Multilateral Development Banks Research Articles

New Development Bank as Aid Donor to School Education

Despite initial expectations that the New Development Bank (NDB) would emerge as a significant contributor to education aid, educational projects constitute only 0.3% of the Bank’s portfolio after nine years of operation. Why have the aspirations of the mid-2010s remained largely unrealized? Drawing on primary sources, including official BRICS and NDB documents, speeches by member states’ representatives, and aid statistics, this article traces the evolution of education aid within the NDB’s operational framework. The analysis tests several hypotheses to explain this trajectory, examining BRICS member states’ preferences for educational cooperation, leadership changes within the Bank, the impact of COVID-19, the demand for educational aid among NDB member states, and the division of labor between “old” and “new” multilateral development banks.The findings indicate that the inclusion of education as a secondary focus area in the NDB’s agenda initially exemplified a case of “governing through goals,” as the Bank sought to enhance its reputation by contributing to the broadest possible range of Sustainable Development Goals (SDGs). Subsequent developments, including heightened attention to BRICS educational cooperation at high-level and ministerial meetings, the adverse impact of COVID-19 on global educational progress, and the appointment of Dilma Rousseff as NDB President, further solidified social infrastructure (including education) as a priority on the Bank’s strategic agenda. However, despite increased rhetorical emphasis in declarations and strategic documents, financing for educational projects has not followed suit.This disconnect can be attributed to two primary factors. First, the established division of labor between “old” multilateral development banks (e.g., World Bank, Inter-American Development Bank, Asian Development Bank) and “new” institutions (e.g., NDB, AIIB) has positioned the former to prioritize social sector investments while the latter address deficits in infrastructure financing. Second, NDB member states have shown limited interest in altering this status quo. At the same time, stagnating aid volumes and the increasing politicization of educational aid by traditional donors, coupled with persistent needs to improve education systems in many developing countries, underscore the challenge for BRICS states to develop more effective mechanisms for educational cooperation—both within the bloc and with the broader Global South.

Climate finance and new multilateral development banks: approaching co-productive dynamics?

ABSTRACT Multilateral development banks (MDBs) play a key role in directing private capital and public resources to finance climate action. Different from the mainstream literature that focuses on the role of new MDBs in promoting climate finance, this paper provides novel evidence on how and why they can also be reshaped by climate finance. It takes as a case study the Asian Infrastructure Investment Bank (AIIB), a newly established yet now the world’s second largest MDB by membership, drawing on the bank’s climate trajectory since 2016, and 57 in-depth interviews with its officials and experts in Beijing, China. While initially created as an infrastructure-focused MDB, AIIB has been substantially shaped and reshaped into a climate-oriented bank. The shift is explained by the bank’s (1) financial considerations, (2) strategic considerations, and (3) organizational culture. The co-productive interaction entails two long-term effects. First, despite its geostrategic intentions and institutional setbacks, AIIB carved out an extra space for itself to grow. Second, there is an increasing risk of AIIB’s unique developmental identities being weakened as it leans towards climate finance.

The Multilateral Development Banks and Rural Climate Finance: Adaptation, Mitigation, and Resilience

Our article analyses multilateral development bank (MDB) engagement with climate change and rural and agricultural development. It reviews 140 MDB governance documents and 284 lending operations to evaluate how their strategic intent has been translated into action. We conclude that while climate adaptation and mitigation initiatives are emphasised in MDB governance documents as crucial to transformative and equitable climate outcomes that promote economic growth and alleviate poverty, the MDBs are primarily financing climate resilience projects that prioritise actions to make agricultural production and rural incomes less vulnerable to climate change.

Does it pay to be Green? The impact of equator principles on project loans

Some financial institutions voluntarily adopt the Equator Principles, requiring them to monitor the environmental and social (ESG) impacts of projects they finance. We investigate the incidence of these costs on corporate borrowers, as well as evidence of benefits in the form of improved loan terms. Using detailed international loan data, we find that borrowers dealing with green banks derive several economic benefits including lower loan spreads. We argue that dealing with ‘green banks’ allows firms to signal their ESG commitment and can help them manage ex post ESG-related risk. The empirical approach also addresses endogeneity concerns. We document other benefits including greater lender participation and the support of Multilateral Development Banks. Our counterfactual analysis, however, shows that if regulatory changes were to encourage working with green banks, firms that only deal with them as a result of the policy would not obtain lower loan spreads.

The Anti-illicit Activity Regime of the Multilateral Development Banks: Criminal Acts or Prohibited Practices?

