Multilateral development banks (MDBs) such as the Asian Development Bank (ADB), must do more and act faster to overcome spiraling poverty, debt distress and inequality which were intensified by the pandemic and help people while there is still time, said President of the Asian Development Bank, Masatsugu Asakawa.
The pandemic left a toxic legacy all amid a worsening cost-of-living crisis. Recent climate-related disasters are a tragic foretaste of the world and we must act now to prevent these immense and overlapping threats.
“Business as usual isn’t an option, especially in Asia and the Pacific where nearly 70 million people have fallen back into extreme poverty since the pandemic. We need bold action to deliver the estimated $3 trillion needed annually by 2030, according to the G20, to tackle global challenges and revive progress on the Sustainable Development Goals (SDGs).
“The G20 believes MDBs can help deliver this finance by wringing every last dollar from their balance sheets. I agree, and at ADB that process is well underway. In September, we announced capital management reforms that include optimising our prudential level of capitalisation.
These reforms unlock $100 billion in new commitments capacity over the next 10 years. They expand the bank’s annual new commitments capacity to over $36 billion — an increase of approximately $10 billion, or about 40%.
“This will make up to $360 billion available over the next decade to expand our climate investments, spur momentum on the SDGs, and increase our support for economies still suffering from pandemic impacts.”
Importantly, the reforms are designed to ensure ADB’s AAA credit rating is safeguarded. This is part of a series of innovations ADB has made to expand its lending capacity. In May, ADB announced the Innovative Finance Facility for Climate in Asia and the Pacific, which allows donors to guarantee parts of the existing sovereign loan portfolio on ADB’s balance sheet, allowing ADB to leverage and generate $5 in climate finance for every $1 of guarantees. “I see this as another advance on a continuous path of reform that all MDBs must take to respond effectively to rapidly evolving challenges like global warming.”
To meet these challenges head on, MDBs need to take urgent actions across three fronts. First, it is vital that MDBs expand their capacity to mobilise private investment for climate and sustainable development programs. Second, as many countries can’t afford to take on debt after spending to manage pandemic impacts, they need to raise more funds domestically. The G20 estimates that two-thirds of the required $3 trillion for global challenges can be raised through domestic revenue mobilisation and local finance.
Economies must mobilise more tax revenue, modernise tax authorities through digitalisation, and cooperate to ensure a fair and well-functioning international tax system. Environmental taxes are one way to increase domestic revenue and contribute to low carbon development, while a more efficient value-added tax (VAT), including VAT on the digital economy, could be a key source of income for developing countries. Finally, financial innovation must continue. ADB is working to deepen the region’s domestic capital markets. Stepping up the use of blended finance will crowd in private investment.
“We can further promote climate action by engaging with evolving carbon markets. ADB’s Climate Action Catalyst Fund Provides Relevant mitigation projects with upfront carbon finance through the purchase of carbon credits under Article 6 of the Paris Agreement.
“Crises can escalate quickly. We must move even faster to reduce the pain they cause and help secure a bright future for our region and beyond,” he said.
