The International Development Association (IDA) is the arm of the World Bank that provides grants and below-market loans to the world’s 74 poorest countries. IDA operates on a cash-in, cash-out basis and relies on grants from donor countries for about 30 percent of its funding, raising most funds through capital markets. Contributions from donors are critical for IDA to continue operations and maintain its credibility in capital markets to leverage new resources and convert market borrowing to grants. Every three years, donors meet to replenish IDA’s funds and review its policies. The last IDA replenishment, IDA19, began on July 1, 2020, to fund IDA through June 30, 2023. However, due to the COVID-19 pandemic, IDA front-loaded its third-year funds to address the crisis and cannot maintain current lending levels to member countries without supplemental funding from shareholders. To address this dilemma, IDA announced it would accelerate the next replenishment by one year. The IDA20 replenishment began in April 2021, when IDA Deputies met to discuss the status of IDA19 commitments and special themes and cross-cutting issues for IDA20. 

At the next meeting of IDA Deputies on June 23-24, 2021, IDA will present the financing framework and policy commitments for IDA20. The June meetings are a key moment for donors to advocate for policy reforms and seek greater ambition from the Bank. As one of the three largest IDA shareholders, these meetings will be a pivotal moment for the United States to push IDA to raise the ambition of its commitments. Further, due to domestic budget constraints, the United Kingdom will step back as IDA’s largest donor, creating an entry point for the U.S. to assume a more prominent leadership role during IDA20 negotiations.

In April, IDA announced the overarching theme of IDA20 is “Building Back Better from the Crisis: Towards a Green, Resilient and Inclusive Future,'' and the special themes are climate change, fragility, conflict, and violence (FCV), jobs and economic transformation, and human capital. Focusing on expanding recovery efforts, the four cross-cutting issues are crisis preparedness, debt sustainability and transparency, governance and institutions, and technology. Together, these guiding themes shape IDA’s policy priorities for the twentieth replenishment and signal IDA’s desire to help low-income countries respond to the COVID-19 pandemic and support a green and equitable recovery. The pandemic’s social and economic impacts have reversed decades of development progress in IDA member countries. Therefore, it is crucial that IDA sets ambitious targets during IDA20 negotiations to help its member countries regain lost ground, prevent further back-sliding, and address the other looming crisis — climate change. 

During the IDA-20 replenishment negotiations, BIC encourages the U.S. to advocate for the following policies:

Disability should remain a key priority: Disability was a cross-cutting issue in IDA19 and a priority for the U.S. Under IDA20, World Bank management announced that human capital would become a special theme, encompassing health, education, social safety nets, and disability. We are concerned that the elimination of disability as a specific cross-cutting issue and its inclusion under the broader human capital theme will deprioritize disability issues. As a strong advocate for disability rights, we encourage the U.S. to use its position as one of the largest donors to build support among shareholders and push management to consider disability within each theme ambitiously. IDA deputies should systematically consider disability rights during IDA20 negotiations to support the needs and rights of persons with disabilities and provide them full access to project benefits. 


Nature-based solutions should feature prominently in the IDA20 policy commitments on climate: Under the Biden administration, the U.S. renewed its commitment to climate action. In April, the administration released the U.S. International Climate Finance Plan, directing the U.S. Department of Treasury and the U.S. Executive Directors in multilateral development banks (MDBs) to push the MDBs to set and apply ambitious climate finance targets and policies, in partnership with other shareholders. We encourage the U.S. to prioritize nature-based solutions in its climate policies and advocate measures that integrate forests and forest peoples, who serve as effective ecosystem stewards, into the IDA20 policy commitments. Historically, nature-based solutions have received little dedicated climate financing, despite the significant value forests and natural ecosystems have in contributing to human well-being and  climate stabilization — for example, by absorbing and storing carbon above and below ground and by regulating rainfall. The IDA20 climate change special theme is an important opportunity for the U.S., other donors, and IDA to prioritize nature-based solutions and recognize the benefits these policies and projects have both in reducing GHG emissions and increasing resilience to climate impacts.


Preventing Sexual Exploitation and Abuse (SEA), especially of children, should be prioritized within the human capital and FCV themes: There is an inherent risk of SEA in all types of projects funded by IDA and the World Bank, particularly infrastructure, education and fast-tracked COVID-19 response projects. Further, the global economic downturn caused by COVID-19, which is still at its height in many developing countries, has led to significant negative impacts for women and children, especially those out of school, including an increase in SEA. This risk is particularly acute in FCV contexts, and thus SEA should be specifically addressed in this theme. IDA policy commitments around SEA should also require measures to address the unique risks of child SEA that arise from IDA projects. Preventing child SEA and protecting children enables them to complete their education and represents a significant investment in human capital. IDA deputies should encourage the Bank to prioritize preventing SEA in IDA20 as part of a resilient and inclusive recovery from the COVID pandemic. 

An accelerated IDA20 replenishment is unprecedented and reflects the level of need and depth of the crises the world is facing. As a historical champion for reform and progress at the World Bank and IDA, the U.S. should use its unique leadership position to advocate for more ambitious, inclusive, and green policy commitments from IDA during IDA20.

What should the U.S. prioritize in IDA20 replenishment negotiations?

With the end of the fiscal year only a few months away, the Biden-Harris administration finally submitted its first budget request to Congress. The Trump administration repeatedly proposed deep cuts in international affairs spending, which were roundly rejected by lawmakers year after year. In contrast, President Biden emphasized his desire to pursue robust US global engagement while still on the campaign trail—so it’s little surprise this administration has taken a very different approach. The recently released FY22 budget request includes more than $63.6 billion in international affairs spending, a more than 10 percent increase over the FY21 level absent the emergency spending provided in the end-of-year consolidated appropriations bill and supplemental funding included in the American Rescue Plan, the massive COVID relief package signed into law in March. Here’s a rundown of some of what we’ve learned about the administration’s overarching ambition and plans for future US development policy.

The new request reflects a countercyclical approach to US foreign assistance, recognizing that increased investment particularly in lower-income countries will be needed in the months ahead to protect lives and livelihoods. (It also comes in marked contrast to the deep cuts in aid spending proposed by another large bilateral donor—the UK.) Still, a global pandemic and other pressing challenges, including climate change and democratic backsliding, continue to threaten hard-won development gains (see here, here, and here). And some foreign aid champions have voiced hopes that lawmakers will view this more ambitious request as a down payment or starting point.

The budget would provide an $855 million increase in global health funding, relative to last year’s non-emergency appropriations. The majority of this increase is earmarked for global health security, including $300 million for contributions to ACT-A—the multilateral COVID-19 response platform.

Notably, the budget also includes a down payment of $250 million to kick off a new health security financing mechanism to bolster countries’ preparedness to respond to future global health threats. This is a significant step and signal to other wealthy donor countries. With outbreaks and pandemics set to increase in frequency, enhancing all countries’ ability to prevent, detect, and respond to dangerous pathogens is of vital importance. For more on how the United States can shape a mechanism to incentivize countries to reinforce their pandemic readiness, see this proposal—authored by experts with CGD, NTI, CSIS, and Georgetown University—to establish a global health security. 

But with leaders of four of the most prominent multilateral organizations calling on donors—like the United States—to collectively fund a $50 billion investment in COVID-19 response, the international community is likely to hope these proposed global health security investments represent an opening bid.

Beyond pandemic preparedness, global health experts and advocates have underscored the need to mitigate COVID-19-related disruptions on essential healthcare, especially for women and girls. Under the budget request, family planning and reproductive health funding would see a boost of more than $26 million over last year’s funding level.

The budget request includes a considerable boost in bilateral economic assistance—with increases in Development Assistance and the Economic Support Fund (ESF)—compared to regular FY21 spending.

A share of this assistance will seek to address the “root causes” of irregular migration from El Salvador, Guatemala, and Honduras—part of a four-year commitment to increased investment in the region. There’s no question this will be a difficult feat. Countries in the Northern Triangle face a complex set of challenges. If used effectively, foreign aid can be a tool to address some drivers of outmigration, but it must be accompanied by other policy reforms. Encouragingly the Biden-Harris administration—and USAID expressly—has acknowledged that facilitating access to legal migration pathways will be vital to reducing irregular migration.

One area where the budget request signals potential continuity from the previous administration is a commitment to investing in women’s economic empowerment. Though the request indicates the administration is looking to retire the Women’s Global Development and Prosperity (WGDP) moniker, replacing it with a successor initiative dubbed the Gender Equity and Equality Action (GEEA) Fund. Budget documents promise the GEEA Fund will look to “advance gender equity and equality globally” while emphasizing the disproportionate impact of COVID-19—as well as climate change, conflict, and other crises—on women and girls. Evidence is growing on the outsized adverse effects of the pandemic on women and girls in low- and middle-income countries. Thankfully, so is the body of research on what works to address gender inequality, which can be used to inform future US investments.

