by the need to address recent crises. The traditional funding model of these institutions, which largely relies on members’ contributions, led to a substantial increase in funding to address the additional needs generated by these crises. For instance, funding to the UNDS more than doubled between 2012 and 2022, rising from USD 19.0 billion to USD 41.9 billion (Figure 1.6).
By contrast, contributions to the MDBs have remained relatively flat over the past decade, reflecting their growing reliance on financial innovation. This trend of flat or declining contributions stands in stark contrast to the MDBs’ growing outflows over the same period. This divergence is driving MDBs’ increasing reliance on financial innovation to boost their financing capacity. Such innovation includes efforts to increase MDB lending through balance sheet optimisation measures such as merging their concessional and non-concessional windows and risk transfer agreements (OECD, 2022[10]). Since 2021, this has been reinforced by the reforms that are demanding these institutions do more with the same or even fewer resources by relying even further on balance sheet optimisation and the use of innovative financial instruments, such as donor guarantees and hybrid capital instruments.2 Ultimately, these trends result in a financialisation of the system, characterised by a growing dependence of development finance providers on financial instruments, financial markets, financial motives and financial institutions for managing and implementing development co-operation activities.
DAC members’ contributions by category of multilateral organisation, 2012-22
Note: Calculations are based on DAC countries’ gross disbursements, in 2022 constant prices. Contributions include both core and earmarked funding.
Source: Authors’ calculations based on (OECD, 2024[8]), OECD Data Explorer, Members’ total use of the multilateral system (database), http://data-explorer.oecd.org/s/s.
Although the financialisation of the multilateral development system has been beneficial for increasing MDB financing capacity, it will not be sufficient to achieve MDB reform targets. Financial innovations are essential for leveraging additional resources, but they should not overshadow the critical need for consistent and substantial donor contributions that capitalise on the multiplier effect of MDBs’ leverage capacity. For example, for every dollar contributed by donors, the World Bank Group’s concessional arm, IDA, can provide four dollars for sustainable development (World Bank Group, 2024[11]). Similarly, general capital increases for major MDBs can unlock additional financing capacity that far outweigh the contributions of donors. For instance, the USD 13 billion in paid-in capital provided by the World Bank Group’s shareholders during the institution’s latest general capital increase in 2018 boosted its lending capacity by about USD 41 billion annually through 2030 (Kenny and Morris, 2021[12]). Conversely, for donors, not capitalising on such high-impact funding modalities, and instead prioritising unleveraged contributions through trust funds, represents a significant opportunity cost.
1.2.3. Emerging donors are slowly reshaping the funding base of multilateral institutions
Although DAC members continue to play a pivotal role in the multilateral development system, a few emerging donors are progressively assuming greater prominence. DAC countries remain the largest funders of the multilateral development system. Collectively, they accounted for 95% of donor contributions to the UNDS in 2022, while emerging donors contributed approximately 4% and other official donors made up the remaining 1%. However, a few emerging actors are gradually carving out a leadership role in the multilateral development system. Specifically, the People’s Republic of China became the 15th largest donor to the UN Development System in 2022, a significant leap from 23rd in 2012 (Figure 1.7). Moreover, the country boosted its contributions to IDA replenishments by 763% between IDA16 and IDA20 (completed in 2010 and 2022). This placed China among the top 20 largest contributors to IDA20, alongside Saudi Arabia and India. India’s rise is particularly remarkable, as the country did not contribute to IDA16 in 2010 but has become one of the largest IDA contributors in 2022.
Funding to UNDS, 2022, and % change in contributions, 2012 versus 2022
Note: Emerging donors include Brazil, Russia, India, China, South Africa, Indonesia, Argentina, Chile, Mexico, Israel, Saudi Arabia, Türkiye, and the United Arab Emirates (Hughes and Mitchell, 2023[13]). Calculations include core assessed, core voluntary and non-core (earmarked) contributions provided by government donors but exclude non-core local resources.
Source: Authors’ calculations based on UNSCEB (2024[14]), Financial Statistics, https://unsceb.org/financial-statistics.
Emerging donors are increasingly leveraging the “power of the purse” to secure influence in the UNDS. Funding serves as a mechanism for countries to assert their influence, and the highest contributions from emerging donors to specific UN entities reveal their strategic priorities. For instance, China’s largest contributions go to the UN Secretariat and the Food and Agriculture Organization (FAO), while its earmarked funding prioritises the UN Department for Economic and Social Affairs (UN DESA). This is consistent with China’s objective of securing high-level UN senior management positions: Chinese nationals currently lead both UN DESA and the FAO. Similarly, Saudi Arabia focuses its contributions on the World Food Program (WFP) and the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA), and the United Arab Emirates targets the WFP and FAO, reflecting their emphasis on humanitarian assistance and support for the Middle East region. Funding practices are also increasingly wielded as an instrument of soft power and diplomatic leverage. This was notably exemplified in 2020 when China publicly criticised the United States for its funding arrears, highlighting the geopolitical dimensions that multilateral funding practices can assume (Fung and Lam, 2022[15]).
