Deep dive: Great expectations for multilateral development banks

Devex is taking a summer break this week, and instead of our regular Newswire, we are bringing you deep dives into some of this year’s key development issues. In this edition, we’re focusing on the evolving role of multilateral development banks.

Traditional bilateral development aid has plummeted this year, which means everybody is looking for new sources of money. That has heightened the pressure on multilateral development banks to address key development challenges.

MDBs — including the World Bank, the Inter-American Development Bank, the African Development Bank, and the Asian Development Bank — have undergone major changes in recent years amid mounting global pressure, shifting donor demands, and growing climate and debt crises. Against this backdrop, the reforms these institutions are implementing will be put to the test.

The evolution of these MDBs predates some of the sweeping aid cuts announced this year, including the Trump administration’s dramatic shuttering of the U.S. Agency for International Development, as well as aid cuts by the United Kingdom and several European nations.  

Back in 2022, a Group of 20 major economies’ expert report found that MDBs could lend more with the capital they already have if they made technical changes and used more innovative financing. And last year in Brazil, the G20 called for further MDB reforms — stretching their balance sheets even more, providing more funding, better engaging with federal and local governments, and ramping up private sector collaboration.

But the politics have changed since U.S. President Donald Trump returned to office — throwing a wrench into G20 ambitions and raising many questions about U.S. engagement with multilateral institutions, which have been subject to a review that should be completed this week. As a result, some MDBs seem to be treading lightly, shifting their public rhetoric, and focusing on issues that are more likely to appeal to the administration — such as mobilizing the private sector and creating jobs — rather than emphasizing issues such as climate change.

A Trumpian balancing act

At the World Bank, in particular, there have been new priorities and major policy changes that seem aimed at winning over the White House.

Early in the year, there were rumors and concerns about how the U.S. would engage with the World Bank (and the International Monetary Fund) — which led to hand-wringing about whether the U.S. might withdraw from the institution, where it’s the largest shareholder. Treasury Secretary Scott Bessent provided a fairly clear answer in an April speech: “​​The IMF and World Bank serve critical roles in the international system, and the Trump administration is eager to work with them, so long as they can stay true to their missions, and under the status quo, they are falling short.”

To Bessent, that means refocusing on core mandates, reining in what the administration views as mission creep, and demanding accountability.

So, how has the World Bank responded? The theme at its Spring Meetings was jobs, with President Ajay Banga saying he wants the institution to orient itself around a “North Star” of job creation. But how it will do so is unclear. That meant no big announcements, uncertainty about how jobs will be defined, and data that is a work in progress. Some experts at the time told us it was a “safe” theme as the bank navigates its relationship with the U.S., but to others, it wasn’t just about Trump. Jobs and economic growth have also been top priorities for many borrowing countries.

Shifting political dynamics also led the World Bank to change its energy policy to include nuclear energy, which had been banned for decades. This came after years of work by energy advocates, key shareholders, and some borrowing countries urging the bank to rethink the ban. So what’s next? Don’t expect things to change overnight, as the bank will have to do its homework and bring in the relevant expertise. It could be years before the World Bank makes its first nuclear energy investments, experts told Devex.

Further reading: 

• Could the future of the World Bank be outside of Washington? (Pro)

• US Treasury Secretary: US will stay engaged with World Bank, IMF

• The World Bank is focused on jobs. What does that mean?

• World Bank backs nuclear revival while gas stays a political fault line.

A quieter climate

What the World Bank has not publicly focused on since the start of the year is its support for climate action.

While the World Bank pledged to put climate at the heart of its mission in 2016 — and lending for climate projects reached 44% last year — the topic was notably absent from the Spring Meetings in April. Banga continued to champion climate goals, but with the Trump administration cracking down on even using the term “climate,” the bank appeared to be walking a rhetorical tightrope.

Still, many experts told Devex that the bank is staying the course — integrating climate into everything from lending operations to staff performance reviews. Initiatives around climate-resilient debt clauses, concessional finance, and Country Climate and Development Reports are progressing, some are now framed around job creation or energy access. Some see this as a strategic pivot to avoid agitating the Trump camp, while others argue it’s a sign of maturity: climate policy becoming operational policy.

“You are crazy to build roofs back with corrugated roofs after a hurricane, you’re crazy to build a road or a rail that isn’t resistant to drought,” said Kevin Gallagher, director of the Global Development Policy Center at Boston University. “But you don’t necessarily need to cloak it in that [language] anymore … so on some level, it’s a test on the extent to which the Bank and the Fund can just mainstream this into their operations without having to tag and label it as something separate.”

It’s not just the World Bank. At the Asian Development Bank’s annual meeting, it seemed to shy away from using the moniker “Asia and the Pacific’s climate bank.”

“If the ADB is now quietly shifting its goals, it might as well scrap its programming altogether,” Jörn Brömmelhörster, a former principal climate change specialist at ADB who retired in 2017, told Devex in May. “One U.S. election shouldn’t rewrite joint international commitments or the ADB’s own strategies. Trump may be gone by 2030, but the climate crisis won’t be.”

Read more: The World Bank Spring Meetings go quiet on climate

See also: Is ADB still Asia and the Pacific’s ‘climate bank’?