With the pandemic driving increased humanitarian need in many parts of the world—and exacerbating already dire situations precipitated by conflict, natural disasters, and more—the administration has requested additional funding for core humanitarian accounts. The congressional budget notification references USAID’s response to crises in Afghanistan, the Lake Chad Basin, South Sudan, Syria, Venezuela, and Yemen. In March and April of this year, USAID also deployed a new Disaster Assistance Response Team (DART) to Ethiopia, to address growing humanitarian needs in the country’s Tigray region, and to the Northern Triangle. 

The budget request increase in Migration and Refugee Assistance includes $550 million to invest in the US refugee resettlement architecture and support the goal of admitting 125,000 refugees in FY22. The US Refugee Admissions Program sustained substantial damage under the Trump administration—which capped refugee admissions at the lowest levels in history. The Biden-Harris administration has pledged to rebuild the US refugee program. And after facing backlash for postponing a revision to the FY21 cap, President Biden signed a memorandum last month increasing the number of refugees authorized to be resettled in the United States in the current fiscal year from 15,000 to 62,500. But the president has acknowledged that restoring the program will take time.

International Financial Institutions (IFIs) have been, and remain, vital responders amid the COVID-19 crisis, with the ability to provide large-scale financing to countries with pressing financial needs. The latest request would follow through on existing US pledges and capital increase agreements to multilateral development banks—delivering scheduled payments to the World Bank’s International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA), the Asian Development Fund, the African Development Bank, and the African Development Fund.

And in a budget year with little in the way of new multilateral pledges, the administration has sought to expand its support for MDBs by requesting new money to pay down old commitments. The budget includes significant additional funding to begin to address US arrears at some of these institutions. US unmet commitments to the IFIs spanning over a decade now total an astonishing $2.7 billion, as of this fiscal year. Beyond any reputational benefit from beginning to address this problem, the driving rationale for making these additional payments now is to bolster the ability of IDA and the other multilateral funds to support the poorest countries through the pandemic.

The United States will make a new pledge to IDA as a leading part of this effort (through the early IDA-20 replenishment later this year), but the administration clearly doesn’t want to miss an opportunity in the FY22 budget to shore up IDA and the other multilateral funds amidst a dire crisis in low-income countries. This and future budgets offer opportunities to reverse a long period of relative neglect in US budgets of multilateral development banks (MDBs), among the most powerful tools the United States has for fighting global poverty, addressing global economic crises, and funding global public goods. Consistent with the Biden Administration’s resolve that the United States should seek to tackle these challenges in coordination with partners, US contributions to these institutions are also multiplied many times over by other countries’ contributions and by MDBs’ ability to borrow against their equity.

Under the FY22 budget request, the United States will also pay its first installment of a new pledge to the International Fund for Agricultural Development (IFAD) made by the administration in February.

Finally, in recognition of needs precipitated by COVID, the administration included $102 million for a contribution to the IMF’s Poverty Reduction and Growth Trust Fund or an alternative facility intended to address the financing needs of low-income countries, including the subsidy cost of loans of up to 15 billion in Special Drawing Rights (SDRs). The administration is also proposing language authorizing a loan of up to 15 billion SDRs to the PRGT or another IMF facility. The details of the mechanism and arrangement have yet to be worked out, but the request for IMF funding paired with signals on new uses of SDRs point to a US Treasury Department that is exploring all possible avenues for fighting the crisis.

A little over a year ago, G20 bilateral creditors—including the United States—agreed to postpone debt repayments from the poorest countries, if they request it. The Biden-Harris administration’s request includes $52 million for the Debt Service Suspension Initiative and possible additional debt relief under the G20’s Common Framework. The funding request doesn’t specify precisely how the $52 million will be allocated, but any reduction in debt payments to US government creditors (e.g., US Export-Import Bank, USDA, etc.) on a net present value basis would require appropriated funds to cover the cost to these agencies. In December, Congress included $120 million for multilateral debt relief to Sudan in a combined omnibus spending and COVID relief measure, fulfilling a longstanding commitment under the Heavily-Indebted Poor Country initiative.

The administration has made clear it sees climate change as among the world’s most pressing challenges, and accordingly, the budget request aims to ramp up climate finance. It’s notable that the administration is taking a portfolio approach to its international climate agenda, perhaps a signal that the United States will keep its options open rather than favor any one multilateral fund or approach. The administration has proposed a $1.25 billion contribution to the Green Climate Fund—with the Departments of State and Treasury each chipping in half. In addition, the request includes $300 million for the Clean Technology Fund, one of the World Bank’s Climate Investment Funds. The administration is also looking to provide additional funds to help address unmet commitments to the Global Environmental Facility—which supports a range of environmental projects, not all of them climate-related. 

The US International Development Finance Corporation (DFC) would see a $29 million increase in administrative expenses under the FY22 budget request, which will allow the agency to hire additional staff to help grow its portfolio. Amid increasing pressure among lawmakers for DFC to deliver on a wide range of objectives, ensuring the agency is staffed appropriately to deliver on its core development mandate will be vital. Budget support documents also highlight DFC plans to expand collaboration with other US bilateral agencies and strengthen relationships with IFIs, NGOs, and think tanks in pursuit of development impact. DFC would also use new resources to invest in projects that support resilience in the facing of climate change and other threats. Moving forward, DFC would still benefit from a fix to current practice for scoring equity investments. 

The Millennium Challenge Corporation (MCC) finally received a modest funding increase last fiscal year. The new request would maintain level funding for the agency. FY22 funding will support MCC’s compacts with Timor-Leste, Kosovo, and Malawi—and the agency’s first regional compact (planned cross-border investment involving Benin, Niger, Cote d’Ivoire, Burkina Faso). And MCC will have a full plate in FY22 with eight bilateral compacts currently in development. While not expected to impact this budget cycle, MCC’s budget justification also cautions that its largest-to-date threshold program ($53 million) with Ethiopia may not advance toward approval given the violence and unfolding humanitarian crisis in the country.

For even more on development in the FY22 budget request, check out the links below.

Appendix – State and Foreign Operations (if you really want to delve into the numbers) 

Biden’s First Budget: What the FY22 Request Could Mean for Development Policy

The world is facing three global disasters all at once: climate change, extreme global debt, and COVID-19.

As we grapple with the defining public health crisis of our time, the global economy is experiencing the worst economic collapse since World War II, all while climate change continues to threaten the world’s most vulnerable populations.

The 2020 UNEP Adaptation Gap Report estimated that climate adaptation needs will grow between $140-300 billion by 2030 and to $500 billion by 2050. During this time, when the world needs to mobilize trillions of dollars for a low-carbon economic transition and prepare for the costs of adaptation, the economic collapse spurred by COVID-19 has left countries with exorbitant levels of debt, forcing seven countries to default on their loans and pushing an estimated additional 88 to 115 million people into extreme poverty, with the total rising to as many as 150 million by 2021.

On March 23, InterAction convened three sustainable finance experts during Forum 2.1 to explore this convergence and possible solutions. This article summarizes that session, highlighting the interconnections between climate change, global debt, and COVID-19, as well as the core challenges and the financing options to address the problems.

Climate change continues to pose increasingly dire threats to our planet. As we quickly approach a “climate tipping point” of global warming of 1.5 degrees Celsius above pre-industrial levels, we have no more time to waste. Serious action to mitigate and adapt to climate change is needed now. Prior to the COVID-19 pandemic, the global community committed to an accelerated development plan by 2030 to transition the world to a low-carbon and more socially just economy through the Sustainable Development Goals. Now, as the world continues to grapple with and recover from the impacts of COVID-19, the transition risks of inaction on climate are becoming even more daunting. This is the most important decade of our times, and we cannot afford to push these crises down the road any longer.

The world economy needs to utilize tools and strategies that invest in a low-carbon transition and climate adaptation and provide debt relief and assistance to the world’s most vulnerable populations.

Currently, most debt relief is not linked to climate goals. However, there are upcoming opportunities to help countries create additional fiscal space through debt relief while channeling any available financing to climate goals.

Doing this at scale will require coordination and effort by all relevant creditors. Currently, about a third of global debt is held by bilateral creditors, a third is held by private institutions, and a third is held by international institutions. While international financial institutions such as the International Monetary Fund (IMF) and multilateral development banks (MDBs), such as the World Bank, have supported debt relief through actions such as IMF Special Drawing Rights (SDR) allocations and increased World Bank financing due to COVID-19, they are ultimately limited in their impact on debt relief because two-thirds of global debt is held by more than 463 regional development banks, bilateral sovereign creditors, and private creditors. The constellation of creditors has become increasingly more complex, making it that much more difficult to involve and manage all aspects of global debt.

Advocacy and incentives are needed to bring other creditors, especially private ones, to the table to both participate in debt relief and support climate finance.

