A new analysis of the multilateral development banks by S&P Global Ratings, a major credit rating agency, argues that they have space to increase their lending without risking a downgrade of their coveted AAA status, though it urges caution.
The lending space exists in part because the banks tend to overly constrain themselves with regard to risk — often beyond the requirements of credit rating methodologies — and relaxing internal regulations would be a key way to free up lending capacity, Alexander Ekbom, the agency’s senior director of multilateral institutions and supranationals, told Devex in an interview.
S&P’s analysis, which was released privately to certain clients and which Devex obtained, examined the recommendations of a much-discussed report commissioned by the Group of 20 major economies in which independent experts investigated capital adequacy ratios at the major multilateral lenders. The experts argued that reforms could free up new financing to the tune of “several hundreds of billions of dollars over the medium term,” which could greatly help lower-income countries at a time when the global economic outlook is gloomy.