Masatsugu Asakawa is president of the Asian Development Bank.
The world is at a tipping point. The pandemic left a toxic legacy of spiralling poverty, debt distress, and growing inequality, all amid a worsening cost-of-living crisis and geopolitical instability. Even more alarming is climate change, a long-term existential threat that is already wrecking lives and costing billions.
Recent climate-related disasters are a tragic foretaste of the world that awaits if we don’t act now to prevent these immense and overlapping threats, or polycrises, from defining our future.
Multilateral development banks (MDBs) like the Asian Development Bank, of which I am president, must do more and act faster to overcome these crises and help people while there is still time. 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 and which accounts for more than half of the world’s greenhouse-gas emissions.
We need bold action to deliver the estimated US$3-trillion needed annually by 2030, according to the G20, to tackle global challenges and revive progress on the Sustainable Development Goals.
The G20 believes MDBs can help deliver this finance by wringing every last dollar from their balance sheets. I agree, and at the Asian Development Bank that process is well under way. In September, we announced capital management reforms that clarify our risk appetite and reduce our capital set aside for unexpected losses – creating the opportunity to lend more money.
And it won’t be our last step. I see this as another step on a 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 mobilize private investment for climate and sustainable development programs. MDBs are uniquely placed to leverage the billions of dollars in development finance on their balance sheets to the trillions needed to generate private investment at all stages of the project cycle.
This includes promoting policy development upstream to create an enabling environment for private investment, creating bankable projects midstream through advisory support, and financing projects downstream to attract private capital.
Second, as many countries can’t afford to take on debt after spending to manage pandemic effects, they need to raise more funds domestically. The G20 estimates that two-thirds of the required US$3-trillion for global challenges can be raised through domestic revenue mobilization and local finance.
Economies must mobilize more tax revenue, modernize tax authorities through digitalization, and co-operate with other countries 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, including one on the digital economy, could be a key source of income for developing countries. Countries should also revisit policies on fossil-fuel subsidies.
Finally, financial innovation must continue. The Asian Development Bank is working to deepen the region’s domestic capital markets. Increasing up the use of blended finance will attract private investment. De-risking instruments such as credit-enhancement products through guarantee schemes and insurance can unlock capital for climate action, as can instruments such as thematic and sustainable bonds.
We can further promote climate action by engaging with evolving carbon markets to help curb greenhouse gas emissions.
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.