Towards a More Efficient Use of Multilateral Development Banks’ Capital

Abstract

The increasing financing needs of the Sustainable Development Goals (SDGs), coupled with factors likely to restrain in the near future the growth of multilateral development banks’ (MDBs) own resources, call for maximizing capital efficiency. Focusing on 7 major MDBs – the IBRD, IFC, AfDB, EBRD, EIB, ADB and IADB – this paper contributes to this debate by: (a) quantifying their aggregate available lending capacity(capital resources and ratings being unchanged); (b) providing a preliminary estimate of the impact on these banks’ lending capacity if rating agencies (in particular, Standard and Poor’s) were to refine their methodologies to take into account ‘preferred creditor status’ and ‘single name concentration’, as suggested by other researchers. The analysis is replicated assuming that MDBs target an AA+ rating. The paper shows that appropriately refining rating procedures may indeed increase MDBs’ current overall lending capacity significantly, under both ‘triple-A’ and ‘AA+’ scenarios. At the same time, it makes clear that MDBs alone cannot satisfy what are anticipated to be the very substantial financing needs of SDG-related investments.