The spread of illicit activity across the global economy presents significant challenges to international development. Despite the well-recognised global incidence of corruption, fraud, and money laundering in development-focused investment projects, the responses of the multilateral development banks (MDBs) to these threats remain understudied. Our article offers the first comprehensive study into the comparative historical emergence and evolution of MDB responses to illicit activity. By identifying and analysing critical junctures in this history, we argue that the MDBs have tended to approach illicit activity as prohibited practices rather than criminal acts. We contend that this is an intentional choice made by the MDBs that absolves these organisations from any real responsibility in minimising illicit activity, finding their concern to be ensuring contractual compliance in their lending operations rather than curtailing criminal behaviour and their preference to be resolving contractual deviations in-house as opposed to coordinating with local jurisdictions and law enforcement agencies.

Multilevel actor networks in China’s growing fossil-fuel based role in the global electricity sector

Abstract Chinese investments into fossil fuel-based electricity generation capacity under its Belt and Road Initiative will create lock-in for decades. Despite China’s recent rise as major public finance provider for the electricity sector of the developing world and the related environmental impacts, there is limited knowledge of the extent and characteristics of non-Chinese participation in Chinese-funded projects. We apply complexity theory approaches and network modelling on a new dataset that links funding activities of Developmental Institutions (Chinese Developmental Institutions (CDIs), Western-backed Multilateral Development Banks (MDBs)) and the involvement of companies in different roles (i.e., as direct investors, contractors, equipment suppliers, and other service providers) to power plants around the world at the unit-level (1999-2020). Previous literature suggests that CDI funded projects show preference to Chinese commercial partners, but we find more than 70% include non-Chinese participants. This also applies for fossil-fuel based technologies where we observe increasing shares of international actors that together account for nearly every third commercial linkage. However, involvement levels and interaction patterns not only differ by technologies (fossils, hydro, non-hydro renewable, nuclear) but also by the time period and types of commercial partners and we observe overall convergence between the CDI- and MDB-supported power plant networks over time. The decreasing involvement of Chinese companies in CDI-funded projects, across technologies, in favour of increasing Western involvement, has important implications for development and climate policy on which we elaborate. However, the failure of both MDB and CDI funding to promote domestic company involvement in the recipient countries may be the largest failing of both sets of agencies in the pursuit of development outcomes.

National and Multilateral Development Banks during the COVID-19 Pandemic: The Role of the IADB and CDC-BII during the Second Phase

ABSTRACT This article focuses on the strategic role played by a multilateral development bank, the Inter-American Development Bank (IADB), and a bilateral development bank, the UK BII (formerly the CDC Group), during the COVID-19 pandemic. In detail, we will compare the initial activity of these two development banks (DBs) during the first phase, in 2020, with their actions in the following period. The analysis will also reflect on the role of safeguard policies in ensuring that the activities of DBs are in line with the fulfilment of their public purpose mandates and whether these rules were sufficiently broad and flexible enough to respond to an unexpected event such as the COVID-19 pandemic.

Diffusing Risk: Bureaucratic Agency, UN Security Council Horse-Trading, and the Role of Co-Financing

Abstract Political lending is problematic for the operations of multilateral development banks (MDBs) since politically motivated aid has a greater default risk than other aid projects. MDB bureaucrats, therefore, face a dilemma. On the one hand, they want to please major shareholders by engaging in political lending. On the other hand, they want to mitigate their MDB's exposure to excessive risk. One way to solve this dilemma is to share the risk of loans with other lenders through co-financing. I expect that as countries’ share of politically motivated aid increases, these countries’ portfolios will receive more co-financed loans. Using newly collected loan-level data from the European Bank for Reconstruction and Development, I find that UNSC membership increases the number of co-financed loans by 38.5 percent and increases the share of co-financed loans in a country's European Bank for Reconstruction and Development loan portfolio by 19.1 percentage points. I demonstrate that these results are consistent with the argument that MDB bureaucrats want to mitigate risk.

