MDBs have had a leading role in supporting developing countries and in setting the global development agenda. However, since the financial crisis in 2008–09, the global economic and social situation has weakened considerably as new global challenges arose—climate change, the pandemic, new technologies—placing new pressures on development agencies to maintain their relevance and effectiveness. Responses to future global crises must be collaborative and coordinated, which the MDBs are well designed to do but still have limited experience. 

PBOs in their various forms present MDBs with a versatile instrument for financing or cofinancing that can help facilitate collaboration and coordinated responses. PBOs provide predictable, low-cost financial support for LICs, and they provide countercyclical financing during economic crises offsetting private financial downswings. Together these fill gaps in access to financial markets at more favorable costs, while adding support for institutional reform and sometimes helping to catalyze private investment flows. 

Complementary private investment and direct support for public goods, both local and global, will be increasingly necessary in the future, as will increased innovation that is inclusive and builds human capital and labor mobility to respond with agility to shifting needs. Investments with large externalities—pandemic relief, adapting to climate change, preventing natural disasters—will be more urgent and require more resources in the interest of both developing countries and rich countries. These need to be envisioned and integrated as central tasks of the development banks, in coordination with the IMF.20As recommended by the G-20 report of 2017. See https://www.imf.org/external/np/g20/pdf/2018/082918.pdf.

The international agency response to the economic shock of the COVID-19 pandemic has not yet been independently evaluated.21Independent evaluations are under way in some MDBs, such as ADB https://www.adb.org/sites/default/files/‌evaluation-document/652326/files/eap-rte-adb-response-covid-19-pandemic.pdf; and the World Bank https://ieg.worldbankgroup.org/‌‌sites/default/files/Data/reports/ap_covid19economicimplications.pdf. An early assessment of the response by ADB was undertaken by the Center for Global Development https://www.cgdev.org/‌sites/‌default/‌‌files/‌how-effectively-asian-development-bank-responding-covid-19-early-assessment.pdfBased on preliminary information, some MDBs responded differently to the turbulence caused by the pandemic than they did during the global financial crisis of 2008–09. Moreover, the G-20 did not call for an increase in capital for the MDBs, as it had done in response to the 2008–09 crisis. The extent of the MDBs’ responses has been limited by their capital constraints.22The World Bank was recapitalized in 2018 and AfDB in 2019, leaving them in a stronger position to respond than other MDBs (the most recent capital increase for ADB was in 2009 and for IDB in 2010). The continuing impacts of COVID-19 and the massive shock of the Russian invasion of Ukraine in 2022 suggests that demand for large PBOs remains very high. 

While some MDBs, including ADB and AfDB, have prioritized infrastructure financing, their programs have focused on middle-income countries. The World Bank and IDB have prioritized social spending (health, education, and social protection), much of it through PBOs, as well as conditional cash transfers and Program-for-Results (PforR at the World Bank). Based on lessons learned and emerging challenges, the MDBs need to reprioritize portfolio allocation to substantially expand support for sustainable infrastructure to low-income and fragile and post-conflict countries. While the MDBs have increased their support for climate change mitigation and adaptation and clean energy, the scale of financing is still far from meeting the $100 billion annual commitment set under the Paris Agreement.23Under the Paris Agreement, MDBs pledged to mobilize $100 billion a year from advanced countries by 2020 to support developing countries’ adaptation to climate change and mitigation of further rises in temperature. 

Continuing cooperation and coordination of support to developing countries on global challenges, such as climate change and pandemics, will be crucial. Coordination should cover lending, technical assistance, research, and analytical work among MDBs, the European Union, and the IMF (and between them and national development banks). Despite its importance, no systematic evaluation of cooperation or coordination has been conducted. Greater cooperation and coordination among MDBs will likely result in more efficient operations and in scaling up their financial support. 

Support for capacity building and institutional reforms, as well as humanitarian assistance, for fragile and conflict-affected states (FCSs) will also benefit from greater coordination. While ADB has not widely used PBOs in FCS countries (but has in small islands countries), AfDB, the EU, and World Bank have.24Jeff Chelsky and Mees van der Werf. 2022. A closer look at World Bank Development Policy Financing in fragile states: Revaluating what “good” looks like in volatile and uncertain situations to promote more informed risk-taking. March 9. https://ieg.worldbankgroup.org/blog/closer-look-world-bank-development-policy-financing-fragile-statesTheir experience, based on recently conducted evaluation results, will be valuable. 

Evaluation evidence offers eight takeaways and propositions that should inform future PBOs: