By Olivier Cattaneo, Jieun Kim, Alfonso Figueroa and Abdoulaye Fabregas

How can we build a more effective multilateral development system to tackle global challenges? This question was central to the OECD Multilateral Development Finance Week (23-29 September 2024), which brought together experts from 14 different countries to discuss how multilateral organisations can adapt to new mandates and the changes in global development finance approaches.

The growing role of multilateral organisations

A recurring theme from the discussions was the expanding influence of multilateral organisations in development co-operation. Fahmida Khatun, Executive Director at the Centre for Policy Dialogue in Bangladesh, highlighted that multilateral organisations, from the United Nations (UN) system to development banks and vertical funds, now deliver nearly two-thirds of all official development finance (61%), up from 45% a decade ago. This growth reflects both increasing resources flowing through these institutions and their unique role in tackling complex global challenges that require co-ordinated responses and broad-based partnerships.

Samantha Custer, Director of Policy Analysis at AidData, a research lab at William & Mary’s Global Research Institute, emphasised that multilateral organisations have maintained a strong reach and performance over the past decade, even amid geopolitical competition and diminishing support for multilateralism. However, speakers also noted the challenges for the system to adapt and respond flexibly to changing geopolitics and overlapping crises.

Shifting focus: from quantity to quality

Another key point that participants noted was the need to not only grow multilateral development finance but also enhance its quality. Successive crises have led to an increasing share of resources being earmarked for immediate crisis response, often at the expense of long-term development goals. For instance, core funding contributions to multilateral institutions dropped by 6% in 2022, while earmarked contributions rose by 42%.

Alain Noudéhou, Executive Director of the UN Multi Partner Trust Fund Office (MPTFO), pointed out that two-thirds of the resources provided to the UN are earmarked for specific purposes, limiting the organisation’s ability to respond to unforeseen needs. However, the capitalisation of UN interagency pooled funds has more than tripled between 2010 and 2022, creating a pool of quality resources that allows for agile and joint responses to emerging challenges.

Fragmentation and resource competition

The continued expansion of multilateral development finance has led to fragmentation, with donors creating new multilateral entities in response to each crisis. Several participants expressed concern over the proliferation of narrowly focused funds within the multilateral system. John Hendra, former UN Assistant Secretary-General and Senior Advisor to the Dag Hammarskjöld Foundation, referred to this phenomenon as ‘multilateral funditis’ and warned that the creation of numerous single-issue funds, particularly in areas such as health, agriculture or climate, may lead to inefficiencies and growing competition for resources among multilateral entities. Such competition could ultimately undermine the coherence and complementarity of different mandates and normative functions, which are essential for the system to function effectively.

Abdoul Salam Bello, Executive Director at the World Bank Group, noted that while replenishments for specialised funds can be beneficial, they should not come at the cost of reducing funding for other more versatile multilateral entities, such as the concessional windows of multilateral development banks (MDBs). Proliferation of single-issue funds could limit developing countries’ ability to direct resources towards national priorities and long-term development strategies.

Financial innovation: a double-edged sword?

The reform of the global financial architecture and the role of innovative financial instruments was another major topic of discussion. The African Development Bank (AfDB) and Inter-American Development Bank (IADB) have proposed to re-channel Special Drawing Rights (SDRs) from developed to developing countries through investments in MDB hybrid capital. Hassatou Diop N’Sele, Chief Financial Officer and Vice President of the AfDB, outlined the significant progress achieved in developing this proposal, which allows SDRs to be used without losing their reserve asset nature or incurring interest costs for donors.

However, overreliance on financial innovation can also have downsides. Ueli Staeger, professor at the University of Amsterdam, cautioned that while innovative financing instruments have the potential to mobilise additional resources, they also introduce complexity and administrative costs. Several speakers also emphasised that financial innovation should be accompanied by efforts to increase multilateral concessional resources. For Syed Yusuf Saadat, Research Fellow at the Centre for Policy Dialogue, it is essential for countries like Bangladesh, where development and climate finance needs are high and debt sustainability is a concern, to preserve the concessional capabilities of MDBs.

Looking forward: prioritising sustainability and impact

As we approach the Fourth International Conference on Financing for Development (FfD4), the development community has a unique opportunity to shape a more effective and inclusive multilateral system—one that meets the diverse needs of developing countries while navigating an increasingly complex world. By focusing on quality, coherence, and impact, multilateral organisations can continue to serve as powerful catalysts for sustainable development. The OECD’s Multilateral Development Finance 2024 report provides a roadmap for reform, calling for greater collaboration, improved resource allocation and a balanced approach to financial innovation.

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