In a recent CGD note, “Empathy and Client Relationships in Development Finance,” we emphasised the importance of development finance institutions (DFIs) investing in face-to-face contact and dialogue with their clients to build the empathetic relationships needed to deliver development outcomes. But, in the era of COVID-19, did we overstate our case?
This note explores what happens to the value of ODA loans if more realistic discount rates are chosen. In short, the value of ODA loans falls by over a half.
Development finance is multifaceted, but empathy is a rarely discussed characteristic of the relationship between providers and clients. Sir Suma Chakrabarti and Hannah Brown argue this should be more of a consideration for DFIs.
Development finance institutions (DFIs) suggest that transparency is important to their development impact, and many aim to be in a leadership position on reporting about their work, but actual practice on transparency varies significantly between DFIs.
Harder Times, Softer Terms: Assessing the World Bank’s New Sustainable Development Finance Policy Amidst the COVID Crisis
The World Bank’s non-concessional borrowing (NCBP) policy for IDA countries was introduced in 2006 following major rounds of debt relief and debt cancellation for a large subset of these countries through the Heavily Indebted Poor Country Initiative and the Multilateral Debt Relief Initiative.
The global impact of the COVID-19 pandemic on economic output and public finances in 2020 and beyond is projected to be massive. Fiscal policy can have a crucial role in mitigating the pandemic’s overall economic impact and promoting a quick recovery. It can help save lives and shield the most-affected segments of population.
Over the past two decades, China has become a major global lender, with outstanding debt claims from direct loans and trade advances alone exceeding 1.5 percent of world GDP. This surge in lending has financed many projects in infrastructure, mining, and energy. The problem is that there is little official data beyond those aggregate numbers, mainly because China has not released a breakdown of its lending activities.
Many prominent people have advocated that the IMF undertake an “SDR allocation” to assist countries in dealing with the global financial crisis brought about by the COVID-19 pandemic. If IMF shareholders show some leadership and bureaucratic flexibility, there are ways to allay the American government’s concerns and quickly get liquidity in the hands of countries who desperately need it.
Around the turn of the century, there was a broad recognition that the debt burden of many developing countries was impeding their growth. Much of the debt had accumulated in the context of the Cold War and had not resulted in productive investment.
A new US government agency began as scrawl on a napkin in a think tank seminar room just off Dupont Circle in Washington, DC. Fast forward nine years, in early 2020, the US International Development Finance Corporation was born.
DFIs are not central banks. They do not drive monetary policy stances and overall lending conditions in their countries of operations. Rather, during economic and other shocks, they must find ways to restart or boost financial intermediation for direct and systemic impact on target populations, sectors, and countries. But they must do so with an eye on their own balance sheets.
Adapted from a seminar with the IMF and climate experts that CGD co-sponsored with the European Climate Foundation, this note looks at the role that the IMF can take to help tackle climate change.
“Additionality” is central to claims of impact by development finance institutions (DFIs). At its core is the notion that DFIs are necessary to solve a market failure by providing capital, risk mitigation, or some other benefit to a market that is not delivering these services strictly through private actors. But what exactly constitutes additionality, how do we know when it is real, and how can we measure it?
In May 2018, the shareholders of the International Finance Corporation (IFC)—the private sector arm of the World Bank—agreed to increase its paid-in capital by $5.5 billion as part of the $13 billion capital increase for the World Bank Group (WBG). The US administration agreed to the increase but declined to contribute to the additional capital. But for the increase to take effect, Congress must authorize it. Thus far, it has not done so. Why?
In the Harry Potter novels, a magic hat decides which of four school houses new pupils should join. Development finance institutions (DFIs) need something like that when trying to decide which private firms to subsidise, although applicants only need sorting into two groups: firms that are doing something socially valuable and which genuinely require a subsidy, and firms that are merely trying their luck to get a subsidy for a project they would undertake in any case.
In the coming years, China will confront a series of decisions about how to engage with citizens in the countries where it is implementing BRI projects; leaders of the same countries; and donors and lenders outside of China.
Even with international assistance, the cost of providing refuge to so many people has strained the budget of the Jordanian government. At the same time, international partners, notably the IMF, have been insisting that Jordan take actions to bring down government debt to “more sustainable levels” through increasing fiscal discipline to tame government deficits. These dual imperatives by the international community—host more refugees and tame the budget—seem to put Jordan in an untenable situation as long as the refugee crisis continues. Something will have to give—the question is how, what, and when?
Unequal Ventures: Results from a Baseline Study of Gender and Entrepreneurship in East Java, Indonesia
A study of women and men business owners in East Java offers a unique opportunity to analyze characteristics of entrepreneurs and their businesses by gender for a country where such systematic data are scarce. The study is one of two randomized controlled trials launched in 2015 to assess the power of mobile savings and training for women entrepreneurs. This report details baseline results from the Indonesia trial, still under way, which is testing whether providing financial literacy training for women who are potential bank clients and varying financial incentives to bank agents promoting a new mobile savings product make a difference in increasing entrepreneurs’ uptake of formal savings and in improving economic outcomes. Short-term results of the other trial, in Tanzania, were reported in the first report in this series.