Augment concessional lending to emerging economies

A clarion call comes for channeling more concessional loans through multilateral development system into emerging and developing economies to finance inclusive and sustainable development.

Speakers from regional countries in South Asia made the call at a programme Friday in Dhaka, saying that it is not possible for achieving inclusive and sustainable development with only internal finances from such economies especially in the wake of a two-pronged crisis.

In the wake of global crises like the pandemic and Russia-Ukraine war, it will be very difficult for developing countries, especially for the ones graduating from LDCs, to achieve the Sustainable Development Goals (SDGs) by 2030 with shrinking fund flow, they opined.

The views came at a webinar on 'Multilateral Development Finance: Supporting an Inclusive and Sustainable Recovery in South Asia', organised by the Centre for Policy Dialogue (CPD) in partnership with the Organisation for Economic Cooperation and Development (OECD).

Member of the Parliamentary Standing Committee on the Ministry of Foreign Affairs Kazi Nabil Ahmed addressed the event as chief guest. Director-General of Research and Information System for Developing Countries (RIS) in India Prof Sachin Chaturvedi, CPD Distinguished Fellow Dr Debapriya Bhattacharya, Director of Research, Institute of Policy Studies of Sri Lanka (IPS), Dr Nisha Arunatilake, Executive Director of South Asia Watch on Trade, Economics & Environment (SAWTEE) in Nepal Dr Paras Kharel spoke as the panelists.

OECD Unit Head (Policy Analysis and Strategy) Olivier Cattaneo and OECD Policy Analyst Jieun Kim gave a presentation on an OECD report titled 'Multilateral Development Finance 2022' at the event presided over by CPD Executive Director Dr Fahmida Khatun.

Dr Khatun said though the global challenges intensified further after Covid-19 pandemic and Russia-Ukraine war, support from international communities to developing world didn't increase at expected level.

"Instead, it has been more difficult for developing countries, especially for the ones graduating from least-developed countries (LDCs), to manage low-cost loans from multilateral development organisations," she said.

Though the overall support from multilateral development system grew by 31 per cent in 2020 compared to 2019, there is still a 63-percent gap in financing humanitarian efforts globally, she mentioned

It will be more challenging for LDC-graduating countries to manage loans in coming days in the backdrop of losing duty-free quota-free (DFQF) facility and low-cost loans from multilateral organisations, the CPD executive director said.

Professor Chaturvedi notes that South Asia has been going through a major economic shift in recent years when some of India's neighbours are graduating from LDCs. "Under such circumstances, though we have expected more, contribution from multilateral development system shrank by 8.5 per cent in- between 2015 and 2020."

It is true that the volume of foreign direct investment (FDI) has increased since the pandemic but a significant portion of it came as non-concessional loans in the field of climate change, green transformation etc, he said.

"In the interim, access to capital from international financers has been getting costlier."

He urged the developed world to lower the cost of transaction for sending remittances as it is a major sector of dependency for South Asian nations in terms of foreign-currency inflow.

Dr Bhattacharya said in the South Asian region, Bangladesh, Nepal and Pakistan have a high dependency on multilateral funding while India maintains a negative balance in this regard as it is more interested in bilateral financing.

"Though multilateral financing has been growing as per data from the OECD, there has been a deficit in core financing as large share of the multilateral funds is going to climate change- related efforts," he notes.

The economist urges the global community to channel quality funds into developing world to help overcome the two-pronged challenge of the pandemic and Russia-Ukraine war.

Besides, Ms Arunatilake stressed the need for more finance in policy formulation in developing countries to make it evidence- based and reducing politicisation.

She also expressed scepticism about achieving the SDGs with only domestic resources amid de-growth in quality international financing.

Mr Kharel advocated for increased private-sector financing from international community to help developing countries build a sustainable future.

Indicating sharp geopolitical polarisation, he also said as a land-locked country, if Nepal gets better access to transit to export its products, it will be easier for the country to deal with post-LDC challenges.

In the presentation, Mr Cattaneo said fund disbursement from multilateral development organisations increased by 37 per cent in 2020--the pandemic year-to help sustain the developing world.

However, he acknowledged that maximum of that funds went to the receiving end as climate finance from organisations like the World Bank Group (WBG), EU institutions, UN, and other multilateral development systems.

Meanwhile, he said, there are two vicious cycles of multilateral development finance remedying which is imperative to safeguard multilateral effectiveness.

Firstly, it is the short-term versus long-term tradeoff because short-term support is less effective in preparing for and preventing future crises and focuses on only short-term emergency response.

The second vicious cycle is lack of system-wide accountability that led to weak response to global challenges, increases fragmentation and complexity of the multilateral architecture, and lacks system-wide accountability.

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