In this process, we must also acknowledge the history of hypocrisy in response to major global recessions in the past. In the face of past economic disasters, economies of wealthy Western states have infused massive amounts of financing, and this “counter-cyclical” approach proved to be successful. However, when the same economic downturns hit lower-income countries, they have been told to tighten their budgets, decrease government spending, and raise interest rates—characteristics of austerity conditionality. This puts the burden of a struggling economy on everyday citizens. To address climate change and global debt effectively and equitably, non-conditional financing, low interest rates, and stimulus packages are needed. If this approach is carried out, it would be a major change and achievement for the global community and a step forward in not repeating past hypocrisy.

Regardless of fiscal space, ensuring climate priorities do not fall off the agenda is also essential. This can be especially challenging in places where the major means of exchange are oil and coal. Additionally, support for a structural transformation is necessary in order to support people who will lose their livelihoods as a result of the green economic transition.

International finance institutions can support this transformation by taking a longer view of economic forecasts to effectively and accurately predict what investments will yield over time.

What are the Options for Climate-Resilient Debt Management?

The tools exist. Now is the time to apply them in a climate-resilient way, packaging them in a complementary way and applying them on the right timescale to effectively address both climate change and lack of fiscal space.

These packages should include different combinations of new liquidity, such as through:

IMF special drawing rights (SDR) allocations whereby portions of the IMF’s international reserve asset (SDR) are given to member countries to boost liquidity.

Additional climate financing through the Organization for Economic Cooperation and Development’s (OECD) official development assistance (ODA), which is government aid that promotes and specifically targets the economic development and welfare of developing countries.

The G20’s Debt Service Suspension Initiative (DSSI), which allows for the temporary suspension of debt-service payments owed to their official bilateral creditors for the 73 most debt-burdened countries.

Application of the G20 Common Framework for Debt Treatment, in which debtors and creditors agree on a cheaper price for the current debt.

All of these existing tools can be coordinated with green climate investments in order to address both crises.

There are conversations involving future SDR allocations related to climate and environmental actions. There is also anticipation from the global community that the IMF will announce a platform that links climate and nature to debt through a finance facility in the near future.

“Debt management for climate and nature” encompasses an existing tool that provides debt relief while advancing climate or nature goals known as “debt-for-climate/nature swaps.” “Debt-for-nature swaps” have existed since the 1980s and are now being utilized to relieve debt and promote nature or climate projects in developing countries.

Debt-for-climate/nature swaps occur through the restructuring of debt between debtor and creditor, where a portion of the restructured debt goes toward a nature or climate outcome in the debtor country. This finance tool has proven successful in the past, but due to the overwhelming level of debt countries are now faced with, a degree of debt relief needs to be incorporated into these swaps as well. These swaps are most effective when utilized by countries facing debt distress rather than a complete debt disaster.

We cannot afford to ignore climate change or extreme debt any longer. Strong, definitive action is necessary immediately, and climate-resilient debt management will be a crucial tool to address both crises. The finance tools exist, but we now must package them together in a way that promotes debt relief and transformation as well as climate mitigation and adaptation in an equitable and just way. There is an important role for NGOs to play in advocating for further adoption of climate-resilient debt management.

Climate Resilient Debt Management: Can there be a green recovery from COVID-19?

The world is now more than a year into the second global crisis of the century. Both the current pandemic and the Global Financial Crisis (GFC) more than 10 years ago tested the capacity of international financial institutions to respond with speed and scale. This time, the IMF has stepped up, first with emergency finance facilities, and later this year with a massive injection of global liquidity through a Special Drawing Rights (SDR) allocation of $650 billion.

But what about the multilateral development banks (MDBs)? One of their central roles is to expand the fiscal space of middle- and low-income countries (MICs and LICs) for development spending, exactly what is needed now, and to catalyze finance from the private sector, especially when private finance pulls back. Have they done so? As the 2020 data on MDB finance become available, what can we conclude about how MDBs are performing when the developing world needs them most?

While high-income countries spent on average 24 percent of GDP in 2020 to combat the crisis and its effects, MICs managed only 6 percent, and LICs just 2 percent. Yet the evidence is mounting that poor countries and the poor generally are much harder hit by the pandemic than they were by the GFC, with up to 150 million people projected to be pushed into extreme poverty by the end of this year. Moreover, as vaccines usher in a return to normalcy in the rich world, the slow pace of vaccine rollouts elsewhere means that in much of the developing world, the pandemic could get worse before it gets better.

Further, we know that even before COVID-19, poor countries were confronted by much greater spending needs to achieve the Sustainable Development Goals (SDGs) than their higher-income counterparts. According to the IMF, on average, LICs must spend an additional15 percent of GDP on health, education, and infrastructure needs related to the SDGs, compared to 5 percent of GDP in emerging market economies. COVID-19 has widened this gap even further. And we know that over half of poor countries are now in, or at serious risk of, debt distress, limiting their ability to borrow from non-concessional lenders in China or in the private sector.

So this is the right time to look at how the MDBs have performed so far during the pandemic (adding to the work of CGD colleagues) and to draw implications for their future roles in crisis response and in expanding finance available for critical long-term public spending.

As shown in Table 1, MDB lending to governments did indeed increase significantly in 2020. Commitments by the World Bank and the major regional development banks rose collectively by 39 percent to about $145 billion (excluding the African Development Bank, AfDB, for which 2020 data are not available). Disbursements (funding actually received during 2020 by recipient governments) increased by a smaller 15 percent (excluding the European Bank for Recovery and Development). The top performers with respect to commitment growth were the World Bank and the Asian Development Bank (AsDB), with increases of 55 and 32 percent respectively. The AsDB and the Inter-American Development Bank (IDB) managed to increase disbursements even faster than commitments, by 43 and 40 percent respectively. The European Bank for Reconstruction and Development (EBRD) has lagged, with commitments up only 9 percent.

Yet that growth seems less impressive when compared to the GFC record. In that crisis, commitments by these institutions jumped 76 percent, with particularly strong performance by the World Bank, the AsDB, and the IDB (figure 1). The faster commitment growth in the GFC is not easy to explain given that developing countries, with the exception of emerging and developing Europe, have certainly been harder hit during the pandemic. In 2009, LICs’ and MICs’ per capita GDP growth slowed to1 percent year-on-year. But, in 2020, LICs and MICs experienced a3.5 percent contraction of per capita GDP, not just a slowdown. All of the MDBs analyzed here have received capital increases since the GFC, and there is a strong case for using the headroom they have on their balance sheets for a surge in lending during a crisis of this magnitude and duration.

A surge for governments but not for the private sector

Figure 2 shows 2019 and 2020 MDB finance to the public sector versus the private sector. The differences are striking. Total MDB finance to governments rose by 50 percent. World Bank IDA commitments (concessional finance to poor countries) in particular grew by a whopping 107 percent, an encouragingly proactive response to pressing needs in poor countries. It is puzzling that IDB lending to governments in Latin America, the developing region hardest hit by COVID-19, rose by only 9 percent.

And the MDBs clearly struggled with their countercyclical role in private finance. Total finance to the private sector rose by only 8 percent. Surprisingly, IFC (the World Bank Group’s private finance arm) commitments were essentially flat, and AsDB commitments to the private sector fell (perhaps to make room for more sovereign lending since both public and private lending are on the same balance sheet for the AsDB). Only IDB Invest, the private finance arm of the IDB Group, excelled with 48 percent growth in commitments.

What does this evidence mean going forward?

The data suggest a smaller overall response to the COVID-19 crisis than the GFC despite the larger economic toll taken by the pandemic in most developing regions, uneven performance across institutions, and a weak outcome for private sector finance.

More analysis is needed as additional data emerge about performance by sector, country income groups, finance instruments, and regions. Making such comparisons across institutions unfortunately is now unnecessarily difficult and time-consuming given large differences in MDB reporting periods, frequency, and data definitions. For effective oversight, transparency, and accountability, shareholders can and should call for joint, timely MDB reporting.

But we can begin to draw some lessons for the future based on this evidence. Pending more analysis, here are three early observations.

1. The MDB system is not big enough to make a meaningful contribution to either crisis response or SDG finance, especially in poor countries.

Despite the 2020 increases, MDB lending in 2020 still totaled only 0.5 percent of the combined GDP of MICs and LICs, a drop in the bucket of their collective fiscal response and SDG finance needs.

Shareholders lack a credible, consistent methodology for determining the right size for individual or collective MDB capital or lending capacity. But a back-of-the envelope calculation illustrates one way to think about how much is enough lending capacity.

Recall that SDG finance gaps average 15 percentage points of GDP for poor countries, and LICs managed only 2 percent of GDP in fiscal response to the pandemic (compared to 6 percent of GDP for higher-income developing countries). So we could notionally set a goal for MDBs to collectively contribute 3 percent of GDP annually to the fiscal capacity of low-income (IDA-eligible) countries. That would amount to approximately $70 billion per year. For higher-income developing economies with more fiscal capacity and better access to private capital markets, we could target a much smaller 0.5 percent of these countries’ GDPs for the MDB contribution to crisis response and SDG finance, including climate finance. That would come to $160 billion per year. Together these two figures amount to collective MDB finance of approximately $230 billion per year—nearly 60 percent more than what MDBs (excluding the AfDB) actually committed in 2020. 

