Though Multilateral Development Banks are crucial for holistic development of developing nations like India, there are certain legitimate concerns about their functioning. Discuss.
Multilateral Development Banks (MDBs) refer to international financial institutions that provide development and other assistance to nations of the world like the World Bank, IMF, BRICS Development Bank, Asian Development Bank, European Bank for reconstruction & development, and Asian infrastructure & investment bank, etc.
Why are MDBs crucial for development:
- Provide long-term soft loans for capital-intensive infrastructure sector for developing countries e.g, world Bank assistance to India
- Provide immediate assistance to countries facing balance of payment crises e.g, IMF loans to India on various occasions.
- Provide assistance to deal with the humanitarian crisis amidst war zones.
- Fulfill the heavy investment needs for climate financing, environmental development, etc.
- Help nations to build capacity for resource generation and exploration, etc. India is the largest borrower from AIIB.
- One size fits all conditions, imposed by MDBs on borrowing countries are not always justified.
- Heavily increase debt to GDP ratio of developing countries.
- Western dominance – world Bank president comes from USA and IMF president is always a European national.
- Countries are prone to fall into debt-trap situations.
Multilateral development assistance must therefore be used for capacity building and trade development to make it a sustainable model of finance.