A new research study reveals that developing countries worldwide are spending tens of billions of additional dollars to finance essential infrastructure, healthcare, and education initiatives because they cannot secure affordable loans from international development banks.
The analysis, conducted by ONE Data (the research division of anti-poverty organization ONE) and The Rockefeller Foundation, examined the increasing borrowing expenses faced by low- and lower middle-income nations.
Ten “blend” nations—including Kenya, Ghana, Senegal, and Bangladesh—are experiencing the most severe financial pressure. These countries fall between the world’s poorest nations and more prosperous developing economies, making them eligible for loans from both the World Bank’s market-rate division and its discounted lending division.
The research determined that these blend nations could have avoided spending up to $20.8 billion between 2020 and 2024 if they had been able to secure $40.6 billion in sovereign bond financing through less expensive development bank lending programs.
Instead, these countries must borrow at substantially higher rates from global bond markets, while affordable lending alternatives remain restricted in both availability and adaptability, according to the findings.
Increasing borrowing expenses are undermining governments’ capacity to finance healthcare systems and social safety nets, researchers discovered.
The analysis revealed that many nations resort to international bond markets not solely because development bank financing is limited, but also to maintain their credit standing and market accessibility.
Problems within development banks themselves worsen the situation: a survey of 650 government and bank representatives from 125 countries revealed that while over 80% desire predictable and adaptable financing, only approximately two-thirds believe development banks provide it successfully.
The primary provider of discounted financing is the International Development Association, a World Bank Group division supported by voluntary donations from wealthy donor countries. Reduced aid, especially from North American and European contributors, has strained its funding replenishment.
“Every year that IDA is underfunded, every month that restructuring is delayed, every loan that is slowed down by bureaucratic processes adds up to resources that do not reach schools or clinics or power grids,” the report authors stated.
The study suggests increasing development bank lending capacity, accelerating loan approval procedures, and protecting IDA funding. It highlights that the G20’s Capital Adequacy Framework could generate $300-$400 billion in additional lending capacity, while recent announcements from credit rating agency S&P could unlock another $600-$800 billion—all without requiring new financial contributions from shareholder governments.