2. MDB collective surge performance does not appear to be calibrated to the severity of the crisis.

In 2009, the GDP of developing and emerging economies grew 2.5 percent. In 2020, it shrank by 2.2 percent. Yet the size of the increase in collective MDB finance in 2009 was twice that in 2020. The reasons are unclear. Perhaps more united G20 shareholders in 2008-09 played a role in coalescing behind a more proactive response. Shareholders did step up to backstop MDB lending with capital increases across the institutions. Or the problem could be the administrative difficulty of quickly and significantly boosting finance to the large number of poorer countries affected by the pandemic, although IDA has apparently managed this challenge well. There might also be a problem on the demand side as those developing countries that can are choosing to go to private capital markets rather than the MDBs. Whatever the reason, it is clearly important for the future to examine how better to match MDB finance with finance needs.

A critical aspect of this examination has to be the division of labor between the IMF and the MDBs. The IMF can react with speed and scale and has rightly done so using its emergency finance tools. But its focus in crises is supposed to be primarily on external imbalances and financial stabilization, not budget support, climate finance, and vaccination funding. The fact that some are looking at the SDR allocation and the IMF as a source of funding for these things should be seen as a clear indication that, for whatever reason, the MDBs are either not able or not willing to meet challenges in these areas. At this moment and going forward, shareholders and vulnerable populations can ill afford a multilateral system that is not firing on all cylinders.

3. MDB private finance arms do not play a significant countercyclical role in crises.

It will be argued that private finance arms are better suited to the recovery phase, although it is too early to tell in this crisis whether they will step up as recovery takes hold. The counterargument is that the additionality and catalytic power of MDB private finance is at no time more obvious than in a crisis when risks exceed the tolerance of the private finance sector. Existing MDB private clients need more support to keep them afloat during sharp drops in demand and supply chain disruptions, and new clients need access to MDB finance as their usual sources dry up. Of course, in these circumstances MDBs would need to take on a lot more risk and face some damage to their balance sheets. It is not clear, certainly based on the data so far, that they or their shareholders are willing to do so. But if not, their business model is not that different from commercial banks, which raises questions about their added value as recipients of public capital.

It remains to be seen whether their financial instruments—especially their heavy reliance on senior lending—are not well suited to crises, or whether they need some off-balance-sheet structures that help them manage increased risk, or whether they can quickly ramp up transactions when their investment officers can resume travel. What is clear is that shareholders will be carefully considering where to put more public resources in the wake of the deep and lasting damage wreaked by the pandemic. It is hard to make the case for more capital to expand MDB private finance if it is only procyclical.

MDBs are an excellent deal for their shareholders—the capital contributions governments make are multiplied many times over in MDB lending capacity. But the evidence from the first two global crises of this century, as well as from worsening SDG finance gaps, only highlights the still-marginal role of the MDBs. This is the time for shareholders to think about rightsizing the MDB system and extracting greater returns from MDB assets, collectively and individually.

MDBs to the Rescue? The Evidence on COVID-19 Response

On May 18, 2021, CGD Senior Fellow Scott Morris testified before the House Committee on Financial Services Subcommittee on National Security, International Development and Monetary Policy at a hearing on“Examining Belt and Road: The Lending Practices of the People’s Republic of China and Impact on the International Debt Architecture.”

Thank you Chairman Himes and Ranking Member Hill for the opportunity to testify today.

Twenty-five years ago, this committee was instrumental in putting forward the Heavily Indebted Poor Country initiative (or “HIPC”) to relieve the debt burdens of 37 poor countries when it became clear that they could no longer sustainably service this debt. At the time, the United States agreed to forgive nearly $2.5 billion in debt owed to US government agencies, making it one of the largest of the 55 creditor countries to participate. Little noticed at the time: Costa Rica was a bigger creditor to poor countries than was China.

Today, nearly all the low-income HIPC countries are again at risk of debt distress, with debt vulnerabilities that have been greatly exacerbated by the economic shock of the COVID pandemic. But on the creditor side, the picture has changed dramatically. The United States government today is one of the smallest creditors to low-income countries, with just $370 million in outstanding claims. China, on the other hand, with over $31 billion in outstanding claims to the HIPC countries, is a bigger creditor than all other government creditors combined. And that picture holds true well beyond the poorest countries. China today is by far the largest official creditor in the world, with estimates of outstanding claims on the order of $350 billion.

So, when we consider how best to address a potential widescale debt crisis in developing countries, we must grapple with China’s dominant position. That starts with an understanding of not just how much China lends but how China lends—not just lending volumes and interest rates, but the full array of conditions that Chinese lenders might attach to their loans.

I would like to focus the balance of my remarks on the findings of a new report that I co-authored with Anna Gelpern and Sebastian Horn (both also on the panel today), as well as Brad Parks and Christoph Trebesch.[1] This report, submitted along with my testimony, was published jointly by AidData, the Center for Global Development, the Kiel Institute for the World Economy, and the Peterson Institute for International Economics. We assessed the provisions of 100 Chinese debt contracts, the first assemblage or study of Chinese contracts on this scale. Our findings have implications for the debt relief agenda, which I will address at the end of my statement. And while there are other important factors when it comes to debt vulnerabilities in the developing world, including the increased role of commercial creditors, I will limit my remarks to the behavior of Chinese government lenders, as evidenced by their debt contracts.

Four main insights emerge from our research:

First, Chinese contracts contain unusual confidentiality clauses that bar borrowers from revealing the terms or even the existence of the debt. In commercial loan contracts, confidentiality provisions are typically aimed at protecting sensitive information about the borrower, with non-disclosure restrictions imposed on the lender. But what we see in the Chinese contracts are clear non-disclosure requirements imposed on borrower governments. Importantly, these restrictions are waived when they conflict with domestic laws. But should no domestic reporting requirements exist in the borrowing country (and they typically don’t), borrowing governments are bound by the terms of the contract, which could include restrictions on reporting to the IMF, the World Bank, the Paris Club, or any other creditor groups.

These non-disclosure restrictions are problematic: they hide government borrowing from the taxpayers who are bound to repay it; they impede budget transparency and sound fiscal management; they hide the borrower’s true financial condition from its other creditors; and they can serve as an obstacle to timely and orderly debt restructurings, which depend on a full accounting of a debtor government’s obligations to all its creditors.

Second, Chinese lenders seek advantage over other creditors through collateral arrangements such as lender-controlled revenue accounts. Chinese lenders appear to use escrow accounts and other formal and informal collateral arrangements far more frequently than other lenders, government or commercial. Chinese lenders use such arrangements to mitigate risk of non-payment in otherwise risky lending environments. But it’s important to recognize the problems these arrangements can pose for the borrowers, particularly in distressed environments. Cash accounts of this sort encumber scarce foreign exchange and fiscal resources of developing country governments. And when the accounts are hidden through strict non-disclosure requirements, they can distort the overall economic picture for a country in the eyes of the IMF and other creditors. Revenues that are assumed to be flowing to the developing country government are in fact flowing to an offshore account controlled by the Chinese lender. Again, such arrangements may serve as a barrier to timely and efficient debt restructurings.

Third, Chinese lenders also seek advantage over other creditors through requirements to keep the debt out of collective restructuring efforts by the Paris Club of creditors or any other multilateral arrangements. We have dubbed this contract feature the “no Paris Club” clause, and no other lender we are aware of, private or government, employs it. The clause unambiguously seeks to set Chinese creditors apart from, and ahead of, other creditors in restructuring situations.

The provision prohibits the borrower from seeking any debt restructuring from the Chinese lender on terms that are comparable to those obtained through the Paris Club of creditors, a forum the United States and other governments established nearly 70 years ago to coordinate debt restructurings. A core principle of the Paris Club is that a debtor government, in exchange for obtaining relief from the United States and other club members, must commit to seeking comparable relief from its other creditors. By prohibiting such comparable relief in its contracts, China is putting debtor governments in an impossible position should they need debt relief—either violate the terms of the Chinese debt contract or violate their commitment to the Paris Club. Importantly, China itself is not a member of the Paris Club, but it has signed onto the G20’s Common Framework for Debt Treatments[2], which adopts key Paris Club principles, including the requirement for comparable treatment.

Fourth, cancellation, acceleration, and stabilization clauses in Chinese contracts have broad scope and imply significant policy leverage over the borrowing country. These provisions, which enable the Chinese lender to accelerate payment or cancel a loan, are broadly written, giving the lender substantial leverage across a wide array of policy issues. Cross-default clauses also reinforce ties across Chinese government lenders. As we observe in the case of Ecuador, China Development Bank is empowered to accelerate or cancel its $1 billion loan facility due to any harm experienced by any Chinese government entity in Ecuador. Given the scale of financing, this amounts to considerable leverage with extraordinary reach across Chinese entities and policy issues.

