The swift rebound and re-allocation of multilateral outflows observed in 2022 demonstrated the system’s resilience and versatility, including its ability to pivot from one crisis to another. In response to recent calls for reform, MDBs are readily embracing new tasks and mandates, for example rapidly increasing climate-related development finance and private finance mobilisation. However, some cracks are appearing in the system as multilateral organisations are stretched thin in meeting a widening range of challenges and needs. Over time, efforts to increasingly leverage the system’s resources lead to a rise in non-concessional finance, potentially affecting multilateral organisations’ ability to target poverty and engage with countries facing public debt sustainability issues.
Multilateral Development Finance 2024
Abstract
4.1.1. Multilateral development outflows have nearly matched 2020’s record levels
Multilateral outflows experienced a rebound in 2022, nearly reaching the record levels seen in 2020. In 2022, multilateral outflows amounted to USD 259 billion, reflecting a 12% increase on the previous year (Figure 4.1). This recovery comes after a 12% decrease in 2021, when outflows were subdued following an exceptional expansion in financing to combat the COVID-19 crisis. The outflows in 2022 were not far behind the record level of USD 264 billion achieved in 2020. Of the total outflows in 2022, USD 46 billion (18%) were earmarked, while USD 213 billion (82%) were from multilateral organisations’ core resources. As discussed in Chapter 3, a significant part of the increase in multilateral development finance between 2021 and 2022 can be attributed to heightened support for Ukraine.
Multilateral outflows (from core resources and earmarked), 2012-22
Note: Calculations are based on commitments, in 2022 constant prices.
Source: OECD (2024[1]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
4.1.2. The system increasingly relies on the leveraging capacity of multilateral development banks
Over the past decade, the increase in multilateral outflows has been primarily driven by the multilateral development banks, masking sluggish spending elsewhere. Between 2012 and 2020, outflows from the World Bank Group and other MDBs rose substantially, by USD 35.3 billion and USD 61.8 billion respectively (Figure 4.2). In comparison, outflows from United Nations (UN) entities and vertical funds increased by a more modest USD 14.5 billion and USD 2.6 billion respectively over the same period.
This picture is not matched by trends in multilateral inflows, implying that MDBs are stretching their leveraging capacity. The surge in MDBs’ outflows contrasts with the relatively flat trend of funding they receive from their members, presented in Chapter 3. This disparity underscores that MDBs’ leveraging capacity is being stretched thin through the continued implementation of efficiency-focused measures aimed at optimising balance sheets.
Multilateral outflows by type of multilateral organisation, 2012-22
Note: Calculations are based on commitments, in 2022 constant prices.
Source: OECD (2024[1]), Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
In 2022, the recovery of multilateral outflows was evident across most categories of organisations. The European Union and the World Bank Group steeply increased their commitments in 2022, by 46% and 23% respectively. This contrasted with the more limited increases from UN entities (8%) and other MDBs (2%), and the 28% decrease registered by vertical funds. Notably, however, the decline in outflows from vertical funds follows a peak they reached in 2021. In absolute terms, the World Bank Group’s increase of USD 17 billion accounted for 62% of the total 2022 increase in multilateral outflows.
4.1.3. Multilateral organisations’ portfolios are versatile
Multilateral organisations’ outflows are responsive to the financing needs generated by the global context. The previous edition of this report stressed the ability of multilateral organisations, notably MDBs, to pivot their support towards health and social protection during the COVID-19 crisis, highlighting their flexibility and versatility (OECD, 2022[2]). Multilateral outflows targeting social sectors surged in 2020 and 2021 because of the COVID-19 pandemic, from 17% in 2019, to 24% in 2020 and 27% in 2021 (Figure 4.3). Meanwhile, outflows to infrastructure, which accounted for a quarter of multilateral outflows before the pandemic, receded to 20% from 2020. This capacity to adapt to changing circumstances was still evident in 2021 and 2022, this time driven by the need to help address the impact of Russia’s war of aggression against Ukraine. For example, the share of the humanitarian sector in outflows increased from 7% in 2020, to 10% in 2021 and 13% in 2022. This reflects multilateral organisations’ changing priorities as they shifted their focus from public health and social protection towards humanitarian crisis response.
Sectoral distribution of multilateral outflows (from core resources and earmarked), 2019-22
Note: Calculations are based on commitments, in 2022 constant prices.
Source: OECD (2024[1]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
Budget support stood out for its versatility in helping countries weather budgetary issues created by various development challenges. Between 2019 and 2020, multilateral outflows for budget support registered a significant rise – from 11% to 17% – as the multilateral development system supported developing countries during the first year of the COVID-19 pandemic. After decreasing to 13% in 2021, it increased again to 16% in 2022 as multilateral channels were used to offer budgetary relief to Ukraine.
Specialised entities, such as the main vertical funds, also play a key role in helping the multilateral development system navigate from one crisis to another. Financing from global health funds, for example, surged during the pandemic crises of Ebola in 2014-2015 and COVID-19 in 2020-2021. In fact, Figure 4.4 suggests that changes in vertical funds’ outflows are better explained by the incidence of such crises rather than the timing of their replenishments. A potential cause for concern is that the release of exceptional amounts of financing to respond to ad hoc crises sometimes depletes resources needed to address the long-term challenges these vertical funds were originally created for. After the Ebola crisis, for instance, outflows from global health funds bottomed out and remained at pre-crisis levels for two consecutive years. In addition, recent health crises also appear to have diverted attention from other vertical funds’ priorities, as evidenced by the dip in outflows from climate funds coinciding with peaks in global health funds’ outflows during the Ebola and COVID-19 crises shown in the figure.