The Asian Infrastructure Investment Bank's Role in Promoting Sustainable Hydropower Projects: A Comparative Analysis of the Mangdechhu and Punatsangchhu-I Projects

This study compares the Asian Infrastructure Investment Bank (AIIB)-led Mangdechhu Hydroelectric Project with the World Bank-supported Punatsangchhu-I Hydroelectric Project. By comparing the approval and implementation process, multilateral and regional cooperation, sustainable development factors, and challenges and coping strategies of these two hydropower projects, it is concluded that AIIB has a clear advantage in promoting sustainable energy projects. AIIB has demonstrated an efficient project approval and implementation process, as well as close multilateral and regional partnerships. In addition, AIIB has systematically focused on the environmental, social and economic impacts of the project, so that sustainable development can be balanced in the progress of energy projects. However, the agency's pressing issues include technical difficulties, environmental protection, and population resettlement. In order to meet these challenges, AIIB needs to strengthen the learning of experience, optimize the project strategy, and expand the scope of cooperation. The findings of this study have guiding value for policymakers and academia. In future energy cooperation and investment, governments, multilateral development banks and relevant institutions should learn from the practical experience of AIIB and formulate more effective and targeted policies and plans. By tackling challenges together, we will contribute to solving global energy problems and promoting sustainable development.

Obstacles and appeal of environmental taxation: Insights from sub-Saharan Africa

Increasing the slow pace of adoption of environmental taxes across low-income countries has become a significant priority among international financial institutions, multilateral development banks, and international donors. Yet little is known about the practical institutional, administrative, and political obstacles that have led to their slow implementation and how they can be made more appealing, especially across sub-Saharan Africa. Based on a review of the literature and 16 in-depth interviews with ministries of finance, revenue authorities, and other government representatives across six African countries, this paper provides exploratory evidence of these stakeholders' view about environmental taxes deployment in their countries' context. By increasing the visibility of these policymakers’ opinions and priorities, this study aims to individuate areas in which further research can provide support for the introduction of environmental fiscal measures. While there are differences across the countries covered, a lack of data and analytical capacity to develop effective environmental taxes is a common theme, as well as the historical prioritisation of their revenue mobilisation capacity over their environmental impact. A great variety of government actors with a mandate over natural resources, often with competing policy priorities, coupled with a lack of coordination fora, has also impeded the harmonisation of the environmental charges they levy. These measures are also often perceived to be regressive and to pose an obstacle to industrial development, lowering their appeal, given that poverty reduction and employment creation are an overarching priority. Nonetheless, support for introducing specific environmental tax measures exists across the population and policymakers, especially if their revenue can be earmarked for environmental purposes.

Catching up with climate priorities: Understanding multilateral development banks' evolving approach to biodiversity

AbstractA global consensus now recognises biodiversity as equal to climate change in its importance to sustainable development. While multilateral development banks (MDBs) have developed a strong emphasis on climate change, how do they approach biodiversity as a new priority? Current literature on MDBs' approach to climate change is prolific, but scholarship on biodiversity is scarce. Here, we compare MDBs' climate and biodiversity efforts in order to identify differences, analyze causes, and ultimately propose ways for MDBs to prioritise biodiversity. Methodologically, we analyze MDB documents in the form of policies, high‐level announcements, and strategies, in order to compare climate change and biodiversity across five aspects: Financing, policy, strategy, client requirements, and environmental reporting. Subsequently, we apply automated text analysis to examine mentions of climate change and biodiversity in annual reports. Focusing on the 10 largest MDBs, we find that across all five aspects, MDBs' prioritisation of biodiversity lags far behind that of climate change. From that, we recommend that biodiversity be prioritised by MDBs in three ways: By adopting an integrated strategic approach to environmental issues that goes beyond climate, by not only addressing biodiversity through safeguards but also through labeled projects, and by assigning targets as proportions of total financing.

Enhancing private infrastructure financing through capturing spillover effect: Conceptual development and an empirical case study of Vietnam’s expressways

While infrastructure provides necessary public services and is vital for the socio-economic development of a nation, public funds alone cannot finance all infrastructure needs in society, especially after the COVID-19 pandemic, where many countries are facing budget deficits. Although private financing schemes, such as public-private partnerships (PPPs) and land value capture, have been considered intensively, they have yet to produce adequate private capital flows to infrastructure projects due to a lack of incentives for private investors. Against the background, this paper proposes a new financing mechanism in which governments might divert some of the increased tax revenue from the spillover effects of newly constructed infrastructures to fund the private sector through grants or subsidies. The empirical work in Vietnam shows a significant increase in tax revenues after completing two expressways, supporting our idea about spillover effects, which includes small- and medium-sized enterprise (SME) development. This study’s results suggest that spillover effects can bring new opportunities for governments and multilateral development banks (MDBs) to implement infrastructure projects with greater private sector involvement in the region. It also proposes some financial schemes, such as land capture and financing for business startups, including SMEs, to enhance the spillover effects of infrastructure.