With these findings in mind, I would like to turn to the US government’s policy agenda. As you consider appropriate responses to China’s lending behavior, I would urge you to keep the interests of developing countries and their citizens in mind, particularly during the current crisis. The poorest populations in the poorest countries are also the most vulnerable to the COVID pandemic. And as we have heard repeatedly from public health experts, their vulnerability is ultimately our vulnerability. These countries need extraordinary support right now, and I would urge you to make that your leading objective in considering how best to respond to China’s lending in the months ahead.

The US government should work with partners to mobilize as much aid and concessional financing as possible. Some low-income countries are already in debt distress and will need some form of debt relief. But debt vulnerability is a symptom of a broader problem that nearly all developing countries are experiencing right now—a massive economic shock resulting from the COVID-19 pandemic. Debt relief alone is neither sufficient to respond to this shock, nor is it appropriate in every circumstance. What is needed is the sort of financial support that can help these countries mount an appropriate health and economic response to the crisis and get their economies growing again. To date, crisis response in developing countries measured in economic terms has been meager compared to the measures taken in the United States and other advanced economies. If these countries are going to do more, they will need support from wealthier countries.

The United States is already stepping up with direct support for COVID relief and access to vaccines for these countries, and the faster we can move on these measures the better. When it comes to economic support, we should continue to look to multilateral institutions like the World Bank and International Monetary Fund as leading partners. Our contributions to these institutions are effectively leveraged many times over by matching contributions from other donors and additional borrowing in financial markets. This year, the World Bank will be seeking new commitments from the United States and other donor governments to support its financing efforts in the poorest countries. Our current contributions to the bank amount to a fraction of one percent of our total aid budget. There is scope to do far more. And by the way, a strong US pledge will likely motivate the Chinese government to give more to the Bank. That would be another good outcome.


The United States should have clear objectives and take a tough line with the Chinese when it comes to debt relief and sustainable lending, particularly under the auspices of the G20 Common Framework for Debt Treatments, an initiative launched last year to better organize efforts to provide debt relief to poor countries. As the largest of the government lenders to indebted countries, the Chinese government should bear the largest cost of any debt relief initiative. But that outcome will not be automatic, and the United States should take a number of steps to seek to ensure that China bears its share of the burden.

Under the Common Framework, the United States should work with other countries to obtain a more comprehensive definition of government creditors such that Chinese government-owned creditors are not shielded from debt relief commitments. China Development Bank ought to meet that definition, despite the Chinese government’s assertions to the contrary.

The United States should also insist that the Chinese government disavow “no Paris Club” clauses in debt contracts and soften restrictions on borrower disclosure when those restrictions are at odds with reporting obligations to the IMF, World Bank, and the Paris Club. These commitments should apply retroactively to existing debt and should also take the form of a commitment to keep such restrictions out of future debt contracts.


When it comes to responding to China, don’t punish the victims. Where China has been an imprudent lender, we should be careful about punitive measures that are borne by the borrowing countries and that ultimately harm the citizens of those countries, particularly during a COVID-19 crisis that was not of their making. Measures that would withhold financing from developing countries due to their borrowing from China would greatly harm crisis response efforts and would ultimately set back US efforts to strengthen ties in these countries. Similarly, suggesting that these countries could selectively default on their legal obligations to Chinese lenders is misguided and would ultimately be damaging to these countries.


The United States should lead by example when it comes to government contract transparency. The degree of secrecy we observe in Chinese contracts is unusual, particularly when it comes to restrictions imposed on the borrower, but the reality is that secrecy is the prevailing norm when it comes to government lending globally. The IMF and World Bank have sought to use various carrots and sticks over many years to promote greater disclosure among borrowing governments, with limited success.

But there are two parties in any government-to-government debt transaction and the case for transparency is equally strong on both sides of the loan. Just as citizens in borrowing countries ought to be able to know what commitments their governments are making to foreign lenders (particularly when that lender is another government), I ought to be able to know what commitments my government is making as a lender to foreign governments. In short, public debt ought to be public in creditor and debtor countries alike.

While the burden of transparency has fallen almost exclusively on borrowing countries to date, the United States could lead in expanding this agenda to creditor governments as well. That should start with a commitment to proactively publish government-to-government debt contracts where the US government is a creditor, whether through US Exim Bank, the US International Development Finance Corporation (DFC), the Department of Agriculture or any federal agency that is lending money to a foreign government. There is no downside in being a first mover on this agenda, and it will put the United States in a strong position to seek similar commitments from other G7 and G20 countries, with China being the primary target among the G20 governments.


Finally, as the United States seeks to compete with China in offering development finance, our government should be vigilant about avoiding China’s mistakes in lending imprudently into vulnerable environments. There’s a particular risk that a legitimate desire to support US firms in foreign markets, along with a legitimate desire to provide financing to developing countries, can make us indifferent to the risks of too much lending or lending on terms that are too costly for debt-vulnerable borrowers.

There’s no doubt that the US government, through agencies like USAID, Exim Bank and the DFC, could be doing more to support high quality infrastructure projects in developing countries. But doing so in a manner that protects the US taxpayer and reliably generates benefits in these low-income countries will require focusing on independent measures of project quality and safeguards, financing terms that are appropriate to country circumstances, and strong alignment with IMF and World Bank financing frameworks.

[1] Gelpern, A., Horn, S., Morris, S., Parks, B., & Trebesch, C. (2021). How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments. Peterson Institute for International Economics, Kiel Institute for the World Economy, Center for Global Development, and AidData at William & Mary.

[2] “Common Framework for Debt Treatments beyond the DSSI,” G20 Finance Ministers and Central Bank Governors, November 13, 2020.

Testimony on China’s Lending Practices and the International Debt Architecture

Publish What You Fund’s DFI Transparency Initiative has completed its fourth research work stream (Value of Investment: Mobilisation & Structure of Deal). The research report identifies a number of areas where consistency of reporting and Development Finance Institution (DFI) transparency could be improved. However, we also wanted to understand why this data matters to those in the development finance space, the hard reality of what’s available and what’s not, and the arguments behind why transparency is so important. Thomas Venon is a founding partner of Eighteen East Capital following a career spanning twenty years in the asset management industry. He was recently head of institutional business at African Alliance, and was previously a director at S&P Fund Research, and held senior positions at RBS/ABN Amro and Old Mutual. Thomas and our CEO, Gary Forster, sat down to discuss our research findings.

GF: Thomas, Eighteen East Capital plays a unique role in the development finance space, please can you tell us a little about your organisation?

TV: In a nutshell we focus on adapting and developing structures and solutions to help mobilise private capital so that it can align itself to what DFIs and MDBs are doing across emerging markets. We do so with the support of governments including those of the UK, Canada, and Sweden as well as that of philanthropic foundations and supra-national agencies such as UNECA. All the market building work we do is made available in the public domain.

GF: Thomas, as a member of our Expert Working Group for this work stream you’ve already seen the findings. But before we dig into the detail I wanted to get a sense of your experience of working with DFI investment data, and the fundamental issues you see.

TV: Sure, and let me use a recent piece of work to illustrate both the opportunities and the challenges relating to DFI transparency. We recently undertook a mapping exercise, documenting individual commitments made by DFIs over the past 10 years. The idea was to give private institutional investors an insight into what the DFI experience has to date been in these markets. We wanted to discuss risk and return data as well as the sectors and instruments relevant to DFIs, who often account for a significant part of the markets they work in. We had to build this picture using granular data because DFIs do not disclose information pertaining to their investments in a consistent fashion, and different institutions use different time frames, definitions, data points, etc. As a result, it was not possible to use this to answer our research question. We used a multi-pronged approach and engaged with individual DFIs to obtain information pertaining to their commitments. Some were surprisingly open, others simply referred us to their current disclosures, which we generally found insufficient.

Where we couldn’t obtain data through official channels or public disclosures we often turned to disclosures made by investee companies. And herein is a first interesting point about DFI transparency. A significant proportion of DFI money goes through financial intermediaries and companies which are subject to their own transparency and disclosure policies and regulations. These companies are often more transparent than the DFIs themselves. We found that much of the data that DFIs could not make available to us was already out there in the public domain. This should reassure DFIs that further transparency on their part wouldn’t create a problem given that much of this information is already available. At the same time, you can see how inefficient it was for us, or indeed any prospective investor, to compile the information we needed. In this context, efforts to resist enhanced transparency not only seem counter-productive, but ultimately futile.

“DFIs are pioneers, explorers, but without access to the maps they draft, others cannot follow, and much value is lost.”

GF: What about the argument that for DFIs to be more transparent would place an undue burden on their investees and/or makes it more difficult for the DFI to compete with other financers who don’t demand such transparency?

TV: The notion that DFIs need to obfuscate transparency to effectively compete against each other should in and of itself cause alarm bells to ring. Should they on the other hand find themselves competing against private sector funders, you would expect DFIs to step back. With regards to the additional reporting burden transparency might put on investees, the reality is that DFIs are already in possession of financial performance data pertaining to their investments. And to end with the ‘commercial confidentiality’ investees supposedly insist on, one could argue that a requirement for enhanced transparency would not be an unreasonable price to pay for access to public funding that cannot otherwise be sourced from the private sector. Should an investee feel that their negotiation position is strong enough to refuse to accede to demands for transparency, you need to ask whether this investee really needs public funding in the first place.