Outflows from climate and health-related vertical funds, 2012-22
Note: Calculations are based on commitments, in 2022 constant prices. GCF: Green Climate Fund; GF: Global Fund to Fight AIDS, Tuberculosis and Malaria; IRM: initial resource mobilisation; Repl: replenishment.
Source: OECD (2024[1]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
The system’s ability to pivot between crises also resulted in declines in financing to other key development sectors. The increase in multilateral finance for social sectors in 2020 and 2021 was driven by health investments for the COVID-19 response. Since 2020, however, financing to education, another key social sector, decreased significantly as response to successive crises was prioritised in multilateral outflows. Box 4.1 provides some insights on recent trends in multilateral finance for education, comparing it to the health sector, which has been successful at attracting multilateral investment.
Multilateral finance for education decreased sharply, in contrast to recent increases in multilateral health finance. Following a 34% increase between 2019 and 2020, multilateral finance for education declined for two consecutive years, reaching levels lower than those before the COVID-19 pandemic in 2022 (Figure 4.5). In contrast, multilateral finance for health soared by 95% in 2020 and 38% in 2021, remaining well above pre-COVID levels in 2022 despite a post-pandemic decline. This disparity reflects the greater attention given to the health sector due to its crucial role in addressing recent crises, such as the Ebola and COVID-19 pandemics.
Note: Calculations are based on commitments in 2022 constant prices.
Source: OECD (2024[1]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
The low levels of multilateral finance for education also reflect broader, structural challenges. The decrease in multilateral finance for education observed in 2021 and 2022 is part of a wider trend of decreasing global aid to education. As successive crises have diverted attention from development sectors with long-term returns on investment, international aid to education declined by almost USD 2 billion, or 7%, between 2020 and 2021, from USD 19.3 billion to USD 17.8 billion. Furthermore, the gap between commitments and disbursements in multilateral finance for education is larger than in other sectors. According to Education Finance Watch, an average USD 1.7 billion in education aid from multilateral sources has gone unspent annually since 2017 (Bend et al., 2023[3]).
As well as shifting the sectoral allocation of their outflows, multilateral organisations have also demonstrated a remarkable ability to embrace new priorities swiftly. The next section explores two areas where this adaptability is evident: private finance mobilisation and climate-related development finance.
Alongside their traditional mandates, multilateral organisations are stepping up efforts to take on new priorities in financing the sustainable development agenda. This section delves into the evolving role of multilateral organisations over the past decade in the realms of private finance mobilisation (Section 4.2.1) as well as climate and biodiversity-related development finance (Section 4.2.2), highlighting the notable progress achieved in both areas. Yet, in both cases, substantial additional efforts are required to achieve the transformative change needed to meet the ambitions of the global development agenda.
4.2.1. Mobilising private finance is now a key focus of multilateral efforts, although results have been slow to materialise
Multilateral providers lead efforts to mobilise private finance
In 2022, multilateral providers mobilised USD 47 billion in private finance, compared to 14 USD billion mobilised by DAC members and their development finance institutions (Figure 4.6). The share of multilateral actors in total amounts mobilised increased from 67% in 2015 to 77% in 2022. However, this does not take into account the amounts mobilised by domestic public development banks in developing and emerging countries, such as the Development Bank of Southern Africa (DBSA) and the Brazilian Development Bank (BNDES), which play crucial roles in catalysing private investment in their regional and local economies.
Private finance mobilised, 2013-22
Note: Calculations are based on 2022 current prices, as inflation-adjusted constant price data are not available.
Source: OECD (2024[4]), OECD Data Explorer, Mobilised private finance for development (database), http://data-explorer.oecd.org/s/q
The recent increase in multilateral mobilisation of private finance is driven by a few major players. Among multilateral organisations, private finance mobilisation is primarily led by the MDBs and EU institutions. Between 2020 and 2022, the International Finance Corporation (IFC), Inter-American Development Bank (IADB), the Multilateral Investment Guarantee Agency (MIGA) and the EU institutions mobilised the largest amounts of private finance. Some vertical funds were also effective in mobilising private finance for specific purposes. For instance, the Green Climate Fund (GCF) has emerged as a significant new player in this field, mobilising USD 1.8 billion in 2022. In recent years, IFC and IADB were the only multilateral organisations to substantially increase mobilisation amounts, albeit from fairly low levels in 2020 and 2021 when the pandemic-induced global recession affected private investments. IFC doubled its mobilised amounts over this period, from USD 8.6 billion in 2020 to over USD 20 billion in 2022. With a private-sector mandate, a broad investor network, and extensive experience in building scalable syndication platforms – such as the Managed Co-Lending Portfolio Program (MCPP) (Box 4.2) – IFC has a distinct comparative advantage. Similarly, the amounts mobilised by IADB rose from USD 3.8 billion in 2020 to USD 7.9 billion in 2022, representing a 109% increase. IADB’s private sector arm, IDB Invest, in particular, has expanded its mobilisation through innovative products such as the B-Bond (Box 4.2). On the other hand, mobilisation by other multilateral organisations remained relatively stagnant or declined in 2022. For example, the amounts mobilised by the African Development Bank (AfDB) fell from a peak of USD 9.2 billion in 2020 to USD 2.2 billion in 2022, although it should be noted that the 2020 peak was mainly due to a large-scale infrastructure project in Mozambique (OECD, 2023[5]).
Over the past decade, MDBs have developed new programs and products that enable them to extend their reach and engage with new actors. Using innovative approaches, MDBs can mobilise finance from institutional investors such as insurance companies and pension funds, which due to regulatory restrictions, cannot directly invest in developing country loans. By tapping into new investor pools, MDBs can therefore effectively scale up amounts of finance mobilised. This box highlights two examples: IFC’s Managed Co-Lending Portfolio Program (MCPP) and IDB Invest’s B Bond.
