Multilateral Development Banks Research Articles

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.

The Seeming Paradox of Prevention: Dispute Mitigation by Multilateral Development Banks

The Seeming Paradox of Prevention: Dispute Mitigation by Multilateral Development Banks

국제개발 프로젝트의 사업기간 편차와 그 원인 분석

Completing international development projects within the planned timeframe is a task of great significance of the implementation of development projects. This paper analyzed the extent of delays and the factors contributing to delays with respect to 226 development projects in the construction sector across 19 countries financed by one of multi-lateral development banks. It was confirmed that delays are relatively more prevalent in the initial phases including loan approval, signing a loan agreement, consultant recruitment, detailed design, and contractor selection than in the later phases of physical construction in earnest. The analysis of factors contributing to delays found that the extent of delays was shorter in the case of better governance of recipient countries, but had no significant relationship with economic situations of recipient countries. Among variables of project characteristics, the extent of delays was greater in the case of a shorter planned project duration and a larger amount of planned project costs. This study differs from previous papers in that it categorized the delay factors with project documents and analyzed the determinants of delay through statistical analysis.

Manufacturing consensus: China’s strategic narratives and geoeconomic competition in Asia

China’s attempt to build geopolitical influence through economic instruments has become a critical facet of US-China competition. How can rising powers convince follower states to join alternative (geoeconomic) initiatives created and/or led by the rising powers, in the shadow of potential rebuke from the hegemon? This article theorizes how rising powers can use strategic narratives to ameliorate the follower states’ concerns of antagonizing the hegemon for aligning with alternative initiatives. We argue that rising powers can control the narrative through “two-front narration”: simultaneously telling the hegemon that they seek limited changes, while telling follower states that they do not have to worry about crossfire because the rising powers-hegemon relations are non-zero-sum. By sending the right messages to different audiences to induce motivated reasoning, rising powers can manufacture the appearance of consensus among multiple audiences to help follower states hedge, while blunting the formation of containment coalitions. We adopt a mixed-methods approach to substantiate our theory: (1) text analysis of China’s messaging about the Trans-Pacific Partnership (TPP) from 2008 to 2016; (2) case study of the rhetorical action-reactions between China, the United States, and the follower states on the relationship between the TPP and the Regional Comprehensive Economic Partnership; and (3) parallel case study of the rhetorical action-reactions between China, the United States, and the follower states on the relationship between the Asian Infrastructure Investment Bank and multilateral development banks such as the World Bank. Our analysis has implications for theories of strategic narratives in international politics and debates about geoeconomic competition/hedging in Asia.

Gender and the Multilateral Development Banks: From WID to GAD to Retroliberal WID

Multilateral development bank (MDB) engagement with ‘gender’ is controversial in review and uneven in practice. The authors analyse 1,928 gender-focused projects financed by the World Bank and regional development banks between 1967 and 2021. We propose three eras into which MDB gender engagement divides and argues that isomorphic pressures have aligned their approaches. The article concludes that gender is not an investment priority and projects have conceptually narrowed over time to focus on private entrepreneurship at the expense of addressing systemic gendered inequalities. This is significant for what the MDB finance signals to investors the feasibility of development projects.

The New Development Bank in Africa: Mid‐term evaluation and lessons learned

AbstractThe New Development Bank (NDB) launched its first project in Africa on April 13, 2016, and on August 17, 2017, the Bank opened its Africa Regional Centre (ARC) in Johannesburg, South Africa. This article assesses the NDB's presence in Africa. It addresses the following questions: what role is the NDB playing in Africa? What is the ARC and why was its created? How well have the NDB and the ARC been performing? Have they delivered on their intended purpose? If the NDB or the ARC have not performed as well as hoped, or expected, what has stood in their way? We assess the NDB and the ARC within the context of the general experience of some of the projects that the NDB has been financing in Africa and determine whether there are lessons that can help the NDB as it expands further into the continent. The main policy recommendation is that the ARC be strengthened in ways that enhance the NDB's transparency and make it a truly new type of multilateral development bank.

The COVID-19 Response of BRICS and Multilateral Development Banks

This article conducts an analysis of the BRICS member countries in terms of their national and international institutions, with a special emphasis on how these institutions affect the stability of the global financial system and the promotion of development. To this end, the work was guided by the attributions of national central banks and the role played by the G20 in maintaining international financial stabilization. Additionally, the analysis examines the activities of national development banks and their institutions established within the BRICS nations, such as the Contingent Reserve Arrangement and the New Development Bank. The descriptive method was used to interpret the dynamics of international political and legal relations. The article concludes by recognizing the decreasing significance of multilateral solutions and highlighting the need for the national central and development banks of the BRICS countries to engage in communication with international organizations of financial cooperation.