Maintaining good quality data is a resource-hungry process. DFIs have finite resources, human or financial, available to do this. Building markets and encouraging mobilisation should however be seen as integral to their mission, not as an extra burden. It behoves DFI shareholders to ensure they are adequately funded and incentivised to do so. We are very conscious of the drain on DFI resources the requests for data we are all having to make represent. Enhanced and adequately funded disclosure programmes would negate the need for this constant and inefficient back and forth.

GF: Something we’ve been working on as part of this project is the idea of an aggregation standard – a consistent way for DFIs to aggregate their data to a reasonable level (global, region, country, sector etc.) rather than the mismatch of data we currently see. What’s your feeling about something like this as a means of encouraging transparency in the short term while we endeavour to see granular project level data?

TV: Look, aggregated data can be misleading or insufficient in the context of private capital mobilisation. However, let’s be clear, given the current limited access to investment performance data this would be a huge step forward. But we must also recognise that non-disclosure is embedded in contractual practices. To allow for enhanced future transparency, DFIs need to adjust their contracts with investees today to provide transparency on investments tomorrow. Otherwise we’ll always bump up against the same contractual barriers in the future.

GF: Is there anything else you’d like to share.

TV: The main point I want to drive home is that capital doesn’t go in blind. Where DFIs are active and matter most, they are often the only systemic investors and the main custodians of investment data. If markets can’t see that data, they are blind and they will not move.

I should emphasise that we do enjoy working with DFIs – their teams are world leaders on these markets and development issues, they know more, they try more and they learn more than anyone else in this space. DFIs are pioneers, explorers, but without access to the maps they draft, others cannot follow, and much value is lost. And there is no such thing as bad data. If investors observe poor performance in places they will of course seek to allocate funds to where performance is better. That’s just how the market works. But if they see nothing at all, they will do nothing at all.

And here we can talk about GEMS (the Global Emerging Markets risk database) and the historical loan performance data it contains. This information should not be waved aside because it is historical and focused on default statistics. Markets are built on historical data, and the central role of credit rating agencies is specifically testimony to the crucial importance of credit assessment. GEMS represents a unique set of loan performance data in emerging markets where alternative sources are seldom available. While I recognise it might not contain all the information investors might want, opening GEMS up has the potential to be the most catalytic event to date towards the mobilisation of private capital for sustainable development.

Moving markets: the potential for DFI transparency – an interview with Thomas Venon

The international community cannot work in silos and expect to end extreme poverty. Poverty is multidimensional.The most effective and powerful interventions that empower people to escape the poverty trap address the lives of people living in poverty holistically. A truly holistic approach leverages stakeholders from all parts of society collaborating to uplift people from the most marginalized communities. This is a matter of social justice, not of charity.

And, this is urgent. By the end of 2021, COVID-19 will have forced approximately 150 million more people into extreme poverty. Despite dire circumstances, we can still make meaningful progress on poverty eradication. Before the pandemic struck, global extreme poverty was consistently falling. From 2011 to 2019 alone, it fell from 1.1 billion people to 691 million.

Social protection systems designed to meet the needs of people living in extreme poverty were key to this progress. World Bank research shows 36 percent of the global reduction in extreme poverty has been due to social protection programs, and a recent study found that one percent of GDP invested in social protection can lead to a seven percent decline in national poverty rates. Coordinated international action to serve people from marginalized communities through social protection has also been essential to preventing even worse impacts from COVID-19. In 2020, countries launched over 1400 programs and invested over $800 billion USD as a social protection response to the pandemic. One study estimates that income support programs alone prevented over 3 million more COVID-19 cases and over 165,000 additional deaths worldwide.

These lifesaving, transformational programs are often government-led, but ultimately multisectoral efforts that bring together governments, multilaterals, civil society, the private sector, and academia to maximize impact. Looking to the future, we need to drive systems change for progress on poverty alleviation through collaboration. BRAC UPGI’s experiences adapting the Graduation approach with diverse partners in varied contexts, from urban slums in Tamil Nadu, India to pastoralists in rural areas of Kitui County, Kenya, demonstrate that adapting programs and policies strengthens impact and makes systems more resilient, adaptive, and inclusive. And we see this demonstrated even during a global pandemic.

In the Philippines, a successful government-led Graduation program leverages financing from a multilateral development bank, technical expertise from an NGO, and market linkages to the private sector. The Philippines Department of Labor and Employment (DOLE) Graduation pilot program received funding from the Asian Development Bank. BRAC UPGI used knowledge of Graduation program design and implementation to adapt the program to the challenges posed by COVID-19 lockdowns last year. By connecting participants to existing government services, the Graduation program made the social protection system more inclusive, lowered costs, and ensured 96 percent of participants received cash from the national government. This social assistance came as livelihoods were disrupted by the pandemic, making this integration with other government programming all the more critical.

We developed partnership agreements with local vendors to give program participants access to the productive assets, training, and support needed for livestock-based livelihoods like poultry and swine fattening. Our private sector partners offered livelihoods training, additional vitamins and medicines for livestock, and veterinary services. During the pandemic, two-thirds of participants continued developing their livelihoods and 76 percent continued earning incomes even during lockdowns.

BRAC Ultra-Poor Graduation (UPG) program in Bangladesh offers another model of how multi- stakeholder collaboration varies for the greatest impact based on local context. BRAC itself implements the Bangladesh UPG program and funds it in part through its own social enterprises. It has achieved success at scale, empowering over 2.1 million households to escape the poverty trap since 2002. BRAC’s direct implementation also guides its innovations to adapt the Graduation approach to serve diverse contexts and communities, such as people with disabilities, urban and newly poor populations, and refugee host communities, as well as its program adaptations for climate change. As we have seen during the COVID-19 crisis, the UPG program enables participants to access essential government services and connects them to community services through community mobilisation so they can meet their basic needs. Building on existing government and community programs makes the Graduation approach more effective and makes these programs more inclusive of people in extreme poverty.

Sufia, a UPG program participant, had her livelihood disrupted by the COVID-19 pandemic in March 2020. Her home was severely damaged by Cyclone Amphan in May 2020. BRAC staff provided Sufia and her family training on virus prevention strategies, and connected them to both community and government relief services that provided food and hygiene supplies as well as a food stipend and assistance to repair their home. Within a short period of time, she was able to repair her home and restore her livelihood. Her story teaches us that by using the funds at scale generated by social enterprise, the implementation experience of the world’s largest NGO, and the social protection and aid provided by government and civil society actors, we can empower people impacted by climate, health, and economic shocks to escape extreme poverty and transform their lives.

Multisectoral partnerships to end extreme poverty demand collaboration between researchers, designers, and implementers of transformative programs as well. To successfully bring anti-poverty interventions to scale through governments, we need to design them to be as effective as possible, and we need evidence they work in a variety of contexts. BRAC has been fortunate enough to work with both the Abdul Latif Jameel Poverty Action Lab and Innovations for Poverty Action to rigorously test, evaluate, and analyze Graduation program outcomes. Through these research partnerships and our internal evaluations, BRAC has gained valuable insights we’ve used to continuously improve and iterate on the Graduation approach, refining it to better meet the needs of people in extreme poverty in more than 14 countries around the world.

BRAC knows that collaborating with government, multilateral, private sector, research, and civil society partners makes anti-poverty programming more effective at scale. When the international community and local partners collaborate, we can amplify the impacts of an intervention with the potential to enable millions of people to escape extreme poverty long-term. We need more of this way of working to end extreme poverty.

Why We Need a Multisectoral Approach to End Extreme Poverty

Yesterday, the Biden administration released its much anticipated International Climate Finance Plan, which we were happy to see included several important provisions on the Multilateral Development Banks (MDBs), given the outsized role MDBs play in climate finance — and the significant influence the U.S. wields at those institutions. In particular, the plan calls for more ambitious targets and policies for climate finance at the MDBs, as well as for Treasury to develop guidance on how the U.S. will use its influential voting power to make sure MDB policies and strategies are aligned with the Paris Agreement. It also calls for phasing out “inefficient fossil fuel subsidies internationally, which undermine international climate finance efforts.” However, the plan also falls short in a few key areas:

It missed the opportunity to outline how the U.S. will work to enhance transparency of climate finance accounting at the MDBs. Encouragingly, one of the five pillars of the plan is devoted to enhancing transparency of climate finance, but the plan only addresses how the U.S. will improve the “definition, measurement, and reporting of climate finance” for U.S. bilateral assistance. While the World Bank has set (and easily met) targets for its “climate-related” portfolio, it is impossible to verify the Bank’s numbers with the project- level information it currently discloses.


