Devex Invested: The biggest development finance trends of 2024

I have spent a lot of time speaking to development finance experts about what they’re watching this year, and a few themes have emerged.

First, this year is important. New regulations are coming online, a new climate finance target needs to be set, debt continues to be a challenge, and mobilization of private capital is a priority. This will also be the year where the groundwork is laid for the next International Conference on Financing for Development — which should produce an updated framework for development finance writ large.

Here’s what to watch:

Global geopolitical and economic uncertainty. Interest rates are still high in much of the world, making borrowing expensive. Geopolitical conflicts are straining supply chains. Food insecurity is also on the rise. All these factors mean that investors are likely to turn to places and products they are comfortable with — and will take fewer risks. That means fewer foreign investments in lower-income countries. The math just isn’t in their favor when investors can earn nearly as much by parking assets in safe U.S. Treasury bonds.

Debt. It’s a problem that isn’t going away anytime soon. The G20 Common Framework to help countries that have defaulted has “pretty much failed,” development experts tell me — and the political will to fix it may not exist. And while debt swaps are not a solution to the broader issue, some of them were bullish on its growth this year.

Multilateral Development Bank reform. Reform efforts are ongoing at the World Bank to maximize resources to improve its use of guarantees and better mobilize capital from private investors. Furthermore, as some experts tell me, they hope the bank will change other things, too — such as internal incentives for staff, less focus on projects and more on strategy, and changing the way it uses its balance sheets. Expect many of these conversations to go beyond the World Bank to other MDBs and development finance institutions as well.

Mobilization. This was a universal theme from almost everyone I spoke with — how to attract more private capital to tackle development and climate challenges. One warning here: New policies coming into force, including climate disclosures in the European Union, could penalize under-resourced companies in low-income countries, some experts tell me. It will be important to see how the rollout impacts investment in those markets. Expect foreign exchange risk, and how MDBs react, to continue being an issue, along with how blended finance can expand and help offset risks, including in the bond market.  

Climate finance. A major obligation for the 29th U.N. Climate Change Conference in Azerbaijan this year is delivering a system and funding goal that replaces the $100 billion a year climate finance commitment from wealthy nations to low-income countries. Also, the G20, led by Brazil, is setting up a working group to review the major climate funds and determine how they can better work together and make it easier for countries to access their resources. Adaptation financing continues to lag so expect a push for MDBs and DFIs to do things differently to ramp up their work in that sector.

Read: Development finance issues to watch in 2024 (Pro)

ICYMI: Development finance must adapt to meet new needs, experts say (Pro)

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Red tape

One of World Bank President Ajay Banga’s big challenges is finding a balance between the control shareholders want over how their tax dollars are spent and running an efficient, scalable institution.

At an event in Washington on Monday, he pointed to the more than 1,100 rules that the World Bank’s International Development Association, which provides grants and highly subsidized loans to the world’s lowest-income countries, has to abide by.

“We’re all wasting time on this stuff,” he said. “We just need to find a way to thread the needle between the importance of shareholder tax money being used and the unintended consequences on the other end.”

Banga said he’s ready for any criticism that may be lobbed at him and is willing to take some risks. At one point he even quipped, “I’d be happy to be fired” and go back to life in the private sector.

Read: World Bank’s Banga slashes red tape, seeks ‘better’ bank before ‘bigger’

Focus on food 

The World Bank has also made food and nutrition security one of the eight “global challenges” it is focusing on under Banga. Expect a new program to officially launch to tackle the issue next year, though details are still sparse, Devex contributor Andrew Green reports.

The Global Challenge Program on Food and Nutrition Security will have a general goal of strengthening food stability and availability and improving early warning systems so communities are better prepared for food crises. Andrew spoke with Julian Lampietti, the World Bank’s manager for agriculture and food global practice, who is leading the effort.

“Governments of the world alone spend on the order of $600 to $800 billion a year subsidizing their agricultural sector,” and spend a lot on social protection programs that don’t always work well. The bank wants to help transform the system, Lampietti said.

Read: Inside a new World Bank program to boost food security (Pro)

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Who’s got the money?

In its last fiscal year, the World Bank disbursed just over $91 billion, up 36.3%, in cash terms, from the previous year. So where did most of that money go?

My colleague Miguel Antonio Tamonan takes a look at the top 10 contractors for the World Bank. They include UNOPS, UNICEF, and the U.N. migration agency, but also construction engineering and energy firms including Sinohydro, KLV İnşaat A.Ş Kazakhstan, Putra Masindo Utam, and Harbin Electric Corporation.

Read: The World Bank’s top 10 contractors in 2023 (Pro)

What we’re reading

African Development Bank sells hybrid note in development finance first. [Reuters]

How COP 28 pledges pave the way for private sector-led clean energy. [Devex opinion]

Wall Street snubs China for India in historic markets shift. [Bloomberg]