New Development Bank's role in the global financial architecture

AbstractThe New Development Bank (NDB) was established in 2015 by the grouping of Brazil, Russia, India, China, and South Africa (referred to as the BRICS). The establishment of the NDB was one of the outcomes of the economic and political dissatisfaction arising out of the growing disparity between the BRICS' development needs, their share of the world economy, and their representation in the established institutions of the global financial architecture. The paper examines the origins of NDB, the unique aspects of its governance structure, innovations in its operational model, and the challenges it currently faces. The paper concludes that 9 years after its establishment, NDB has completed the core foundational work required of a new multilateral development bank. It is undoubtedly an interesting experiment in the creation of a new international financial institution, and it has made a good and solid start. However, the current global environment is very different from the world of 9 years ago. If the NDB can navigate well the current challenges and if it can scale up significantly, then the NDB indeed has the potential to make a significant impact on the global architecture of development finance. Whether it does so, remains to be seen.

Assessing Multilateral Development Bank ESG Safeguard Integration with International Sustainability Ratings

In an era where sustainability is paramount, this study critically assesses how multilateral development banks (MDBs) integrate internationally recognized sustainability indicators into their ESG safeguard policies. MDBs have historically incorporated policies to manage environmental and social risks in project financing; yet, protections against negative impacts in developing countries often remain insufficient. On the other hand, several infrastructure sustainability rating systems have been established around the world in recent decades due to economic growth and the importance of controlling environmental impacts associated with the construction sector. The purpose of this study was to analyze whether and how the indicators that these internationally recognized systems use to rate whether a project is sustainable are integrated into these safeguards by using several methodologies, including an analysis of existing documentation, a high-level matrix, and qualitative methods based on co-occurrences using specialized “atlas ti” software. The results show that MDBs’ coverage of financial, governance, and country risks lacks the sustainability focus found in these rating systems. Therefore, this study that concludes MDB safeguards must evolve, balancing comprehensive sustainability parameters and detailed management guidelines and addressing impacts beyond statutory frameworks to encourage stakeholder engagement for more sustainable infrastructure projects.

Continuing to Put People First: Embedding community investment in the sustainability standards of international financial institutions

AbstractWe discuss environmental, social and governance (ESG) considerations in international development projects, especially those funded by the World Bank and International Finance Corporation (IFC). Their social safeguard policies were adopted because of neglect of social impacts by projects. Although development assistance goals have shifted from economic growth towards poverty reduction and shared prosperity, mitigating adverse impacts of projects does not necessarily address the multiple dimensions of poverty or the Sustainable Development Goals. ‘Do no harm’ has limited ability to achieve social development objectives. Instead, a significant contribution to international development could come by embedding community investment in the environmental and social frameworks of international financial institutions, and social impact assessment and international development practise. This would ensure that projects contribute to improving the lives of project affected peoples. We propose changes to the IFC Performance Standards that could be implemented by other multilateral development banks and in the Equator Principles.

China, international competition and the stalemate in sovereign debt restructuring: beyond geopolitics

Abstract Until recently, developing countries were supposedly enjoying an unprecedented ‘age of choice’ when borrowing. Many observers were arguing then that geopolitical competition between lenders allowed them to extract better terms. Today, many face a looming debt crisis: financing options have shrivelled and restructuring talks are painfully slow, compounding debtors' misery. This is frequently attributed to creditors' geopolitical rivalry, reflecting China's rise as a sovereign lender. But why should competition between providers, once supposedly a boon for borrowers, now be a bane? This article explains this, by switching an inadequate geopolitics lens for a political economy analysis. The earlier expansion in lending was primarily driven not by geopolitical contestation but by prevailing politico-economic conditions within China and on international financial markets amid US-led quantitative easing, and was, furthermore, facilitated by China's fragmented internal governance. As economic conditions changed, financing dried up and creditors scrambled to secure returns. China's current chief competitors are not western states, but rival lenders: commercial bondholders and multilateral development banks. Given China's fragmented governance, lenders' commercial motives to recoup their loans primarily drive Chinese behaviour, not geopolitical objectives. This limits China's hegemonic potential and suggests developing countries may benefit less from the ‘second Cold War’ than some imagine.

Bridging the gap: Mobilization of multilateral Development Banks in Infrastructure

We explore how Multilateral Development Banks (MDBs) can help to fill a large infrastructure financing gap in developing countries by indirectly mobilizing resources from other entities. The analysis focuses on more than 6,500 transactions in 2005–2020 to low-income developing and emerging markets from the Infrastructure Journal database. Using granular data aggregated at the country-sector level, we analyze the dynamics of flows from different actors to different infrastructure sectors and control for a wide range of fixed effects. MDB lending significantly increases the inflows from other sources. Cross-border and domestic resources are mobilized from the official and private sectors. Results exhibit country heterogeneity. Mobilization occurs in countries of all income levels though it decreases as a country’s income increases. In countries that use capital controls frequently, mobilization effects are undermined. When the 2008 global financial crisis hit, no difference in mobilization effects was found, unlike the COVID-19 pandemic when mobilization effects were weakened. Finally, we find evidence of complementarity between bilateral and multilateral financing in mobilizing resources. The findings survive a long battery of robustness checks, and no evidence of anticipation effects is found.

