Heeding the calls of the G20 and their country shareholders in recent years, multilateral development banks (MDBs) have ramped up lending to address the impacts of the global financial crisis, reach the Sustainable Development Goals and make the sustainable infrastructure investments required to keep pace with economic growth. But like all financial institutions, MDBs can only lend a certain amount based on their capital, and the available ‘headroom’ is narrowing.
In light of the new US administration’s attitude toward international engagement, a new round of capital increases for the MDBs looks complicated. This working paper evaluates the following six options to strengthen MDB capital adequacy, in order of their potential financial impact as well as their political and technical viability:
- Push ahead with general capital increases for the World Bank and the African Development Bank (AfDB), and consider adding capital to the Inter-American Development Bank and the European Bank of Reconstruction and Development.
- Reform MDB capital adequacy metrics.
- Merge balance sheets at the World Bank and the AfDB.
- Grow net income and eliminate shareholder allocations.
- Optimise MDB balance sheets.
- Make callable capital more operationally useful.