The plan does not include recommendations for phasing out fossil fuel financing at the MDBs. One of the main pillars of the plan is “Ending International Official Financing for Carbon-Intensive Fossil Fuel Based Energy,” yet the plan lacks specific timelines for ending fossil fuel investments by the U.S. Export-Import Bank (EXIM) or the MDBs, which provide billions of dollars for fossil fuel projects every year. The plan instead notes that Treasury will develop guidance on how the U.S. will use its influential voting power to “shape MDB strategies and policies…to align with the Paris Agreement.” Previous versions of similar Treasury guidance took more detailed positions on whether and how the U.S. could support fossil fuel lending; under the Obama administration, the guidance was primarily focused on limiting coal, while the Trump administration took a supportive position on fossil fuel financing more generally. Any guidance developed by the Biden administration should include specific criteria for assessing whether any fossil fuel projects would be acceptable. It should also set clear expectations for the MDBs on timelines for phasing out investments in fossil fuels and ensure the institutions require that existing fossil fuel projects in their portfolios meet international best practices on transparency, accountability, and community consultation. Treasury should also absolutely consult with civil society as it develops this guidance.


The plan is silent as to how the fossil fuel industry continues to be supported through opaque lending instruments. The plan does not specifically mention the sizable portion of MDB lending flowing through opaque lending instruments like financial intermediaries that support fossil fuel projects — including new coal plants. Treasury should play a leading role at the MDBs to build greater transparency into these forms of lending, and to ensure that all strategies and policies aimed at phasing out exposure to fossil fuels include these instruments. The World Bank’s Climate Change Action Plan that will guide its lending for the next 5 years is currently under development, and the U.S. should use this opportunity to call for the inclusion of mandatory requirements for shifting its energy investments in a new direction. The upcoming 20th replenishment of the Bank’s fund for the poorest countries, the International Development Association, will also be an important opportunity for the U.S. to guide the World Bank on its support to low-income countries for a more sustainable recovery that benefits all.

The U.S. is poised to take on a much stronger leadership role on climate than under the Obama administration, but its plans should extend to what the administration will expect from the MDBs. The guidance Treasury is due to issue will not only serve as a guide to U.S. government officials on how to vote on specific projects, but also to MDB staff as they design and choose projects to support. In the coming months, we hope to see a much clearer roadmap for ending all U.S. support for any new public financing of fossil fuel projects internationally. It is time for the U.S. to focus on shifting resources away from fossil fuels and towards a just transition and expanding energy access for communities living in poverty. 

Photo Credit: White House photo by Adam Schultz

A puzzling omission: how Biden’s international climate finance plan lacks ambition for the biggest channels of international climate finance, the MDBs

Even before the Biden-Harris administration took office, they made clear that one of their top international priorities would berenewing the United States’ commitment to multilateralism. Within the international financial institutions (IFIs)—the World Bank and the International Monetary Fund (IMF)—as well as the United Nations, the US agenda over the next four years will be one of re-engaging with management and rebuilding coalitions with allied shareholders to advance priority issues and approaches. One of these priority areas will be improving the effectiveness of engagement in fragile states. 

In this piece, we outline a number of ways the Biden-Harris administration can leverage its reengaged US leadership within the multilaterals to both advance US goals and support more effective multilateral engagement in fragile states.

Over the last several years, many multilateral and bilateral donors have renewed their focus on fragile states. Drawing lessons from a somewhat unsatisfying track record of engagement, these donors have begun to reorient the way they work in fragile states to better advance peace, stability, and resilience to complex risks—goals that have only become more important as the COVID-19 pandemic puts additional strain on existing vulnerabilities.

For the United States, the 2019 Global Fragility Act (GFA) and the 2021 strategy for GFA implementation outline a set of approaches that, if well implemented, promise more coordinated and effective engagement. The key underlying principles of the GFA include: 

a shift to addressing the underlying drivers of fragility,

better monitoring, evaluation, and learning,

better coordination, both internally and with other partners, including multilateral partners.

These same principles also underpin the World Bank’s year-old Strategy for Fragility, Conflict, and Violence (FCV) that it is beginning to implement. And the IMF is exploring how the findings of an evaluation of engagement in fragile states by its Independent Evaluation Office can inform strategic thinking about possible new approaches in FCV contexts.

As the top overall donor to fragile states and the largest shareholder in both of these IFIs, the United States has a central role to play in advancing more effective development policy in these challenging contexts. With its own principles for better engagement largely aligned with those of the IFIs, the United States is well placed to participate actively in the IFIs’ efforts to improve FCV outcomes. It can also use its voice in the UN to advance more effective and coordinated practices in fragile states. Here, we propose three categories of steps the United States should take to leverage its role in multilateral institutions to pursue these shared goals.

First, improve internal US government coordination 

For the United States to coordinate well with external partners, it first needs to get its own house in order to create and present a more unified internal strategy. Here, the GFA promises to help. The legislation directs the State Department, the United States Agency for International Development (USAID), the Department of Defense, and other agencies to identify shared long-term goals and develop a joint strategy for how to achieve them. To help meet this mandate, the National Security Council will host a GFA steering committee and State will chair a working level interagency secretariat. While the GFA and its implementation strategy only tangentially address the role of the Department of the Treasury, its integral involvement in these structures—as the agency that manages the US relationship with the IFIs—will be mission critical, especially given the GFA’s emphasis on cross-donor coordination.

Furthermore, even as the GFA puts impetus and structure around interagency coordination, it won’t be an easy road. To avoid getting bogged down in the turf battles, unclear mandates, and ambiguous authorities that have plagued so many past interagency efforts, GFA implementing agencies should prioritize coming to a priori agreement on answers to the hard questions like who has budgetary, policy, and legal leverage? How will agencies resolve disputes when they disagree? And how will agencies integrate complementary efforts that sit outside the initiative (e.g., humanitarian assistance)?

And, of course, strong interagency coordination also depends crucially on intra-agency dynamics. When interagency fora become a venue for intra-agency arm-wrestling, coordination suffers. Each agency will need to work to reconcile potential differences among its own regional and/or functional bureaus and bring a unified voice to the table.

Second, use US muscle within the World Bank and IMF to ensure good implementation of their own new (Bank) or forthcoming (IMF) fragile states strategies.

The World Bank’s FCV strategy promises a more thoughtful and strategic approach to fragile states; however, the policy and programmatic shifts it implies will undoubtedly face challenges in implementation. US support for the strategy—both on the board and financially, as necessary—could be instrumental in advancing its implementation and could perhaps provide a counterweight to any resistance that might arise among Bank management or staff.  

The IMF is in somewhat earlier stages of rethinking its approaches in fragile states. As it does, the United States could play a strong role in championing a new approach that looks at longer-term strategic issues, coupled with target financing. This would require budgetary resources and management initiative, but a push by the United States and like-minded G20 members could encourage the IMF to move off the mark.

Third, champion international coordination mechanisms and the multilaterals’ roles within them

The GFA strategy commits the United States to work with other donors to share program information, avoid duplication, optimize assistance toward shared objectives, and ensure consistent messaging. But even as the United States seeks to improve how it coordinates its own aid with other donors, US representatives can also use their influence within the multilaterals to help shape how these institutions foster coordination within the aid system in ways that support US coordination goals. The following are four ideas the United States could encourage within the IFIs and/or United Nations to advance these objectives.

Coordinated analysis and messaging across the World Bank, IMF, and United Nations

The three multilateral institutions often have longstanding partnerships with fragile states, each bringing to the table its own focal area(s) and comparative advantage(s). UN agencies help support peacebuilding, political mediation, and development goals, the World Bank engages in promoting growth, development, and resilience, and the IMF works with countries to stabilize and strengthen macroeconomic conditions. Despite shared overall goals of increased peace, stability, and resilience, however, there is a risk that, without deliberate coordination, individual pursuits end up sending confusing or contradictory messages to the partner government or even working at cross purposes with one another.

The three international institutions do have a history of coordination, especially between the World Bank and the UN and the World Bank and the IMF, but scope for improvement remains. As a lead shareholder in the IFIs and strong voice at the UN, the United States could encourage each agency to pursue concrete steps toward greater cross-institution coordination, including strengthening political economy and multi-dimensional risk analysis and ensuring findings are shared across institutions, understanding and carrying one another’s messages to governments and citizens, exploring staff incentives for collaboration, and establishing a joint research agenda on approaching particular tipping point risks in fragile states.

A forum to coordinate bilateral and multilateral support across fragile states

While coordination platforms often exist within individual fragile states, there is currently no forum in which the largest donors can coordinate their actions across fragile states. A convening of this type—akin to the (now-dormant) pledging sessions for balance-of-payments assistance or the Paris Club for debt issues—could discuss how aid allocation can capitalize on different donors’ comparative advantages and how to promote more consistent application of good practices in fragile contexts. The United States could look to spearhead an effort like this within the World Bank or the United Nations—or even the IMF, for finance-focused engagement.

Expanded support for and engagement in country platforms

A country platform is a government-led coordinating body that brings together donor partners and other stakeholders to define shared goals and coordinate the various development and peacebuilding efforts in the country. While country platforms have had an overall mixed record of success, they may be particularly promising in fragile states, where ownership is more tenuous and implementation capacity may be limited.

