MDBs at FfD4: More Attention, Few Breakthroughs?

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Image of the Square in Seville, “4th International Conference on Financing for Development 30 June–3 July 2025 Seville, Spain”

Image by Gerhard Bögner on Pixabay

Multilateral Development Banks (MDBs) have played a central role in financing sustainable development for over eight decades. Their growing prominence in international development cooperation is evident in the First Draft of the 4th International Conference on Financing for Development (FfD4) Outcome Document, where they are mentioned over 40 times—a fourfold increase from the Addis Ababa Action Agenda adopted at FfD3 a decade ago. The wide range of issues they are now expected to address further highlights this heightened focus.

This surge in attention reflects not only MDBs’ increasing financial clout—with major MDBs disbursing nearly USD 96 billion in loans in 2022 alone, more than triple the USD 30 billion in 2000 —but also their rising relative importance as Official Development Assistance (ODA) stagnates and now enters a sharp decline. ODA doubled over the same period to reach around USD 211 billion in 2022 before falling by 7% between 2023 and 2024. As the FfD4’s call for donor countries to meet the longstanding target of allocating 0.7% of Gross National Income to ODA appears increasingly out of reach, the spotlight on MDBs as critical actors in international development cooperation increases. Yet, despite the number of mentions, the FfD4 draft does little more than reaffirming the relevance of MDBs and appears unlikely to meaningfully contribute to enhancing their financing capacity or operational impact.

Governance Reform: A Long-Overdue Agenda Mentioned Only in Passing

Most MDB-related action points in the First Draft—such as calls to support national public development banks, expand local currency lending, and align more effectively with country-led development strategies— are relatively uncontroversial, largely because they place no direct fiscal burden on donor countries. However, politically sensitive and potentially transformative issues are only addressed in a weak form. Chief among them is the long-overdue reform to increase the voice and representation of developing countries in MDB governance. While the First Draft acknowledges this issue, the language is vague and non-committal, merely encouraging the executive boards of International Financial Institutions (IFIs) to “consider options”—a formulation unlikely to drive meaningful change.

Gender Balance on MDB Executive Boards

One proposal that once appeared to have enjoyed broad support—the commitment to gender balance on the executive boards of international financial institutions—is now at risk. With the current US administration expressing strong opposition to “gender ideology” in the Zero Draft, this provision may be diluted in the final document if the US remains engaged in the FfD4 process through to its conclusion.

Boosting MDB Lending Capacity

A more ambitious proposal calls for tripling MDB annual lending capacity over the next decade. While this is not entirely unrealistic—especially given progress following the G20 Capital Adequacy Framework (CAF) Review Recommendations—the First Draft’s suggested measures fall short of what is needed to meet such an ambitious target. The core proposals put forward are capital increases and the channeling of Special Drawing Rights (SDRs) to MDBs. However, the issue of capital increases is couched in tentative language (“when needed”) which constitutes hardly a strong endorsement.

SDR Channeling to MDBs: A Potential Game-Changer

In contrast, the draft is noticeably more concrete regarding SDR channeling, which has the potential to prove transformative. The First Draft explicitly supports a mechanism jointly developed by the African Development Bank (AfDB) and the Inter-American Development Bank (IDB) to channel SDRs to MDBs as hybrid capital. It goes further than previous declarations, calling on at least five countries to contribute by the end of 2025 while preserving the reserve asset status of SDRs. This level of specificity—naming the mechanism, setting a target, and establishing a timeline—represents a meaningful shift from the vague commitments seen in documents like the Pact for the Future and the 2024 G20 Rio Declaration.

However, without a clear strategy for engaging potential contributors, even this promising proposal may stall. FfD4 must assign the responsibility for the follow-up to this call to a dedicated body, such as the ECOSOC FfD Forum. Such a body could proactively engage potential donor countries with fewer legal hurdles to SDR channeling (e.g., China, Japan, the UK, and the Gulf states). It should also initiate a dialogue with the European Central Bank and the EU to address legal barriers currently preventing European SDRs from being channeled to MDBs—thus unlocking support from key players like France and Spain. While SDR rechanneling alone may not triple MDB lending capacity, it could move the needle significantly. Moreover, it is more politically feasible than capital increases because it does not burden the public budgets of donors.

Unlocking the potential of callable capital: a powerful tool neglected by the FfD4

Another underutilized tool to boost the financing power of MDBs is callable capital—a commitment by MDBs shareholders to provide additional funding in extreme situations. Though never activated, this mechanism—also recommended by the G20 CAF Review—holds vast untapped potential. By broadening the terms and seeking clarity from credit agencies and shareholders on the procedures and mechanisms for callable capital, there is tremendous potential to enable MDBs to absorb more risk and expand lending capacity. Unfortunately, this idea is absent from the draft and unlikely to reappear in the final Outcome Document.

While the FfD4 draft places MDBs squarely in the spotlight—an important symbolic gesture amid shrinking development budgets—it risks delivering little substance. The only area with genuine potential for a significant impact is SDR channeling. If FfD4 can turn this into reality, it may yet be remembered not just for shaping a global narrative that sees the financing of sustainable futures as a shared responsibility and opportunity, but for enabling a bold step forward in multilateral development finance.

This blog post is part of a series on the 4th FfD conference by the German Institute of Development and Sustainability (IDOS). Please also read the previous contributions to this series:

All blogs express the views of the author(s).

Photo: Yabibal Walle is an Economist and Senior Researcher in the research department “Transformation of Economic and Social Systems” at the German Institute of Development and Sustainability (IDOS) in Bonn.
Yabibal Walle

Yabibal Walle is an Economist and Senior Researcher in the research department “Transformation of Economic and Social Systems” at the German Institute of Development and Sustainability (IDOS) in Bonn.

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