The Development Concept in BRICS: An Analysis of Projects Financed by the NDB

The article examines the concept of development within the BRICS (Brazil, Russia, India, China, and South Africa) framework and how the New Development Bank (NDB) is used to achieve it.It analyzes BRICS summit documents from 2014 to 2022 and financing projects considered by the NDB from 2016 to 2022. The arguments made are as follows: development has been a top priority within BRICS; development is fundamental for economic growth and strengthening infrastructure; development involves a notion of progress closely tied to sustainability and the “green” concept; and the NDB, despite its commitment to good environmental, social, and governance (ESG) practices, does not ensure them throughout the execution of projects. In the initial years, cooperation among BRICS countries was emphasized as the means to achieve development. The NDB complements this by filling gaps in international financing. Notably, there is a significant number of projects in the transport infrastructure sector, with leadership from India and China, while the social infrastructure sector is marginalized. There is rapid project appraisal dynamic that does not necessarily translate into project implementation and completion. At the same time, the NDB has attracted interest from new members. As long as the NDB can efficiently attract and lend resources to its members and respond swiftly and responsibly to new challenges in an everchanging international context, it will be seen as a significant multilateral development bank that promotes South-South cooperation. As a result of BRICS coordination, the success of the NDB contributes to development financing and positively impacts the relevance and resilience of the grouping in global politics.

Criticism of Multilateral Development Banks Operating Reflections During Covid-19 Pandemic - From the Perspective of the Sovereign Debt

The problem of sovereign debt crises has a long history at the international level, especially in the face of global crises such as the global financial crisis of '08 and the recent COVID-19 pandemic. In the face of the negative social impacts of these emergencies, the state apparatus of each country needs help with relying on domestic channels such as tax revenues and investment returns to maintain efficient operations. It would, therefore, finance other countries in non-domestic currencies, and such a solution would exacerbate countries' sovereign debt crises. Countries have done well in restructuring their sovereign debt in response to sovereign debt crises, especially in Europe and Africa. The International Development Association provided some debt relief to those countries with fragile economies, but the crisis is still present today. In order to expand sustainable financing and maintain economic stability, new multilateral development banks have been established in some regions. These MDBs have been restructuring since the Great Depression, and their lending policies have indeed eased countries' sovereign debt crises to some extent. However, their financing rules have also influenced other countries' policies, making them widely criticised internationally. In the context of COVID-19, both the strengths and weaknesses of MDBs are exposed, so they still have a long way to go before they can become international institutions that can pay attention to disadvantaged countries and help them develop.

Многосторонние банки развития в полицентричном мире

Multilateral development banks (MDBs) are increasingly considered on the international agenda as one of the significant institutions for financing sustainable growth in the developing countries. In this article main activities of the four largest regional development banks are analyzed in the context of the reforms necessary to increase the financial capacity of MDBs. The need to reform the activities of multilateral development banks is due to both external and internal objective reasons. As regional development banks, all four banks discussed have the goal of promoting sustainable socio-economic development of the countries in their region, including poverty alleviation, as well as regional integration. The 21st century, accompanied by a polycrisis, poses new challenges for MDBs, to solve which it is necessary to increase their financial capabilities, as well as to change the credit policy and bank management system towards greater consideration of the interests of borrowing countries. A new social contract is needed between MDBs and developing countries that receive financial resources. The study shows that at the current stage, the practical activities of MDBs in implementing reforms are carried out mainly in the area of optimizing the capital structure and balance sheet and do not address fundamental problems. This can be explained by two objective factors: leading Western countries remain the largest shareholders of traditional development banks, which determines the vector of credit policy; the main source of funding for MDBs remains the world financial markets, which impose strict requirements on the level of investment profitability of attracted resources. In this situation, to fully address the problem of development finance, fundamental reforms in the activities of regional MDBs are needed, strengthening cooperation between them, creating coalitions with donors and intergovernmental funds, including between countries of the Global South, as well as joint efforts to promote the need to increase official development assistance (ODA) on various international platforms, including the G20 and COP.