The recent IDA 20 retrospective looks at the performance of the World Bank’s soft lending arm for the poorest countries during the period 2022-25. As part of that, it evaluates IDA’s Private Sector Window (PSW), which provides cheap finance to back deals by IFC, the World Bank’s private sector lending arm, and MIGA, its political risk insurance arm, in fragile states and the world’s poorest economies. And it follows the pattern of previous Bank Group reports on the PSW: accentuate the positive to a point close to parody.
PSW claims and the reality
I report on the actual record of the PSW and the need for a new approach for the IFC in the world’s poorest countries in a paper released today. But here’s what the IDA retrospective claims compared to the facts:
- The “PSW-supported projects consistently delivered strong development impact, as reflected by high [Anticipated Impact Measurement and Monitoring] scores.” It is impressive that the report claims delivered impact based on an analysis done by the IFC before the projects even start. That’s a self-certainty of predestination that would make the most witch-burning of puritans wince, and fits ill with an actual record of development impact achieved by IFC projects in IDA countries that is bad and getting worse.
- “Each $1 invested via the PSW since its inception enabled on average about $6 of additional investment.” The projects the PSW supports “mobilize” (hem, hem) about only $1 of actual private investment for each $2 of development finance.
- “MIGA used the PSW with strong additionality and selectivity to mobilize private capital.” The main use of the PSW by MIGA appears to be to cover deals that would have happened without its support and are simply too big for MIGA to guarantee alone.
Meanwhile, buried in a table on policy commitments, the retrospective reports IFC’s promise to increase the share of its investments in fragile and low-income IDA countries to above 14 percent by the end of IDA 20 with the support of the PSW. The actual level was 8 percent. That’s neither an increase nor close to meeting the target.
In short, the PSW has utterly failed to deliver on its key rationale but is nonetheless heralded as a great success. And that is part of a broader pattern regarding the role of “private sector mobilization” in development: donors repeatedly trumpet massive opportunity and stellar results while their engagement delivers nothing of the sort.
The enduring hype around mobilization
The hype cycle has been stuck at its apogee at least since the 2015 Addis Financing Conference, where the multilateral development banks released "From Billions to Trillions: MDB Contributions to Financing for Development." The document opened:
“OUR COLLECTIVE EFFORTS WILL HELP MULTIPLY BILLIONS INTO TRILLIONS TO END POVERTY AND BUILD LONG-TERM PROSPERITY ... By assisting government efforts to scale up domestic resource mobilization; by helping develop the private sector and deepen domestic financial markets; by creating platforms for identifying, structuring and financing infrastructure and other projects and for bringing in additional sources of financing...”
It must have seemed like a marketing coup at the time in the communications departments of the MDBs—putting them front and center on delivering the most ambitious set of sustainable development goals ever announced. But we are off track on the considerable majority of SDG targets and the trillions have very clearly not materialized.
Since Billions to Trillions was released, at least as measured by domestic credit to the private sector, there has been financial deepening in low- and middle-income countries both—in low-income countries, from 11.9 percent of GDP to 15.6 percent in 2023. But at the same time, since 2015:
- Tax to GDP ratios are down for developing countries.
- Net debt flows to developing countries are now negative.
- Net FDI flows to developing countries have fallen from 2.3 percent of GNI to 1.1 percent.
- Investment in infrastructure projects with private participation in developing countries has declined (from $113 billion in 2015 to $101 billion in 2024).
- The MDB’s very generous estimates of their own (read: largely imagined) “mobilization” of private finance haven’t nearly broached a tenth of a trillion.
None of this is primarily the fault of the MDBs (to the extent it is anyone’s fault at all). And the reality would likely be even further from the billions-to-trillions dream without them. But the approaches to “leverage private finance,” which rapidly became the core element of the billions-to-trillions agenda, have not worked out very well, especially in the poorest countries, and despite the PSW and a considerable global industry of infrastructure investment incubators.
That has all been clear for some time. The agenda to massively leverage the private sector was criticized as unrealistic by civil society organizations even before the Addis conference opened. My colleagues Nancy Lee and Samantha Attridge were ringing alarm bells in 2019. The 10-year follow-up conference to Addis in Seville involved multiple participants noting the failure of private sector leverage to scale.
Despite all of that, the idea is too politically attractive for donors to abandon, especially after they committed to the SDGs and promised $100 billion in climate finance. In 2022, public sources still accounted for $94 billion out of $116 of reported climate finance. Nonetheless, in 2024, the UNFCCC adopted billions to trillions as what was needed in a new, more ambitious goal for climate financing. The UK government, which is cutting climate finance commitments and overall ODA while still supporting the new UNFCCC $300 billion finance goal, squares that circle with the same idea. Former Foreign Secretary David Lammy suggested, “We need to become more creative in unlocking private sector flows for the green transition.”
Realism matters
Everyone involved in global development should by now understand that "we are going to leverage the private sector to deliver this" most often means "we are not paying to deliver this." And especially if the outcome is in a sector like education or health or most of infrastructure, where the private sector isn't already a dominant player, it nearly always means "this isn't going to get delivered."
It is time for more than the odd acknowledgement that the billions-to-trillions slogan over-promised. The idea lives on even if the slogan is being left behind, causing immense harm to the effective delivery of aid finance and the credibility of climate agreements, as well as refocusing support away from where it can do the most good. It sets up a narrative of failure for an international system, reduces trust, and provides an excuse not to act.
We need an honest reckoning: about what is affordable, about where it makes more sense for the public sector to directly invest, about more realistic ways to spark structural transformation in the poorest countries—and about the role of development finance institutions.
A real reckoning would accept that, especially in the countries that need both development assistance and a stronger private sector the most, the current donor model of private sector engagement isn’t working. As well as thinking through what that implies for engagement models, it suggests the need for realism about the level of public sector investment to meet sustainable development targets and how to find resources for that investment. The simple math of development finance suggests that public finance is more sustainable at scale. Such a reckoning seems a worthy subject for a G20 high-level panel.
There is an irony in all of this: the MDBs who helped spike the mobilization hype into high fever are the one example of successful international leverage at scale of private finance for development. They borrow from the markets to lend hundreds of billions to client countries backed by comparatively little paid in capital. Making them bigger and more effective is part of the answer regarding how to sustainably match finance to investment needs. If only they had stuck to that recommendation back in 2015.