IFC’s Managed Co-Lending Portfolio Program (MCPP)
MCPP provides a platform for institutional investors such as asset management and insurance companies to participate in IFC’s investments in developing countries. Investors set loan eligibility criteria and portfolio concentration limits in an upfront agreement with IFC. Investors pledge capital, and IFC deploys their funds into loans that are selected based on the pre-agreed eligibility criteria, alongside IFC’s own funds and on the same terms. Project appraisal, approval, commitment, and supervision are delegated to IFC, thus limiting origination and portfolio management costs for participating investors. Since MCPP’s launch in 2013, IFC has raised over USD 16 billion from 17 institutional investors and global credit insurance companies.
IDB Invest’s B Bond
The B Bond is a financial instrument that allows IDB Invest to reach a broader investor base by including firms that can only invest in securities, and not in regular loans. The loan agreement with the borrower is structured similarly to a standard A/B loan, where IDB Invest, as the lender of record, administering the entire loan, retains a portion of the loan for its own account (the "A Loan") and sells participations in the remaining portion to eligible private lenders (the "B Loan"). However, in the case of the B Bond, the B loan participant is a special purpose vehicle that raises funds by issuing securities (B Bonds) through private placement formats, which are sold to institutional investors. The B Bond structure has been especially successful in attracting private investors to Uruguay’s renewable energy sector.
Source: MDB Task Force on Mobilization (2024[6]), Mobilization of Private Finance by Multilateral Development Banks and Development Finance Institutions in 2022, https://www.ifc.org/content/dam/ifc/doc/2024/2022-joint-report-mobilization-of-private-finance-by-mdbs-dfis.pdf.
Multilateral providers use a diverse array of leveraging mechanisms to mobilise private finance, with a noticeable division of roles among them. MIGA, being a guarantee agency, uses guarantees exclusively (Figure 4.7), while other multilateral organisations use a mix of mechanisms. For instance, IFC primarily engages in direct investment in companies and special purpose vehicles1 (SPVs), which accounted for 62% of its activities in 2022. It also uses a smaller share of syndicated loans2 (14%) and guarantees (19%). IADB, on the other hand, has predominantly increased its mobilisation through syndicated loans, which accounted for 63% of its mobilisation activities in 2022. In comparison, EU institutions, including the European Investment Bank (EIB), mainly use credit lines3 to financial intermediaries (47%) and investments in collective investment vehicles (CIVs) (29%). The relatively newer player GCF primarily focuses on investments in CIVs.
Private finance mobilised by multilateral provider, 2020-22
Note: Calculations are based on 2022 current prices, as inflation-adjusted constant price data are not available. ADB: Asian Development Bank; AfDB: African Development Bank; CIV: collective investment vehicle; EBRD: European Bank for Reconstruction and Development; GCF: Green Climate Fund; GEF: Global Environment Facility; IADB: Inter-American Development Bank; IFC: International Finance Corporation; MIGA: Multilateral Investment Guarantee Agency; PIDG: Private Infrastructure Development Group; SPV: special purpose vehicle.
Source: OECD (2024[1]), OECD Data Explorer, Mobilised private finance for development (database), http://data-explorer.oecd.org/s/q.
Of the various instruments used to mobilise finance, guarantees are garnering increased attention for their significant potential. Several studies have highlighted the mobilisation potential of guarantees (Garbacz, Vilalta and Moller, 2021[7]) (Convergence, 2019[8]) (Humphrey and Prizzon, 2014[9]). For instance, the G20 Independent Expert Group report on Strengthening Multilateral Development Banks advocated for an expanded use of guarantees to mitigate risk and catalyse private finance (G20 IEG, 2023[10]). Similarly, the Independent High-Level Expert Group on Climate Finance called on MDBs to revamp and bolster their guarantee programmes (Bhattacharya et al., 2023[11]). In response to these calls, several multilateral organisations have recently launched initiatives to create new guarantee programmes and platforms and to strengthen existing ones (Box 4.3).
The World Bank Group and the European Fund for Sustainable Development Plus (EFSD+) offer two examples of concrete steps taken by multilateral organisations to enhance their guarantee schemes. These efforts aim to increase their capacity to mobilise private finance to support sustainable development projects.
A one-stop shop for World Bank Group guarantees
The World Bank Group is in the process of overhauling its guarantee programmes to streamline process and achieve greater impact. Starting in July 2024, a one-stop shop housed at MIGA will consolidate the 20 guarantee products that were previously spread across the institution. This platform will feature a simplified and comprehensive product menu, as well as a common approach for all guarantee reviews, eliminating redundancies while enhancing transparency and accessibility to clients. The initiative also seeks to triple the WBG’s annual guarantee issuance to USD 20 billion by 2030 by focusing resources on high-impact projects and portfolios and offering new and innovative guarantee products.
The European Fund for Sustainable Development Plus (EFSD+)
The EFSD+ is one of the financing tools of Global Gateway, the EU’s new strategy to promote sustainable investment in the European Union’s partner countries. Offering a variety of risk-sharing instruments totalling up to EUR 40 billion, the EFSD+ aims to mobilise up to EUR 135 billion of public and private financing to help partner countries achieve the Sustainable Development Goals (SDGs). The EFSD+ Guarantee is deployed via a range of eligible development finance institutions, notably the EIB, which act as the EU’s implementation partners on the ground.
