As part of its development effort, the BRICS group’s New Development Bank (NDB) has accepted the United Arab Emirates, Uruguay, and Bangladesh as the first batch of new members.
On December 29, 2021 Egypt became 4th new member admitted to ADB.
About New Development Bank:
The BRICS countries, notably Brazil, Russia, India, China, and South Africa, founded the NDB as a multinational financial institution.
The NDB’s mission is to fund long-term economic and infrastructure projects in the BRICS countries, as well as other developing and emerging markets.
The NDB is envisioned as a developmental financial agency that will complement rather than compete with western-dominated global financial institutions (such as the World Bank and the International Monetary Fund).
Previously, it was known as the BRICS Development Bank.
NDB was established in 2014.
India proposed the NDB at the 4th BRICS Summit in New Delhi in 2012, and the formation treaty was signed at the 6th BRICS Summit in Fortaleza, Brazil, in 2014.
The NDB would improve cooperation among the BRICS members, according to the Fortaleza Declaration.
The NDB was granted ‘Observer’ status by the United Nations General Assembly in 2018.
To achieve its goals, the Bank provides financial assistance to public and commercial projects in the form of loans, guarantees, equity participation, and other financial instruments.
It provides project technical help and facilitates information, cultural, and people exchanges with the goal of promoting social and environmental sustainability.
The company’s headquarters are in Shanghai, China. Except for India, all other member countries have regional offices.
Objectives:
Fostering development of member countries.
Supporting economic growth.
Promoting competitiveness and facilitating job creation.
Building a knowledge sharing platform among developing countries.
Key areas of operation:
NDB Governance:
A Board of Governors oversees the NDB. The Board is made up of the BRICS countries’ finance ministers. The voting power of each member is determined by their shareholding in the NDB. At the moment, all members have equal voting rights.
All UN members are welcome to join the Bank, but the BRICS countries can never have less than 55 percent of the voting power.
S&P Global Ratings gave the NDB a ‘AA+’ long-term and ‘A-1+’ short-term issuer credit ratings with a stable outlook in February 2021.
The NDB’s President is chosen from among the member countries. The remaining members are represented by four vice presidents.
India’s K. V. Kamath was the NDB’s first President. Brazil’s Marcos Prado Troyjo is the second and current President (since 2020).
New Development Bank Achievements:
Since its foundation, the Bank has successfully invested in a number of infrastructure projects throughout the BRICS countries.
It had authorised projects totaling $21 billion in the five BRICS countries as of November 2020, spanning a variety of industries including clean energy, water resource management, transportation infrastructure, urban development, social infrastructure, and environmental efficiency.
Instead of the US dollar, 27 percent of the Bank’s project approvals are denominated in the various borrowing members’ local currencies.
This shows the Bank’s desire to mitigate currency fluctuation risk and its negative impact on project cash flows’ creditworthiness.
The NDB has received favourable ratings from rating agencies.
This has allowed the Bank to raise funds at lower rates and pass those savings on to its member borrowers, who, on average, have a BBB- credit rating and would normally be charged higher rates for development finance if it weren’t for the New Development Bank.
Another remarkable success of the Bank is that it has been able to grow at a rapid pace despite the fact that its member countries have faced a number of geopolitical obstacles.
In the wake of the COVID-19 epidemic, the NDB committed to a $10 billion Emergency Assistance Program for its members to aid in the fight against the pandemic and its consequences.
Major Projects funded by NDB in India:
NDB has committed finance to a number of important infrastructure projects in India, including the Mumbai Metro rail system, the Delhi-Ghaziabad-Meerut Regional Rapid Transit System, and a variety of renewable energy projects.
The NDB has authorised 14 Indian projects totaling roughly USD 4.2 billion so far.
India announced a one-billion-dollar financing agreement with the NDB in 2020 to improve rural jobs and infrastructure.
AA+ Credit Rating:
The NDB has an AA+ credit rating, which is one step below the maximum that other development banks, such as the AIIB, have. This is despite the fact that many of its members, particularly Brazil and South Africa, are experiencing domestic economic difficulties.
New Development Bank Concerns:
One of the most common complaints levelled against the NDB is that it funds projects that may not be environmentally sustainable. For example, it has been chastised for funding a Trans-Amazonian roadway project in Brazil (Para Sustainable Municipalities Project), which many environmentalists believe has a negative impact on the ecologically vulnerable Amazon forest.
The Bank has often considered the borrowing country’s socio-environmental parameters for approving projects. However, if the Bank wants to encourage more environmentally sustainable initiatives, as indicated in its mission statement, it must adopt a set of internal compliance requirements that balance financial rewards with environmental considerations. It should take care to guarantee that the project’s economic benefits do not outweigh the project’s environmental costs.
In the borrowing countries, a large share of the NDB’s initiatives are funded or sponsored by the government. As the Bank shifts its attention to equity investments and seeks to crowd in private capital to supplement its efforts, it should begin focusing on private sector enterprises and projects in the borrowing countries.
Way Forward:
In the near future, the focus should be on strengthening healthcare capacities and national health preparedness for its member countries and other vulnerable countries, with a particular focus on containing the spread of Covid-19 and providing assistance for social and economic recovery in terms of incomes and jobs.
In the medium term, efforts in strengthening urban resilience in megacities and densely populated agglomerations to mitigate the negative effects of air pollution and adapt to climate change should be prioritised.
In keeping with its current focus, a medium- to long-term priority should be extending support for renewable energy technologies (solar, wind, and biomass) in order to improve their adoption in the overall energy mix of BRICS members and elsewhere. The Bank could try to design methods to elicit public-private cooperation for long-term financial sustainability in all of these endeavors.