1.3.1. Multilateral outflows remain resilient despite multiple shocks and crises
Multilateral outflows rebounded in 2022 after a temporary decline in 2021. In 2022, multilateral outflows amounted to USD 259 billion, reflecting a 12% increase on the previous year (Figure 1.8). This recovery followed a 12% decrease in 2021, which saw subdued outflows after an exceptional expansion in financing to combat the COVID-19 crisis in 2020, reaching the record level of USD 264 billion. Of the total outflows in 2022, USD 46 billion (18%) were earmarked, while USD 213 billion (82%) were from multilateral organisations’ core resources. As discussed in Chapter 2, a significant part of the increase in multilateral development finance between 2021 and 2022 can be attributed to heightened support for Ukraine.
Evolution of multilateral outflows from core and earmarked resources, 2012-22
Note: Calculations are based on commitments, in 2022 constant prices.
Source: Authors’ calculations based on OECD (2024[3]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
Multilateral organisations have been swift to adapt their sectoral allocations in response to successive crises. The previous edition of this report stressed the ability of multilateral organisations to pivot their support towards health and social protection during the COVID-19 pandemic, highlighting their flexibility and versatility (OECD, 2022[10]). This capacity to adapt to changing circumstances was again evident in 2021 and 2022, this time in response to the impact of Russia’s war of aggression against Ukraine (Figure 1.9). For example, the share of humanitarian aid increased from 7% in 2020 to 10% in 2021 and 13% in 2022. This reflected the change in priorities of multilateral organisations, as they shifted their pandemic focus from public health and social protection towards humanitarian crisis response. Notably, budget support stands out as a versatile modality to help countries weather budgetary issues created by different crises. Multilateral outflows for governance interventions, which includes budget support, registered a significant rise (from 11% to 17%) between 2019 and 2020, as the multilateral development system supported developing countries during the first year of the COVID-19 pandemic. After decreasing to 13% in 2021, it increased again to 16% in 2022, as multilateral channels were used to offer budgetary relief to Ukraine.
Sector distribution of multilateral outflows (core and earmarked), 2019-22
Note: Share of total sector allocable multilateral core and earmarked commitments, in 2022 constant prices.
Source: Authors’ calculations based on OECD (2024[3]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
1.3.2. Multilateral organisations are venturing beyond traditional mandates to tackle new priorities
In addition to their traditional mandates, multilateral organisations are stepping up to address new priorities of the financing for sustainable development agenda. These include (1) new efforts to mobilise largely untapped financing sources, such as private finance, to unlock additional resources for developing countries; and (2) enhancing their contributions to frontier areas in development financing, such as climate finance.
Multilateral providers lead efforts to mobilise private finance, but more is needed
Multilateral organisations have become the principal actors in private finance mobilisation. In 2022, multilateral providers mobilised USD 47 billion in private finance, compared to 14 USD billion mobilised by DAC members. The share of multilateral actors in the total amounts mobilised increased from 67% in 2015 to 77% in 2022. Among the multilateral organisations, private finance mobilisation is primarily led by the MDBs and EU institutions. Between 2020 and 2022, the International Finance Corporation (IFC), Inter-American Development Bank (IADB), Multilateral Investment Guarantee Agency (MIGA) and the EU institutions mobilised the largest amounts of private finance. Despite significant progress, multilateral organisations face mounting pressure to enhance their mobilisation efforts. The total amount mobilised from both multilateral and DAC providers in 2022, USD 62 billion, is still far short of the G20 IEG’s annual target of USD 240 billion by 2030 (G20 IEG, 2023[16]). In addition, existing mechanisms have demonstrated their limitations in rapidly scaling up private finance. For example, the International Development Association’s (IDA) Private Sector Window got off to a slow start, using only half of its initial envelope, although the pace of project approvals has recently picked up.