Teaming up

There have been efforts by MDBs in recent years to better collaborate, with the heads of 10 MDBs meeting in Paris in June to reiterate commitments to work closely together and to pursue reforms, including additional lending.

The joint statement they released outlined five action items they would prioritize to align with the G20’s recommendations, including scaling up MDB financing capacity, boosting joint action on climate change, strengthening country-level collaboration and co-financing, catalyzing private sector mobilization, and enhancing development effectiveness and impact.

So far this year, MDBs have signed five agreements aimed at streamlining the way they set up and carry out co-financed projects — part of an effort to improve efficiency and coordination for clients.

In the Paris statement, the MDB heads also committed to developing local-currency lending and foreign exchange solutions. Shortly afterward, the Inter-American Development Bank launched FX EDGE, a new platform to help countries attract private investment and tackle currency risk.

The MDB heads also said they would continue to advance existing energy projects in Africa and Asia, and scale up investments in social infrastructure, including health, housing, water and sanitation.

Many reforms have focused on stretching balance sheets and doing more with the funds they already have. To that end, the World Bank’s International Bank for Reconstruction and Development issued its first hybrid capital instrument, aimed at boosting lending.  

The private sector arms of these institutions are also being pushed to shift their approach from making and holding investments on their books to a strategy whereby they “originate to share,” or sell investments, or parts of them, to the private sector. IDB Invest, the Inter-American Development Bank’s private sector arm, launched a securitization deal last year through which it is offloading risk to other investors, which frees up more of its funds for new investments.

The International Finance Corporation, the World Bank’s private sector arm, has created a new Warehouse Enabled Securitization Program, also aimed at pooling, repackaging, and selling loans to the private sector. With private banks taking on the risk for those transactions, IFC will free up cash to back those investments and lend more. The African Development Bank is also exploring securitization transactions.

Bank by bank

The European Bank for Reconstruction and Development is expanding in sub-Saharan Africa, with Nigeria joining as its 77th shareholder earlier this year. It joins Benin and Côte d’Ivoire, with several more countries expected to follow.  

EBRD’s expansion into Africa has been met with enthusiasm by governments eager for more private sector support. Nigeria has already contributed €5.2 million ($5.6 million) to EBRD, and, along with the other new shareholders, will help shape the bank’s priorities at its upcoming strategy meeting. But EBRD officials caution that they’re still working to understand local priorities before launching major projects.

Meanwhile, the African Development Bank has elected Sidi Ould Tah, a seasoned Mauritanian finance official, as its new president, signaling renewed focus on mobilizing private capital and tapping into regional financial resources. Tah has promised bold reforms, including a high-level summit to overhaul investment tools and unlock billions in local funding. With the U.S. pulling back and Gulf countries stepping up, and as new institutions such as the EBRD move in, Africa’s development finance landscape is shifting.

The Asian Development Bank also has new leadership, with President Masato Kanda taking up the post in February. At the ADB annual meetings in May, he outlined four focus areas for the institution: the vulnerability of food systems; the digital divide, which is leaving millions without access to technology; the need for sustainable energy systems; and building resilience to climate change.

ADB also said it plans to invest $40 billion in food systems by 2030 — reflecting a broader trend across the MDBs, with AfDB and the World Bank also stepping up their work on food systems and nutrition.

Read more:

• Nigeria becomes EBRD shareholder as it continues African expansion. (Pro)

• Mauritania’s Sidi Ould Tah elected African Development Bank president.

• How ADB plans to invest $40B in food systems by 2030. (Pro

+ A Devex Pro membership helps sustain the journalism we’re able to bring you, and for members, it offers an even deeper analysis of the development sector, exclusive events and conversations with leaders on timely issues facing the sector, access to the world’s largest global development job board for career resources and recruitment insights, and more. Try it out today by signing up for a 15-day free trial.

Integration

Another theme that emerged this year is the role not just of MDBs but also of local and national public development banks.

There are some 536 public development banks across 155 countries, which represent about 10% of total annual global investment, according to the Finance in Common Summit, which brings together all public development banks.

Those local or regional institutions are often more closely attuned to local and national priorities. They can also more easily do due diligence to prepare projects for investment, and they lend in local currency.

That matters because of growing momentum to expand local-currency lending to address a chronic issue in development finance: Most debt is in dollars but income is in local currency — which means currency devaluation can make repayments unaffordable.

Beyond supporting national development banks, there is greater demand for collaboration and coordination among these institutions and the larger public finance ecosystem, including MDBs. That integration came up repeatedly this year, including at the Financing for Development conference in Sevilla, Spain.

In this volatile environment where the Trump administration’s back-and-forth on tariffs has rattled global markets and debt distress has deepened in low- and middle-income countries, more is being asked of multilateral development banks. While the World Bank and others are responding, there is also an opening for MDBs such as the China-based Asian Infrastructure Investment Bank and local development banks that are less subject to the whims of the U.S. to play an even greater role moving forward.

Read more: US tariffs threaten to push debt-distressed nations closer to the brink

See also: Inside the push to ease dollar debt and boost local lending

And don’t miss: The key takeaways from four days in Sevilla

+ If you enjoyed reading this deep dive, then you’d love our dedicated development finance newsletter, Devex Invested — a Tuesday newsletter where we cover the insider brief on business, finance, and the SDGs. Sign up for it here.