By Colleen Goko
JOHANNESBURG, April 14 (Reuters) – 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.
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.
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, 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.
(Reporting by Colleen Goko; Editing by Karin Strohecker and Janane Venkatraman)
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