As for the other MDB reform areas, a focus on expanding the use of financing instruments will not be sufficient to overcome all the obstacles to mobilising private finance. Research has shown that investment challenges in the poorest and most vulnerable countries stem from a combination of national-level factors, including political instability and high indebtedness, and project-level risks such as high project preparation costs. It is thus important, while backing MDBs’ efforts, to recognise the limitations in terms of scalability of such project-based approaches. There are also doubts about the value for money and additionality of interventions that use scarce concessional resources to subsidise private investments. This situation calls for clear criteria to explicitly and consciously evaluate the benefits and costs of designing blended finance initiatives, especially in least developed countries and other challenging contexts.
Multilateral climate finance has grown, but enhancing its scale and focus is challenging
Multilateral organisations are increasingly embracing climate action in their mandates. MDBs’ climate-related development finance surged by nearly 300% between 2013 and 2022, from USD 16.4 billion to USD 65.2 billion. The share of operations dedicated to climate finance grew from about 15% of their total operations in 2015 to 24% in 2022 (Mitchell and Wickstead, 2024[17]).
Multilateral organisations need to change their models to improve climate support. Despite greater multilateral focus on climate action, meeting the growing needs in this area will require both more financing and better targeting. The current levels of financing fall short of the ambitious climate goals set by the international community. The United Nations Framework Convention on Climate Change’s notes that developing countries require at least USD 6 trillion by 2030 to meet less than half of their existing Nationally Determined Contributions (UNFCCC Standing Committee on Finance, 2021[18]). However, there are also significant disparities in the allocation of funds, with insufficient resources directed towards the most vulnerable, such as adaptation efforts in low-income countries.
1.3.3. Tensions are rising as organisations juggle their traditional roles with new mandates and responsibilities
The multilateral development system’s capacity to address poverty mainly relies on its concessional, donor-funded facilities. The fight against poverty has historically been a central focus of multilateral development concessional finance, with many multilateral organisations’ mandates dedicated to poverty reduction. Figure 1.10, Panel A suggests that multilateral organisations’ outflows have a stronger focus on poverty than bilateral donors’, leveraging their ability to provide concessional finance to the poorest and most vulnerable countries. Multilateral providers’ stronger poverty and inequality focus is also evident in their sectoral allocations, which target greater portions of their development finance to social sectors than do bilateral donors (Figure 1.10, Panel B).
Note: In Panel B, calculations are based on commitments, in 2022 constant prices.
Source: Authors’ calculations based on OECD (2024[3]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c; World Bank Group (2024[19]), World Development Indicators (database), https://databank.worldbank.org/source/world-development-indicators.
If not managed properly, the trade-off between scale and concessionality could end up limiting multilateral organisations’ poverty focus. Typically, organisations that exclusively provide concessional finance tend to commit fewer financial resources overall than those that provide both concessional and non-concessional finance. Figure 1.11 traces the change in the share of concessional finance and the overall volume of multilateral organisations’ financing between 2013-2015 and 2020-2022. It reveals that most organisations increased the size of their financial commitments during this period, some significantly. However, many of these organisations also reduced the proportion of concessional finance within their total commitments.
Change in outflows and change in share of concessional finance, 2013-15 versus 2020-22
Note: Calculations are based on commitments, in 2022 constant prices. ADB: Asian Development Bank; AfDB: African Development Bank; EIB: European Investment Bank; IADB: Inter-American Development Bank; IDA: International Development Association; IsDB: Islamic Development Bank; WFP: World Food Programme. Bubble size represents volume of outflows.
Source: Authors’ calculations based on OECD (2024[3]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
The continued reliance on financial innovation is likely to tilt the balance further towards non-concessional resources, which are typically less well suited to fighting poverty. In particular, multilateral reforms focused on optimising MDB balance sheets could undermine their ability to effectively target poverty-relevant sectors and support the poorest and most vulnerable countries if not complemented by efforts to stock up their concessional resources.
This report has identified three gradual yet long-running shifts in multilateral development finance. These shifts fall into three broad areas: (1) expansion; (2) diversification; and (3) fragmentation. They have implications for all the aspects of multilateral development finance examined in this report: the multilateral architecture and reform processes (Chapter 2), funding to the multilateral system (inflows) (Chapter 3), and financing from the multilateral system (outflows) (Chapter 4). Figure 1.12 summarises these shifts and their implications.
Against this backdrop, the report puts forward policy recommendations to make multilateral development finance fit for the future. These recommendations aim to equip multilateral organisations to fulfil their original mandates while also developing the capacity to address emerging challenges and manage trade-offs. The common thread running through these recommendations is the goal of balancing the efficiency-driven measures of ongoing reforms with a re-emphasis on multilateral effectiveness:
1.4.1. Multilateral architecture and reform process
Prioritise rationalising the multilateral architecture in global discussions: Make the systemic issues related to the expansion and fragmentation of the multilateral architecture a key agenda item in global fora, such as the Fourth Financing for Development (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 and 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, UNDS entities can learn from the successes and challenges of ongoing special agency reforms, such as the World Health Organization.
