The context

An effective multilateral finance system that reflects the needs and priorities of its borrowing countries is going to be critical for a strong counter-cyclical response and the economic recovery post-COVID-19 crisis. However, the essence, purpose and the added value of the multilateral development system have been under increasing scrutiny and challenged by member states and shareholders. One reason for discontent is that multilateral development banks (MDBs) have strongly resisted calls for reforms that would help the system be more effective from a development perspective. In recent years, several contributions and experts group have tried to portray how the multilateral development system, particularly MDBs, could operate more effectively (e.g. CGD, 2016; EPG, 2018). The breadth and depth of the impact of the COVID-19 crisis and its long-term scars might provide the impetus to undertake necessary reforms.

The future of MDB financing and operations is ultimately reliant on the sustained demand from member countries for grants and loans in priority sectors, technical support, policy advice, convening power and knowledge products  Whether and why countries will continue to borrow from MDBs – i.e. ultimately what they value about MDBs – and what weaknesses of the financing and operation models of MDBs could curb demand are two fundamental questions for the future of these institutions. Financial terms and conditions that are cheaper than what domestic and international capital markets could offer and its combination of financing, technical assistance and convening are two of key advantages of borrowing from MDBs.

Commercial finance (domestic and, largely, international capital markets), traditional bilateral donors and emerging donors (e.g. China),  private consulting companies (on advisory services) and vertical funds e.g. in the health sector are the main competitors of MDBs. Even though lending from MDBs remains cheaper for many countries – even at non-concessional rates – governments with market access often choose to borrow from slightly more expensive capital markets to avoid conditionality on policies attached to MDB lending, loan processing time, environmental/social safeguards and procurement rules. The same applies to the demand for technical assistance and policy advice from consulting firms, often leaner and better tailored than those offered by MDBs.

Why this project

The perspectives of recipient country governments are, however, not prominent in decisions about strategies, resources, allocation and modalities. They are cited as anecdotes, as referred above, rather than analysed systematically. Many MDBs conduct surveys with their clients to improve their performance or review it (their independent evaluation offices conduct assessments annually and by function/area). These questionnaires are however patchy, e.g. administered every few years, old or in selected borrowing countries only. By their design, they reflect a single institution rather than MDBs as a group of lenders. These surveys largely focus on client satisfaction rather than on the effectiveness of the institution. They are often administered directly by the MDB and not independently, potentially creating a bias in clients’ responses. These surveys also tend to be backward looking; they do not capture forward-looking plans or preferences of recipient country governments.

Looking at the academic literature, there is also no systematic and tailored comparative assessment of the effectiveness of MDBs from the perspective of borrowing countries. Davies and Pickering (2015) and Custer et al. (2018) did so across all development partners, including MDBs, but questionnaires were not tailored to the specific functions MDBs were created for.

Our objectives and research questions

In this project, we undertake an independent, systematic, specific, forward-looking and system-based review of what recipient country governments value about the multilateral development banking system and how demand for assistance offered by MDBs is expected to evolve in the medium-term (5-10 years) across countries and sectors. We focus on the cases of the largest multilateral development banks, the World Bank Group (IDA and IBRD), African Development Banks, Asian Development Bank, Asian Infrastructure Investment Bank, European Bank for Reconstruction and Development and the InterAmerican Development Bank.

The analysis is largely based on a stakeholder survey in 70 countries. Questionnaires have been sent to senior government officials in central and line agencies responsible for coordinating, negotiating and managing projects with MDBs as well as and their counterparts in country offices of MDBs. This project builds and expands ODI research in this area, for example, An age of choice for development finance: evidence from country case studies & External finance for rural development: a synthesis of country perspectives.

Analysed by specific country contexts (income groups and regions), the project aims to address the following research questions:

1. Perceived strengths and added value of MDBs. 

• What are the perceived strengths of MDBs by government officials in beneficiary countries?
• What do government officials in beneficiary countries value most about the cooperation with MDBs operating in their country?

2. Perceived weaknesses of MDBs and areas for improvement. 

• What are the perceived weaknesses of MDBs by government officials in beneficiary countries?
• What should MDBs improve to meet their clients’ demand and how could MDBs increase their effectiveness?

3. (Qualitative) Future demand for assistance from MDBs. 

• How and why will demand for MDB assistance and services evolve in the medium-term (5-10 years)?

The evidence of this project is expected first to inform the rationale for shareholders to increase and/or modify the allocation of their overall portfolios towards the multilateral system (voluntary contributions, replenishment rounds and general capital increases when applicable). Second, the findings of this project are expected to improve and adapt the allocation and financial instruments to reflect demand from borrowing countries, also ahead of the IDA20 replenishment and ADF16 replenishment rounds.