Source: World Bank Group (2024[12]), World Bank Group Prepares Major Overhaul to Guarantee Business, https://www.worldbank.org/en/news/press-release/2024/02/27/world-bank-group-prepares-major-overhaul-to-guarantee-business; European Commission (2024[13]), European Fund for Sustainable Development Plus, https://international-partnerships.ec.europa.eu/funding-and-technical-assistance/funding-instruments/european-fund-sustainable-development-plus_en
Delivering on Agenda 2030 will require strengthening the mobilisation capacity of multilateral organisations
Despite significant progress, multilateral organisations face mounting pressure to enhance their efforts to mobilise more finance. The total amount mobilised in 2022, USD 62 billion, is still far short of the G20 Independent Expert Group’s target of USD 240 billion by 2030 (G20 IEG, 2023[10]). In addition, existing mechanisms have demonstrated their limitations in rapidly scaling up private finance. In response to these challenges, many MDBs have made private sector finance a central focus of their ongoing reforms. For example, in 2023, the World Bank Group launched the Private Sector Investment Lab, a collaborative initiative with the chief executive officers of leading global private sector institutions aimed at developing specific scalable approaches for mobilising private capital more effectively (World Bank, 2023[14]). Furthermore, during its Annual Meetings in May 2024, the AfDB announced a five-point programme to accelerate investments in Africa. As part of this initiative, the organisation plans to overhaul its operational business and embrace a greater risk appetite to scale up its financing to the private sector, with the goal of tripling its non-sovereign financing operations to USD 7.5 billion annually over the next decade (African Development Bank Group, 2024[15]).
Although there have been advances in increasing private finance for the countries most in need, many remain at risk of being left behind in the mobilisation agenda. In 2021-22, the share of private finance mobilised for least developed countries and other low-income countries (LDCs and other LICs) remained fairly low at 8%, though this was an improvement on 4% in 2016-17 (Figure 4.8). Investment challenges in LDCs stem from national-level factors, including political instability and high indebtedness, as well as project-level risks such as high project preparation costs (Lundsgaarde, 2023[16]). This underscores the importance of creating an enabling environment for private sector development, without which mobilisation performance in the poorest and most vulnerable countries is likely to remain limited.
Note: Calculations are based on 2022 current prices, as inflation-adjusted constant price data are not available. LDCs: least developed countries and other low-income countries; LMICs: lower-middle income countries; UMICs: upper-middle income countries.
Source: OECD (2024[1]), OECD Data Explorer, Mobilised private finance for development (database), http://data-explorer.oecd.org/s/c.
Efforts aimed at boosting private finance mobilisation in the most challenging contexts have also produced mixed results. Multilateral organisations have implemented measures to facilitate private finance in these environments, including through initiatives such as the IDA Private Sector Window (Box 4.4). However, concerns have emerged about the slow pace of results from some of these initiatives, and doubts about the value for money and additionality of interventions that use scarce concessional resources to subsidise private investments. This situation calls for clear criteria to explicitly and consciously evaluate the benefits and costs of designing blended finance initiatives, especially in least developed countries and other challenging contexts.
IDA’s Private Sector Window (PSW), approved in 2016, aims to scale up private investments in IDA-eligible, i.e. low-income countries. The PSW, introduced as part of the IDA18 replenishment, provides risk mitigation through four facilities for projects undertaken by IFC and MIGA: (1) project-based guarantees to crowd in private investment in large infrastructure projects; (2) cover for MIGA guarantees through first-loss and risk participation; (3) long-term local currency hedging solutions; and (4) blended finance solutions to increase SME finance among other sectors.
The PSW got off to a slow start, using only half of its initial envelope. It received an initial allocation of 1.8 billion in special drawing rights (SDR) (approximately USD 2.5 billion) as part of IDA18, followed by an additional USD 1.68 billion for IDA 19 and USD 2.5 billion for IDA 20. Under IDA18, however, only 55% of PSW funds were approved for investment, leaving nearly half of its enveloped unused. More recently, the pace of project approvals has picked up as the capacity of IFC and MIGA to develop transactions using PSW subsidies grows over time. The PSW is now expected to commit all allocated funds (USD 5.5 billion) by the end of IDA20 (June 2025).
The PSW has room for improvement in several key areas. According to a recent assessment by Mathiasen et al. (2024[17]), the performance of the PSW has been mixed. Some evidence suggests that PSW projects tend to have higher development impact than non-PSW supported projects and permit IFC engagement with riskier counterparties. However, there are doubts about the additionality of the PSW. For example, IFC and MIGA commitments in IDA-eligible countries that are not supported by PSW are decreasing. The mobilisation effect of PSW is also questionable, with less private finance mobilised in PSW-supported than in non-PSW supported projects. Moreover, many PSW transactions have subsidised short-term trade and working capital finance, which typically has limited impact on long-term market development. Critics have also noted the opaque nature of project selection and the lack of competitive bidding.
Source: Mathiasen et al. (2024[17]), IDA 21 and the Private Sector Window, https://www.cgdev.org/sites/default/files/ida-21-and-private-sector-window.pdf.
4.2.2. Climate-related multilateral development finance is growing, but more is needed
The climate-related share of multilateral outflows is increasing, driven especially by a surge in MDB financing
Multilateral organisations, particularly MDBs, are increasingly embracing climate action in their mandates. As discussed in Chapter 2, expanding mandates to address global challenges is one area of the MDB reform agenda where notable progress has been made. Most MDBs have already incorporated global public goods into their mandates and in their country diagnostics and strategies.
