What are development banks doing to help emerging markets?


Development banks supported many countries’ initial responses to COVID-19

  • Such multilateral institutions have a key role to play as the focus shifts to recovery
  • Programmes rolled out globally support vaccine access and economic rebuilding
  • Sustainability and gender equality are among the key issues targeted

As a result of the economic fallout of COVID-19, emerging economies across the world are grappling with numerous challenges, including cashflow crises, the risk of prolonged recession and debt default. Many are looking towards development banks to help get their sustainable recoveries under way.

There are an estimated 400 development banks worldwide, with combined assets of $11trn. They range from global bodies such as the World Bank, to regional institutions like the Asian Development Bank (ADB) and the Development Bank of Latin America, to national lenders such as the Qatar Development Bank and the Development Bank of the Philippines.

Capitalised primarily by governments, but with some of their lending co-funded by the private sector, development banks generally provide funding on preferential terms for projects that would struggle to secure funds from commercial lenders.

As OBG has detailed, such institutions played a significant role in helping many countries withstand the initial effects of COVID-19.

By October last year, for example, the four main regional development banks – the ABD, the African Development Bank (AfDB), the European Bank for Reconstruction and Development and the Inter-American Development Bank (IDB) – had together committed to disbursing around $50bn.

This funding was distributed widely. To take an example, the AfDB helped countries meet their budget requirements, but also supported more targeted initiatives, such as a €225m loan for sustainable electricity development in Egypt, $20m to support refugees and their host countries in the Sahel region and $3m to the Togolese agriculture sector to bolster food security.

From response to recovery

All of the world’s public development banks came together at a landmark conference in November last year, releasing a joint statement to affirm their commitment “to collectively shift our strategies, investment patterns, activities and operating modalities to contribute to the achievement of the Sustainable Development Goals and the objectives of the Paris Agreement, while responding to the Covid-19 crisis”.

This statement set the tone for how such institutions adapted their responses, moving from crisis management towards tactics premised on sustainable recovery and medium-term growth.

Now, a year since the initial outbreak of coronavirus – and with vaccine rollouts taking place across the world – development banks are increasingly seen as key to many countries’ rebounds and recoveries.

Some are supporting efforts to develop and deliver vaccines. For instance, the ABD supported various medical response projects during 2020, but this year it has focused more on vaccines.

In mid-March it approved a $400m loan to the Philippines, making the country the first recipient of support under the bank’s Asia Pacific Vaccine Access Facility –which aims to provide rapid and equitable support to its developing member countries in the procurement and delivery of effective and safe Covid-19 vaccines.

Elsewhere, in late April the bank announced a $50m grant to Afghanistan to support its vaccination programme.

The ADB has also made longer-term investments related to vaccine manufacturing and health care more generally.

Similarly, in April the AfDB approved a $10bn Covid-19 response facility to help countries reinforce their health care systems, as well as stabilise their economies and develop social safety nets.

Other recent loans made by development banks have been more broad-based.

At the end of February the New Development Bank (NDB), an institution established by the BRICS states (Brazil, Russia, India, China and South Africa) approved a $1.1bn emergency loan to China to support its economic recovery. This was the second loan the NDB has made to China, with the first – for the same amount – having been fully disbursed last year.

According to the NBD, this loan “will support restoring production and job creation in the country”, as well as “contribute to sustainable development of China’s economy over the long term”. It will target sectors including trade, logistics, agriculture, health and infrastructure, as well as ICT connectivity.

Sustainable rebuilding

Sustainability is a key metric of development bank-funded projects, with a green recovery being key to many countries’ vision for a post-coronavirus future.

The AfDB recently launched the Covid-19 Off-Grid Recovery Platform, a $50m, five-year blended finance platform that aims to provide working capital to energy access companies on below-market terms. The project has the stated goal of “advancing access to clean electricity and ensuring a green economic recovery”.

Meanwhile, the AfDB’s investments in agriculture are expected to quadruple from an annual average of $612m to about $2.4bn by 2024, with the funds aimed at the transformation of food systems.

In Asia, the ASEAN Catalytic Green Finance Facility – partly funded by the ADB and various European development banks – provides loans and technical assistance for sovereign green infrastructure projects on sustainable transport, clean energy and resilient water systems.

The facility became operational towards the end of 2019, meaning it was well-placed to respond to Covid-19. An example of a post-coronavirus project it has funded is the Epifanio de los Santos Avenue Greenways Project in the Philippines, which aims to create disaster-resilient pedestrian walkways along Manila’s most congested thoroughfare.

More broadly, the facility aims to help ASEAN countries recover economically from the pandemic by developing climate-friendly projects.

Elsewhere, development banks are contributing towards significant structural shifts.

As OBG has examined in depth, there has been a global uptick in green bond issuance in response to Covid-19.

In Latin America, the IDB is aiming to consolidate this development with its Green Bond Transparency Platform, a digital tool that uses blockchain technology to support the harmonisation and standardisation of green bond reporting.

Recovery and gender

Gender-related challenges are also being addressed by development banks.

According to the Centre for Global Development (CGD) think tank, a raft of data shows that women have been disproportionately affected by the Covid-19 crisis. Reasons for this range from the fact that some of the worst-affected sectors – among them tourism and retail – have been those where women predominate as employees and entrepreneurs, to the increased care burden placed on many women throughout the pandemic.

The CGD found that 81% of coronavirus-response projects run by multilateral development banks have incorporated gender-related indicators or targets. Meanwhile, in terms of the economic opportunities occasioned by recovery efforts, of 48 projects related to economic recovery that were reviewed by the CGD, 39 had targets related to female inclusion.

While there is still much more to be done, it is encouraging that – as the CGD notes – development banks “recognise the major opportunity they have to support Covid-19 recovery projects that will help end long-standing gender inequalities in economic standing and broader well-being”. Credit: OBG

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