There has been some new momentum around country platforms in recent years. They emerged as a priority of the G20’s 2018 Eminent Persons Group on Global Financial Governance. And World Bank president David Malpass indicated that the Bank would expand its support of country platforms in fragile states.

Country platforms could prove helpful for GFA implementation. The GFA encourages the United States to pursue “compact-based approaches,” in which the donor would work in concert with the partner country government (and other local entities) to outline mutual responsibilities toward shared, country-led objectives. In many compact-based approaches, like those of the Millennium Challenge Corporation, partner government commitments involve policy and institutional reforms that advance the agreed upon objectives. While there’s little detail yet on what compact-based approaches might look like under the GFA, to the extent that they might include policy requirements, it could make sense to try to align these requirements with other donors’ efforts and messaging. Country platforms could be a natural conduit for doing so.

But given country platforms’ mixed track record, their future success will hinge upon being able to clearly answer several questions, including what the scope and purpose of the platform is and what success looks like, how “country ownership” will work, especially in a context where the interests of certain government or other local actors conflict with development or peacebuilding goals, and how roles for various actors—donors, the private sector, civil society—will be defined. But despite anecdotal evidence of success, like the country platform in Somalia, there has been limited investment in efforts to learn, across the range of models that have existed, what makes these structures work well (or not). This has prompted experts to call for greater investment in stock taking exercises that could then inform how to approach the organizing questions outlined above. The World Bank could be well positioned to lead this learning effort.  

Donor alignment around programmatic outcomes

Another way to encourage donor alignment—with or without a country platform—is to seek alignment on indicators and measurement plans. Coordination on outcomes can identify opportunities for more efficient data collection and set the stage for more consistent messaging, a goal of the GFA. The United States could encourage the IFIs to play a stronger role in promoting this kind of alignment.

The United States’ reengagement in multilateral fora is a welcome shift after four years of waning interest in global cooperation. Through a combination of encouraging the institutions’ own nascent strategies, fostering multilaterals’ roles as linchpins of coordination, and getting its own house in order, the United States can help the multilaterals pursue more effective IFI engagement in fragile states while simultaneously advancing US goals and setting up scaffolding for more effective implementation of the GFA.

Renewing US Multilateral Engagement for a More Effective Approach to Fragile States

Few would argue that collaboration and collective efforts across the multilateral development banks (MDBs) are not urgently needed. We look to them as critical actors to help finance recovery from global crises, like the pandemic and the global financial crisis before it. Their role in financing global public goods (GPGs) which require collective action, like combatting climate change, is no less important and no less pressing.

Yet while the logic and need are obvious, the actual extent of collaboration between MDBs is limited. In their 2018 report to the G20, the Eminent Persons Group cites “the largely untapped potential for collaboration among the international financial institutions…to maximize their contributions as a group.”

MDBs typically engage individually with client countries and not much with each other. The reasons are not hard to understand. They are judged principally by the volume of finance they themselves commit and disburse every year, not by how much space and opportunity they create for other actors—public or private—to invest. They each have their own boards, operational processes, fiduciary standards, environmental and social protection standards, institutional strategies, results frameworks, etc. Their boards do not meet jointly. And other multilateral bodies fall short of meaningful oversight of collective MDB performance. The G20 and G7 periodically focus on MDBs, usually during crises, but do not systematically mandate or monitor anything like a shared MDB strategy for GPGs or anything else.

Most glaringly, while G20 and G7 communiqués offer various calls for more finance or more debt relief for poor countries, these groups have no actual low-income countries (by the World Bank definition) in their midst. This can result in a mismatch between needs and solutions, as, for example, in the case of the G20 Debt Service Suspension Initiative, in which more than 30 of the 73 poor countries eligible declined to participate.

In sum, we should not be surprised that MDBs do not systematically collaborate to achieve shared goals. Their managements are incentivized to prioritize individual over collective MDB performance. Shareholders have not agreed on either collective goals or a strategy to achieve such goals. Nor do shareholders have a body to oversee collective MDB performance.

Our recent paper explores how this gap in the international financial architecture might usefully be filled. It addresses what a new cross-MDB governing body might do and what it might look like.

What would be the purpose(s) of a collective MDB governing body?

The first purpose would be to forge a common, long-term strategy for MDB performance as a system. Such a strategy would not replace the strategies of individual institutions. Rather it would focus on how the MDBs would work together collectively to achieve development goals, especially for GPGs, more rapidly than they can individually.

The second purpose would be driving rapid combined MDB crisis responses when needed. In this century we have already experienced two deep global crises and, in both cases, the international community, including the MDBs, struggled to respond fast enough and at a sufficient scale to forestall avoidable suffering and long-term damage. Having in place agile processes for a timely combined finance surge, targeted as required by the nature of the crisis, is clearly needed. The collective MDB governing body could play a key role in shaping this surge capacity and triggering its deployment.

The third purpose would be oversight, both of the long-term strategy and short-term strategies for crisis response. Such strategies would not long be relevant or meaningful without the ability to hold MDBs collectively accountable and to drive course corrections as needed.

What might be the areas of focus of a collective MDB strategy?

We propose focusing on GPGs, specifically combatting climate change, as a logical place to start. Here are five areas where a shared strategy is needed—that is, challenges and activities that cannot be addressed at the level of individual institutions.

Assess collective MDB capital adequacy, capital efficiency, and finance capacity for climate-related finance.

Set and oversee achievement of aggregate MDB targets for climate finance, including the path to net zero emissions and Paris Agreement alignment at the portfolio level.

Promote harmonization of MDB climate investment processes and shared transaction costs to scale the pipeline of investible projects and the size of the investments possible.

Drive the pooling of MDB climate-related assets to attract large-scale institutional investors.

Mandate risk-sharing across MDBs and shared access to concessional finance for boosting operations in difficult environments.

What kind of governing body should oversee collective MDB performance?

Our paper proposes three options for such a body with four criteria in mind. It should: (1) be a manageable size; (2) include countries which account for the bulk of capital shares in the major MDBs, (3) include poor countries, especially those with large shares of the global poor, and (4) either build on existing groups or select countries for inclusion based on objective, measurable criteria.

As an experiment, we constructed a new group of 24 countries: a mix of high-income countries (HICs), upper middle-income countries (UMICs), and low-income countries plus lower middle-income countries (LICs+LMICs). Criteria for HIC selection were economic size, aid as a share of GDP, and share of contributions to IDA, the poor-country lending arm of the World Bank. Criteria for UMICs were economic size and share of global poor at $3.20/day. And criteria for LICs+LMICs were economic size and share of global poor at $1.90/day. The following 24 countries scored the highest based on these indicators.

This result has advantages in that it combines many of the existing G20 countries, which are the major MDB shareholders, with the largest poor countries. Its disadvantage is that it is new and would therefore require difficult negotiations and concerted efforts to gain legitimacy. A formal system of member outreach to non-member countries in different regions could be added to build their buy-in.

An alternative to constituting an entirely new group is to add LMICs and LICs to the G20 to address this set of issues. This could be done by adding the seven countries in the LMIC/LIC group above to the G20. (India is already a member of the G20.) Building on an existing group has practical and political advantages in terms of (1) avoiding the politics of excluding countries that are already in the G20, and (2) making use of the established mandate and practices of the G20.

One other alternative is to deploy the constituency model used in MDB shareholding in which major shareholders have their own board chairs and other shareholders form constituency groups represented by rotating country chairs. The World Bank Executive Board constituency structure makes the most sense for this purpose as it is the only MDB that is global in its operations and membership. There are 25 Executive Directors representing the 189 member countries.

The major advantage of this structure is that it is inclusive, offering a voice to all countries. The disadvantage is that it is constructed based on World Bank shareholding, which gives larger shareholders a greater governance voice. In this case though, group decisions would be made by consensus, rather than voting with weights determined by capital shares.

It is always difficult to add to the international financial governance structures. But failing to do so has become too costly. For global public goods that cannot be pursued by individual MDBs, like combatting climate change, we need a global body empowered to mandate collective MDB strategies and hold MDBs accountable for collective performance.

Forging an MDB System: The Missing Piece in the Governance Architecture

In 2020, the global economy took a major hit with the onset of the COVID-19 pandemic, causing global GDP to fall by 3.3 percent. But that is expected to reverse course, with the global economy projected to grow 6 percent by the end of 2021—growth that reflects additional fiscal support in several large economies and the anticipated vaccine-powered recovery.

While promising, a high level of uncertainty surrounds these new projections—as reported in the International Monetary Fund’s April 2021 World Economic Outlook—and could ending up costing the world economy $9 billion if countries fail to globally distribute vaccinations and get the virus under control. These projections were one of the main topics of discussion at the virtual Spring Meetings of the IMF and World Bank Group, where the institutions met to discuss their progress on the COVID-19 pandemic response and economic recovery—and the urgent needs that still must be addressed.

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