The climate finance architecture encompasses a large and growing variety of multilateral entities. MDBs play key roles in climate action, leveraging their financial firepower. Among the climate funds, only the Green Climate Fund (GCF) comes close to the level of financing provided by the main MDBs (Figure 4.9). The volume of climate finance provided by multilateral institutions does not necessarily correlate with their age. Notably, the relatively new IMF Resilience and Sustainability Trust (RST) has already committed over USD 1 billion between 2020 and 2022, surpassing older funding mechanisms such as the Adaptation Fund and the Climate Investment Funds (CIFs). Multilateral organisations have also become significant providers of biodiversity-related development finance, accounting for around 30% of total development finance for biodiversity from a range of actors (e.g. DAC members, South-South and triangular co-operation providers, philanthropies and other private actors) over 2015-2022 (see Box 4.5).
Note: Calculations are based on climate components of MDB commitments, in 2022 constant prices. ADB: Asian Development Bank; AfDB: African Development Bank; AIIB: Asian Infrastructure Investment Bank; CABEI: Central American Bank for Economic Integration; CAF: Development Bank of Latin America and the Caribbean; CGIAR: Consultative Group on International Agricultural Research; CIF: Climate Investment Funds; EBRD: European Bank for Reconstruction and Development; FAO: Food and Agriculture Organization of the United Nations; GCF: Green Climate Fund; GEF: Global Environment Facility; GGGI: Global Green Growth Institute; IADB: Inter-American Development Bank; IBRD: International Bank for Reconstruction and Development; IDA: International Development Association; IFAD: International Fund for Agricultural Development; IFC: International Finance Corporation; IMF-RST: International Monetary Fund – Resilience and Sustainability Trust; ISDB: Islamic Development Bank; NDF: Nordic Development Fund.
Source: OECD (2024[18]), Climate-related development finance at the activity level: Recipient perspective (database), https://www.oecd.org/development/financing-sustainable-development/development-finance-topics/climate-change.htm.
Contributions from multilateral organisations represent about 30% of total development finance for biodiversity1 and the sustainable use of natural resources. Indeed, multilateral biodiversity-related development finance (both concessional and non-concessional) increased significantly over 2015-2022, reaching USD 5.7 -11.3 billion in 2022, depending on the approach considered2. However, the relative share of biodiversity-related activities out of the total multilateral development finance portfolio remained low (2%-3% on average over the period) and would need to increase for these institutions to contribute meaningfully to the Kunming-Montreal Global Biodiversity Framework (KMGBF).
MDBs account for 71% of total multilateral biodiversity-related development finance over 2015-22. In turn, other environmental funds and organisations that are part of the United Nations system account for 22% and 7%, respectively. The top recipients include China, Colombia, Mexico, Indonesia and Brazil, with most of the multilateral biodiversity-related development finance flows targeting UMICs (50%), followed by LMICs (26%), and LDCs and other lower-income countries LICs (24%). The region that received most biodiversity-related development finance from multilateral institutions over 2015-22 was Asia, followed by Latin American and the Caribbean and Africa. Overall, multilateral biodiversity-related finance was mainly deployed through loans (70%) followed by grants (28%). This contrasts with how biodiversity-related development finance is provided by bilateral donors, 68% of which was provided in the form of grants between 2015-22.
Most of the estimated multilateral biodiversity-related development finance is allocated to three sectors: agriculture (22%), general environment protection (16%), and water (13%, including water supply and sanitation). In some sectors, the estimates show that biodiversity-related finance can be highly integrated into multilateral investments, notably forestry (64%), general environment protection (50%, of which 41% was destined to biodiversity interventions) or fishing (37%). However, none of the sectors had biodiversity-related objectives as a main driver for multilateral investments. In effect, multilateral institutions, and in particular MDBs, have committed to step up action to further mainstream nature into their policies and operations, as well as to develop methodologies to track and report ‘nature positive’ investments.
Note: 1. Development finance for biodiversity refers to ODA and other official flows (OOF) that contribute to the conservation, restoration and sustainable use of biodiversity. 2. The analysis reflects two approaches: biodiversity-related, which reflects the full values of flows reported to the OECD; and biodiversity-specific, which considers a coefficient for activities targeting biodiversity as a secondary objective. For more information on the methodology used, see Annex A of OECD (forthcoming[19]).
Source: OECD (forthcoming[19]), Biodiversity and Development Finance 2015-2022: Contributing to Target 19 of the Kunming-Montreal Global Biodiversity Framework.
In the past decade, the role of MDBs in climate-related development finance4 has significantly increased, as evidenced by the growing share of their operations that includes a climate component. MDBs’ climate-related development finance surged by nearly 300% between 2013 and 2022, from USD 16.4 billion to USD 65.2 billion (Figure 4.10, Panel A).5 In addition, MDBs have increased the share of their total operations dedicated to climate. In 2015, climate-related development finance constituted about 15% of MDBs’ total operations, compared to 24% in 2022 (Mitchell and Wickstead, 2024[20]).
Note: Calculations are based on climate components of MDB commitments, in 2022 constant prices. MDBs included are the ones noted in Figure 4.9 Panel A.
Source: OECD (2024[18]), Climate-related development finance at the activity level: Recipient perspective (database), https://www.oecd.org/development/financing-sustainable-development/development-finance-topics/climate-change.htm.
MDBs are increasingly taking a lead role in adaptation. In 2022, MDBs allocated a total of USD 23 billion for adaptation. This focus on adaptation emerged in the early years of the last decade and has since represented an increasing portion of MDBs' overall climate commitments (Figure 4.10, Panel A). While adaptation-focused projects accounted for only 19% of MDBs' climate commitments in 2013, this proportion had nearly doubled, to 36%, by 2022. This shift was driven by a remarkable 658% surge in adaptation-related development finance between 2013 and 2022, compared to a 208% increase in mitigation (Figure 4.10, Panel B). IDA and IBRD stand out in particular, dedicating approximately half of their climate commitments to adaptation-related projects (59% and 39% respectively) between 2020 and 2022, while most other MDBs remained primarily focused on mitigation.