Sustainable future bonds: Boosting multilateral development banks lending and improving the global reserve system

AbstractMultilateral development banks (MDBs) are crucial players to finance a greener, more socially inclusive and sustainable future, given their unique financial model that provides low‐cost and long‐term investments in areas aligned with the Sustainable Development Goals (SDGs) and the Paris Climate commitments. To fulfill their potential, MDBs need a stepwise increase in financing, which has been a challenge given the reluctance of their shareholders to provide additional paid‐in capital. We present a novel proposal for MDB hybrid capital that is designed to boost MDB funding while supplying the international reserve system with a new safe asset, the Sustainable Future Bonds (SFB). Under the SFB proposal, a tiny fraction of the global foreign reserves would be rechanneled to MDBs, and given liquidity enhanced mechanisms, SFB would serve as an additional safe reserve asset for central banks' portfolios. As our conservative estimation shows, by deploying just 0.5 percent of global foreign reserves for the Sustainable Future Bonds, at least $45 billion per year in fresh capital to MDBs would be mobilized. At that pace, by 2030, MDBs will have $360 billion in capital injections, which, depending on their leverage capacity, could result in new lending from $1.6 trillion to $1.9 trillion.

Water supply and sanitation projects in the last decade: project characteristics, multilateral development bank performance, and quality of results

Abstract To ensure universal access to water supply and sanitation (WSS) services that are safe, reliable, sustainable, and affordable, it is important to attract the right types of financing and identify the aspects that could be hindering the success of WSS projects. In this study, 62 completed World Bank WSS projects were analyzed to understand the relationship between project characteristics, bank performance, and quality of results. The methodological approach included a systematic quantitative review and comparative, statistical, and regression analyses, considering important aspects of the projects. The existence of correlations and interactions between project results, bank performance, and key aspects of the projects (such as type of project, initial and final risk assessments, commitments and disbursements, and other characteristics) was observed. This study highlights the importance of rating and mitigating WSS project risks (especially the environmental, social, political, and governance risks) and the importance of development bank financing. The applied methodology could be used by both financiers and borrowers.

Greenfield project finance loan maturity and the role of multilateral development banks in developing countries

This paper is intended to provide empirical evidence for the financial additionality of multilateral development banks (MDBs) in private sector infrastructure projects. To validate MDBs’ financial additionality, this study uses IJGlobal’s project finance database to examine whether the loan tenor of MDBs’ project finance loans is significantly longer than the average loan tenor extended by commercial banks, using ordinary least squares (OLS) and Poisson Pseudo Maximum Likelihood (PPML) estimations. The result of the empirical analysis shows that project finance loans involving MDBs have significantly longer loan maturity than average loans in lower-middle-income and upper-middle-income countries, while projects in low-income countries and Sub-Saharan Africa do not have such a tendency. Furthermore, in host countries where government effectiveness is underdeveloped, the coefficient of project finance loans provided by MDBs is negative with statistical significance. As a policy implication, these findings indicate that for MDBs to ascertain financial additionality in countries where government effectiveness is weak, additional measures such as capacity building of the host government and additional financial intervention are needed.

The support of Multilateral Development Banks to renewable energy projects in developing countries

Multilateral Development Banks (MDBs) are extensively involved in the Paris Climate Agreement and play a key role in climate finance. However, the amounts recently channeled to carbon-based projects may raise doubts about this involvement. This empirical approach seeks to explore whether MDB participation actually favors renewable energy projects in developing countries, aligning with their commitment to this Agreement. An empirical analysis is conducted to explore the determinants of MDBs’ participation in energy infrastructure projects developed in 64 countries using data from 2011 to 2018 obtained from the World Bank’s Private Participation in Infrastructure Database. The results reveal that MDBs’ participation is higher in renewable energy projects, confirming their commitment to clean energy; however, this is not confirmed by the amount of financial support provided.

Assessing the Accountability Mechanism of Multilateral Development Banks Against Access to Justice: The Case of the World Bank

Assessing the Accountability Mechanism of Multilateral Development Banks Against Access to Justice: The Case of the World Bank

Multilateral development banks – Strategic actors in the new economy?

The paper addresses the role of multilateral development banks in the new economic paradigm, built in the context of multiple crises with global impact. Multilateral development banks, in their capacity as promoters of governments’ policies are “invited/expected” to play a key role in the new geopolitical architecture, holding a competitive advantage in the provision of finance, which is linked to the design and implementation of structural reforms and programs of strengthening institutions controlled by governments. The paper aims to represent a signal regarding the strategic component and the synergies that multilateral development banks can determine. It highlights the tools that multilateral development banks have for selecting, monitoring and supporting programs and projects with regional and global impact. The paper describes the state of knowledge and reviews the specialised literature in the field of multilateral development banks, describes intervention channels and financing products of multilateral development banks, and discusses their impact on a European and regional level. The concluding remarks address the strategic role of multilateral development banks, their contribution to sustainable development goals and outline directions for future research.