Developing nations are paying tens of billions of dollars extra to fund infrastructure, education, and health projects due to inadequate access to affordable loans from multilateral development banks (MDBs), a report showed on Tuesday.
The study by ONE Data, the research and data arm of anti-poverty advocacy group ONE, and The Rockefeller Foundation looks at the rising cost of borrowing for low- and lower middle-income countries.
Ten ‘blend’ countries
Facing the biggest squeeze are the ten so-called “blend” countries, including Kenya, Ghana, Senegal, and Bangladesh, that straddle the gap between the poorest nations and wealthier developing economies.
Blend countries are eligible to borrow from both the World Bank’s market-rate lending arm and its concessional lending arm.
According to the research, blend countries could have saved up to $20.8-billion over 2020-2024 had they been able to finance $40.6-billion in sovereign bond issuance through cheaper MDB lending windows, the report found.
However, they borrow at significantly higher costs from international bond markets, while concessional lending options remain limited in both volume and flexibility, the report said.
Rising borrowing costs are eroding governments’ ability to fund healthcare and social protection, the study found.
Scramble for market access
The study found that many countries turn to international bond markets not only because development bank financing is constrained but also to preserve creditworthiness and market access.
Inefficiencies within multilateral development banks compound the problem: a survey of 650 government and bank officials across 125 countries found that while more than 80% want predictable and flexible finance, only about two-thirds believe development banks deliver it effectively.
The main source of concessional financing is the International Development Association, an arm of the World Bank Group that is funded by voluntary contributions from wealthy donor nations.
Aid cuts strain
Aid cuts, particularly from North American and European donors, have put pressure on its replenishment.
“Every year that IDA is underfunded, every month that restructuring is delayed, every loan that is slowed down by bureaucratic processes adds up to resources that do not reach schools or clinics or power grids,” the authors said.
The report recommends expanding MDB lending capacity, expediting loan processes, and safeguarding IDA funding.
It notes the G20’s capital adequacy framework could unlock $300-$400-billion in new lending headroom, while recent announcements from credit rating agency S&P could unlock a further $600-$800-billion – all without requiring new contributions from shareholder governments.
- Developing nations, especially ten "blend" countries like Kenya and Ghana, are paying tens of billions more due to limited access to affordable loans from multilateral development banks (MDBs).
- Blend countries could have saved up to $20.8 billion between 2020-2024 by accessing cheaper MDB financing, but instead face higher costs through international bond markets.
- Rising borrowing costs are reducing governments' ability to fund essential services like healthcare, education, and infrastructure.
- Inefficiencies in MDBs and aid cuts, especially to the World Bank's International Development Association (IDA), are worsening funding challenges for developing nations.
- The report urges expanding MDB lending capacity, speeding up loan approvals, safeguarding IDA funding, and leveraging frameworks like the G20 capital adequacy to unlock $900 billion+ in new lending without extra shareholder contributions.
However, they borrow at significantly higher costs from international bond markets, while concessional lending options remain limited in both volume and flexibility, the report said.
Inefficiencies within multilateral development banks compound the problem: a survey of 650 government and bank officials across 125 countries found that while more than 80% want predictable and flexible finance, only about two-thirds believe development banks deliver it effectively.
Aid cuts, particularly from
"Every year that IDA is underfunded, every month that restructuring is delayed, every loan that is slowed down by bureaucratic processes adds up to resources that do not reach schools or clinics or power grids," the authors said.
It notes the G20's capital adequacy framework could unlock $300-$400-billion in new lending headroom, while recent announcements from credit rating agency S&P could unlock a further $600-$800-billion – all without requiring new contributions from shareholder governments.