While the surge in MDBs’ climate action is positive, there are concerns about the rigour and quality of the climate reporting in development finance. As development finance providers, including MDBs, are under immense public pressure to deliver on climate commitments, there can be incentives to inflate climate finance figures. In light of this “greenwashing” risk, there are calls to improve the climate reporting by introducing standardised methodologies that clearly explain and justify how a project contributes to climate change mitigation or adaptation (Farr, Morrissey and Donaldson, 2022[21]) (Núñez-Mujica, Ramachandran and Morris, 2023[22]).
Changes to multilateral organisations’ models are required to enhance support to the climate agenda
A step change in the volume of climate-related development finance provided by the multilateral development system is urgently needed to address the climate crisis effectively. While the rise in multilateral climate-related development finance up to 2022 is commendable, it is widely acknowledged that current levels are still insufficient. The United Nations Framework Convention on Climate Change’s recent analysis of financing needs notes that developing countries require at least USD 6 trillion by 2030 to implement less than half of their existing Nationally Determined Contributions (UNFCCC Standing Committee on Finance, 2021[23]). In 2023, at COP28, ten MDBs joined forces to issue an ambitious joint statement and a forward-looking vision to accelerate climate action (COP28, 2023[24]). Among their pledges was a commitment to triple climate finance, aiming to reach USD 180 billion in additional commitments through multi-year programmes in the next decade.
Another issue is the disparities in the allocation of funds, with insufficient resources directed towards the most vulnerable and high-impact areas, such as adaptation efforts in low-income countries. The targeting of the poorest countries in multilateral climate action has improved but could still be enhanced through an increased focus on adaptation. The share of MDBs’ climate-related development finance directed towards LDCs and other LICs has grown, largely due to a greater emphasis on adaptation, but the overall volume remains modest. Between 2020 and 2022, MDBs allocated 20% of their climate finance to LDCs and other LICs, a 4% increase from the 16% allocated during 2017-2019. However, this remains lower than the 35% directed to LMICs and 31% to UMICs. The rise in climate-related development finance for LDCs and LICs was primarily driven by an increased focus on adaptation, which constitutes a significant portion of the finance directed towards lower-income economies (European Investment Bank, 2023[25]). In 2022, 61% of climate-related development finance for LDCs and other LICs was dedicated to adaptation, compared to 39% for LMICs and 29% for UMICs (Figure 4.11). Once operational, the World Bank-hosted Loss and Damage Fund, established to assist developing countries that are particularly vulnerable to the adverse effects of climate change, will likely increase multilateral climate-related finance and further shift its allocations towards lower-income countries.
Note: Calculations are based on climate components of MDB commitments, in 2022 constant prices. LDCs: least developed countries and other low-income countries; LMICs: lower-middle income countries; UMICs: upper-middle income countries.
Source: OECD (2024[18]), Climate-related development finance at the activity level: Recipient perspective (database), https://www.oecd.org/development/financing-sustainable-development/development-finance-topics/climate-change.htm.
Most of the climate-related development finance provided by MDBs is channeled through loans, with a large share directed towards mitigation projects in the infrastructure and production sectors. Between 2020 and 2022, over three-quarters of MDBs' climate-related development finance was channeled through debt instruments. The largest share of this finance was allocated to mitigation efforts in the energy, transport and storage, agriculture, forestry, fishing, and water supply and sanitation sectors. This allocation highlights that much remains to be done to achieve the goal of multiplying the volume of adaptation finance set in the COP28.
Critical gaps must still be closed for multilateral organisations to deliver on their ambitious climate finance objectives. Recent research by MOPAN examined the readiness and positioning of MDBs to deliver on their COP28 Joint Statement (MOPAN, 2024[26]). Building upon evidence from MOPAN assessments of eight MDBs (the World Bank, IFC, EBRD, AfDB, ADB, IADB, IDB Invest and IFAD), the study highlighted the deficiencies in these institutions’ business models that need to be fixed for them to effectively meet their COP28 ambitions (Box 4.6).
Despite the progress made over the last decade, MDBs are not yet fully positioned to deliver on their COP28 commitments. Recent MOPAN assessments have highlighted achievements in scaling up climate finance, strengthening expertise and human resources, as well as identifying new and innovative instruments. However, MDBs continue to demonstrate gaps in their business models and support to climate change that could hinder their ability to deliver on their COP28 ambitions.
MDB knowledge and policy advice are crucial for promoting an enabling environment for climate action, yet their ability to demonstrate well-co-ordinated contribution to critical policy shifts remains limited. MOPAN (2024[26]) points out inefficiencies due to insufficient co-ordination. For example, climate-related analytical work is often delivered in a fragmented way by MDBs, with multiple MDBs addressing the same issues in the same countries. Additionally, knowledge work is rarely reflected in country strategy results frameworks, and results measurement is often confined to output-focused indicators, limiting the ability to assess real impact.
MDBs are not systematically employing “whole-of-institution” approaches that foster an enabling environment for private sector climate action. Most MDBs lack specific guidelines and mechanisms for promoting collaboration between the public and private sector in pipeline and project development. This results in a fundamental mismatch between operational processes and incentives underlying public and private sector operations, with private sector operations requiring a more agile approach.
The channelling of concessional finance through donor trust funds remains inadequate and inefficient. Donor trust funds are fragmented across numerous individual single-donor partnerships and mechanisms, leading to high transaction costs and reporting burdens. Efforts to consolidate these funds into multi-donor or “umbrella” funds have yielded important efficiencies. However, for these efficiencies to be realised, donors must be willing to accept trade-offs in terms of control and visibility for the sake of greater overall efficiency.