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 donors’ reporting requirements to reduce the burden on multilateral organisations and recipient countries:
Use discussions in 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 aid 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.
1.4.2. Funding to the multilateral development system (inflows)
Maximise contributions to high-impact funding mechanisms: Capitalise on the multiplier effect of multilateral funding mechanisms to achieve initial reform targets by ensuring successful replenishments of MDB concessional windows and global funds. Explore the possibility of additional capital contributions (e.g. to general capital increases or hybrid capital instruments). Ensure that a substantial portion of multilateral development finance remains highly concessional and affordable for the poorest and most vulnerable countries.
Ensure adequate funding for core strategic functions: Invest in the core functions of multilateral organisations to maintain their ability to perform their mandates. Adjust the formula and level of UN assessed contributions to reflect member countries' actual economic weight. This can ensure increased, fair share contributions, and help rebalance core and earmarked contributions to the UNDS. Recognising the specificities of each multilateral organisation, bring discussions on funding quality to their governing bodies to complement general UN Funding Compact commitments (following the model of the WHO reform or structured financing dialogues).
Prioritise flexible funding: In accordance with UN Funding Compact commitments, prioritise multi-year and flexible funding modalities, such as contributions to multi-donor and inter-agency pooled funds, as these foster co-ordination, reduce fragmentation and enable organisations to adapt to countries’ needs.
Engage with emerging donors on multilateral development finance: Acknowledge the growing role of some non-DAC donors in the multilateral system. Use existing OECD DAC outreach mechanisms, such as the policy dialogues with Arab, Latin American and Caribbean countries, to discuss insights from OECD analysis on multilateral development finance and effective multilateral development co-operation and to develop common ground for good practices in these areas.
1.4.3. Financing from the multilateral development system (outflows)
Safeguard the system’s capacity to support the poorest and most vulnerable: Preserve multilateral organisations’ capacity to target poverty-relevant sectors and support the poorest and most vulnerable countries by monitoring the impact of their reforms and increasing their concessional resources.
Commission an assessment through the G20 or another relevant global forum to understand the impacts of recent and ongoing reforms on aid allocation across sectors, regions and country groupings.
Complement efforts to increase MDBs’ financial leverage with measures to stock up their concessional resources, reversing the decade-long trend of stagnation in donor contributions.
Promote greater complementarity of multilateral aid portfolios: Support research on multilateral aid portfolios at the sectoral and country levels, such as OECD portfolio similarity analyses, to inform multilateral reforms and programming. This can contribute to greater transparency, coherence and co-ordination among multilateral activities by clarifying their complementarity in terms of sector, geography and instrument.
Catalyse private investment: Build on, and learn from, innovative portfolio approaches to tap into different sources of private finance, including institutional investors. Adopt clear criteria to evaluate the additionality and opportunity costs of blended finance initiatives, especially in least developed countries and other challenging contexts. Support a greater role for multilateral organisations in creating an environment conducive to private investment at the country level, such as by supporting initiatives to address risk misperceptions, to complement the current focus on deploying financial instruments at the project level.
Accelerate climate efforts in high-impact areas: Ensure the additionality of multilateral climate finance and development finance, such as by targeting win-win investments to support country-led strategies. This includes strengthening efforts to expand adaptation finance, including by mainstreaming climate into sectors beyond infrastructure and production. Ensure climate diagnostics are embedded into country strategy and results frameworks. Improve and standardise climate reporting to rigorously assess the climate contribution of projects ex-ante and ex-post. Enhance co-ordination among multilateral and bilateral development partners through joint monitoring and knowledge work, including through country platforms.
References
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[5] Government of Barbados (2022), The 2022 Bridgetown Initiative for the Reform of the Global Financial Architecture, https://pmo.gov.bb/wp-content/uploads/2022/10/The-2022-Bridgetown-Initiative.pdf.
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← 1. African Development Bank (AfDB); Asian Development Bank (ADB); Asian Infrastructure Investment Bank (AIIB); Council of Europe Development Bank (CEB); European Bank for Reconstruction and Development (EBRD); European Investment Bank (EIB); Inter-American Development Bank (IDB); Islamic Development Bank (IsDB); New Development Bank (NDB); World Bank Group (WBG)
← 2. Hybrid capital instruments are financial instruments that have both debt and equity properties. Such instruments are specifically designed to be subordinated to other types of debt and may be written off to absorb losses.