'MDBs need to be the tip of the spear': Experts Lawrence Summers, N.K. Singh on reforms of global development banks

One of the takeaways of India’s G20 presidency has been the call to reform multilateral development banks (MDBs). This was led by a G20 expert group headed by former US treasury secretary Lawrence Summers, President Emeritus of Harvard University; and N.K. Singh, former chairman of the 15th Finance Commission and President of the Institute of Economic Growth. In an interaction with Business Today, the Co-conveners shed light on the need for reforms and the way ahead. Edited excerpts:

Professor Summers, you recently said the world is on fire, and linked it to MDB reforms. What led you to this conclusion?

LS: There are two parts to it. The first is the degree of global challenge we face right now—millions of square miles of land were destroyed in fires this past summer. And that’s just indicative of the challenge of global climate change... We still face substantial pandemic threats… We see for the first time a major war in Europe, with substantial spillover consequences in terms of grain prices [and] food availability, for much of the world. So it’s a very dangerous moment in the world. And at the same time, it is a moment that is pregnant with opportunity to make lives better. We’ve seen more progress over the past 25 years in bringing down child mortality, in bringing up literacy, than we have seen at any point in the past. And if we want to keep that progress going, in the face of these challenges, we need more capital to flow to the developing world.

And that is the function of global development banks… They have extraordinary leverage; and they represent the world’s most serious effort yet at genuine global governance. And that’s why they need to be the tip of the spear, as we address these global challenges, and try to keep the global opportunities coming. That’s the central theme of our reports. And then we go into a wide variety of more specific issues. The importance of tripling the level of funding by the end of this decade; the importance of them doing their business in new ways, work much more closely with the private sector, work more closely with each other, [and] ways that use innovative finance.

Mr Singh, when the global financial crisis happened, an estimated $222 billion was deployed by the banks to address that crisis. Data suggests the spending was much lesser for Covid-19. Is this a classic example of why MDBs need to be fixed? What role has India played?

NKS: Let me begin with the role of India. Even before India assumed the G20 presidency, Prime Minister [Narendra Modi]had repeatedly emphasised the need to restructure MDBs as an integral part of restructuring the overall international financial architecture. If you look at the discussions of President [Joe] Biden, and Prime Minister Modi, during his last visit to the US, paragraph 40 of the recommendations is about strengthening MDBs. So [we] decided to constitute a group [to focus on that]. And we have been able to give a report which is a triple mandate—in addition to poverty issues and shared prosperity, we now have the issue of global challenges... That is why, in our recommendations, we have suggested that what is needed is roughly $3 trillion a year, between now and the end of this decade… $2 trillion will come from a country’s own domestic resource mobilisation; [of] the $1 trillion, half will come from private capital, and half from significantly enhanced concessional and non-concessional forms.

Professor Summers, you’ve said India can achieve eightfold growth by the middle of the century. What does it need to do to achieve that?

LS: India needs to be lucky in there being a successful, growing, peaceful, [and] safe global economy, because it won’t achieve that growth without the global environment being congenial. India needs to have reforms in key sectors: in agriculture with respect to aspects of the tax system; in the banking system on issues having to do with regional governments and national governments and their relationship. Third, India needs to continue to be more open to the world… And the last thing is—and this is where there’s probably been the greatest progress—a government focussed on providing platforms for prosperity.

Mr Singh, what does India organising and achieving a consensus at the G20 Summit represent for the country and what should young Indians take away from it?

NKS: I think several things. First, a feeling of satisfaction that the economic changes and liberalisation which began 30 years ago have only gathered momentum... Second, it has [shown that]… political stability and a leadership with abiding faith in the overall macroeconomic framework will bring about a much greater recognition in a world beset with uncertainties. And third, that India can do it. 

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(The interview took place prior to the G20 Finance Ministers and Central Bank Governors meeting on October 12-13 at Marrakesh, which welcomed the panel’s reports and reiterated the need for MDB reforms)