Reporting on climate results will require substantial changes to MDBs’ project selection and results architecture. Climate finance is often fragmented across projects that may have limited tangible linkages to climate outcomes. The current emphasis on aggregating climate finance ex-ante has reduced the incentive to identify and track tangible climate outcomes for projects and country strategies ex-post. At the institutional level, MDB corporate climate indicators remain highly fragmented. Although MDBs have committed to harmonising their corporate results frameworks, these issues point to important gaps throughout the climate results architecture that cannot be resolved by changes in corporate indicators alone. Instead, comprehensive reforms are needed to ensure that climate results are effectively measured and reported.
Addressing remaining gaps in MDBs’ operational guidelines, processes and incentives could enable them to better work as a system through country-led platforms. Significant shortcomings in these areas currently impede closer collaboration, for example in initiatives such as Just Energy Transition Partnerships (JETPs). In particular, when resources or in-country presence are limited, co-ordination with partners receives less emphasis. In addition, MOPAN’s research underscored that joint monitoring and knowledge work across development partners remain limited.
Note: MOPAN’s analysis reflects on the readiness and positioning of MDBs to deliver on their COP28 Joint Statement. It builds upon evidence from MOPAN Assessments of eight MDBs (the World Bank, IFC, EBRD, AfDB, ADB, IADB, IDB Invest and IFAD) complemented by a literature review, consultations with stakeholders and a review of 40 MDB Country Strategies.
Source: MOPAN (2024[26]), Accelerating Climate Action: Multilateral Development Banks’ Readiness and Performance.
As multilateral organisations adapt their missions, operations and financial models to address new priorities on the multilateral agenda, such as private finance mobilisation and climate finance, concerns are also being voiced around their ability to continue delivering on more traditional long-term development goals (Elgar et al., 2023[27]). Alongside bilateral donors, multilateral organisations need to balance country-driven demands for assistance with growing needs to address global challenges. The next section explores this trade-off in greater detail.
Multilateral organisations face a growing tension between the traditional focus on long-term development, and the urgent need to scale up their contributions to global public goods and crisis response. Ongoing multilateral reform initiatives call for a revision of their mandates to reinforce their role as providers of global public goods (Chapter 2). Simultaneously, multiple global crises – including the pandemic, climate change, Russia's war of aggression on Ukraine, and the Israel-Hamas conflict – have interconnected in ways that are significant in scope and devastating in effect. Multilateral organisations now face mounting expectations to pivot their support to address the impacts of these crises. However, responding to the escalating demand for crisis response often involves diverting ODA away from development efforts, creating a cyclical pattern that perpetuates crisis, conflict and fragility, while detracting from traditional multilateral mandates, which revolve around long-term development, with poverty reduction taking a central place. The following sections explore the extent to which multilateral development finance aligns with the goal of reducing poverty (Section 4.3.1), and how current trends may affect this relationship in the future (Section 4.3.2).
4.3.1. The multilateral development system’s capacity to address poverty mainly relies on its concessional, donor-funded facilities
The fight against poverty has historically been a central focus of concessional multilateral development finance. Many multilateral organisations have mandates dedicated to poverty reduction, leveraging their ability to provide concessional finance to the poorest or most vulnerable countries. They also support key sectors related to poverty alleviation, such as social protection, health and education. Donor contributions are essential to the financing model of these institutions, allowing them to offer support through grants or concessional loans. Examples of such institutions include the concessional windows of MDBs, UNDS entities and vertical funds.
Although there is still room for improvement, multilateral organisations’ outflows display a stronger focus on poverty than bilateral development finance. Figure 4.12 illustrates the correlation between the commitments of bilateral and multilateral donors and the poverty headcount ratio of recipient countries. It suggests that multilateral organisations are able to target poverty through their concessional finance, while bilateral providers’ flows – whether concessional or not – have almost no6 correlation with the poverty levels of recipient countries. Bilateral funds earmarked through multilateral organisations, which are typically provided on concessional terms, show a positive correlation with poverty, although it is weaker than for the concessional outflows from multilateral core resources. As explored further in Box 4.7, this suggests that earmarking can be a way for donors to compensate for the lack of poverty focus in their direct bilateral engagements, possibly because they perceive their multilateral counterparts to have greater strengths in poverty reduction, be it their technical expertise in specific areas or their local presence.
Correlation coefficient between commitments in 2020-22 and poverty headcount of recipient countries
Note: Correlation coefficients between commitments and the most recent available poverty headcount ratio of developing countries, based on the World Bank's income poverty line of extreme poverty (USD 2.15/day). The data exclude finance allocated to regions and unspecified countries.
Source OECD (2024[1]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c., and World Bank (2023[14]), World Development Indicators (database), https://databank.worldbank.org/source/world-development-indicators.
Multilateral providers’ stronger poverty and inequality focus is also evident in their sectoral allocations. Multilateral organisations tend to allocate greater portions of their development finance to social sectors than bilateral donors (Figure 4.13). An analysis of concessional and non-concessional finance between 2021 and 2022 reveals that social sectors were the top recipients of concessional outflows from multilateral organisations’ core resources, accounting for 29% of the total (Figure 4.13, Panel A.). This share is higher than for purely bilateral (20%) and multilateral earmarked (25%) flows. For non-concessional finance, the production sector receives the largest shares of both multilateral and bilateral outflows, accounting for 39% and 55% respectively (Figure 4.13, Panel B). However, multilateral organisations still dedicate a sizable part (16%) of their non-concessional finance to social sectors, compared to only 1% for bilateral donors.
Note: Calculations are based on commitments, in 2022 constant prices.
Source: OECD (2024[1]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
Traditionally, earmarked funds channelled through the multilateral development system have displayed a relatively strong focus on the poorest countries. Until 2020, the share of LDCs and other low-income countries in earmarked flows was consistently higher than that of core outflows (Figure 4.14). One possible reason for this tendency is that bilateral donors use earmarked contributions through multilateral organisations to ensure they are able to provide support in the most challenging contexts.
Recently, however, donors appear to be moving away from an explicit poverty focus in their earmarking. The share of LDCs and other LICs in earmarked flows decreased from 32% in 2020 to 25% in 2022, coinciding with a rise in flows not allocated to a particular country. It is likely that these unallocated flows relate to the provision of global public goods (GPGs) such as international pandemic preparedness and prevention, which target thematic or regional areas rather than individual countries. While these flows may eventually benefit LDCs and other LICs, they are not explicitly earmarked for the poorest countries.
Note: Calculations are based on commitments, in 2022 constant prices.
Source: OECD (2024[1]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
The share of earmarked funds that are related to global public goods is significantly higher in earmarked (35.6%) than in multilateral core outflows (10.4%) (Figure 4.15), suggesting that bilateral donors use earmarking as a way to influence multilateral organisations to focus more on GPGs than they would do with their outflows from their core funds. Moreover, this tendency increased considerably in 2021, when the share of GPG-related earmarked flows rose to 40%, up from around 25-26% in previous years.
Share of commitments targeting global public goods, 2012-22
Note: Calculations are based on commitments, in 2022 constant prices.
Source: OECD (2024[1]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
Beneath the overall patterns, there is considerable variation in the poverty focus among different types of organisations, reflecting their individual characteristics. Of all the multilateral organisations, vertical funds show the strongest correlation between poverty in recipient countries and their commitment amounts (Figure 4.16). This is logical, as many of these funds, such as Gavi, largely provide concessional support and target the poorest and most vulnerable countries. Following them are UNDS entities, which also focus significantly on countries with the highest poverty headcount ratios. The World Bank Group also allocates more finance to countries with high levels of poverty as well as countries with higher inequality, in line with its twin goals of reducing poverty and fighting inequality.
Correlation between commitments in 2020-22 and Gini coefficient and poverty headcount ratio of recipient countries
Note: Correlation coefficients between commitments and the most recent available income poverty headcount ratio and income inequality Gini index for developing countries
Source: OECD (2024[1]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c and World Bank (2023[14]), World Development Indicators (database), https://databank.worldbank.org/source/world-development-indicators.
4.3.2. Further intensifying leverage to scale up the system’s financing capacity can compromise concessionality
There is a trade-off between the size and the concessionality of the finance provided by multilateral organisations. Typically, organisations that exclusively provide concessional finance tend to commit fewer financial resources than those that provide both concessional and non-concessional finance. IDA is a notable exception in the multilateral development landscape, as it maintains a high share of concessional finance while being among the largest providers of finance among all multilateral entities.
If not managed properly, this trade-off could end up limiting multilateral organisations’ poverty focus. Figure 4.17 traces the change in both the share of multilateral organisations’ concessional finance and the overall volume of their financing between 2013-2015 and 2020-2022. It reveals that most organisations increased the size of their financial commitments over the period, some significantly. However, many of these organisations also reduced the proportion of concessional finance within their total commitments.
Change in outflows and change in share of concessional finance, 2013-15 versus 2020-22
Note: Calculations are based on commitments, in 2022 constant prices. Bubble size represents volume of outflows.
Source: OECD (2024[1]), OECD Data Explorer, Creditor Reporting System (database), http://data-explorer.oecd.org/s/c.
MDB reforms that emphasise the need to increase financial efficiency and better leverage balance sheets could limit the multilateral development system’s capacity to address poverty. While these reforms are enabling MDBs to substantially increase their financing, the increased reliance on leverage is likely to tilt the balance between concessional and non-concessional resources towards the latter. As discussed in Section 4.3.1, concessional and non-concessional finance vary significantly in their poverty focus. This tension between the pressure to scale up financing and the need to maintain concessionality may therefore affect the ability of multilateral organisations to target poverty effectively.
4.4.1. Key findings
The chapter highlights the significant trends and shifts in financing from the multilateral development system (multilateral outflows):
The recovery of multilateral outflows in 2022 is a sign of the resilience and versatility of the multilateral development system amid multiple crises. Multilateral organisations have demonstrated their ability to rebound quickly after the pandemic and swiftly adjust their sectoral allocations in response to evolving development needs. This resilience and adaptability constitutes one of the key strengths of the multilateral development system.
Multilateral organisations are leading the way in increasing private finance mobilisation and scaling up climate-related development finance. In response to calls to revise their mandates to play a more prominent role in the provision of global public goods, multilateral organisations, and notably MDBs, have had considerable success in mobilising finance from private investors. At the same time, they have substantially scaled up climate-related development finance.
However, increasing pressures are revealing cracks in the multilateral development system that could undermine multilateral organisations’ ability to address key development challenges. Looking ahead, the poverty focus of multilateral development finance is at risk, as multilateral organisations are tasked with addressing a widening range of challenges and needs. The opportunities involved in the expansion of mandates can also become threats. Moreover, as ongoing reforms place greater expectations on the multilateral system, these organisations must balance long-term development goals – in particular poverty and inequality reduction – with the provision of global public goods and crisis response. Concentrating all efforts and resources on any one of these issues is already a significant challenge. Confronting all of them simultaneously could overstretch multilateral resources and lead to another trade-off between scaling up financing and maintaining concessionality. Ultimately, a shift towards less concessional resources will affect multilateral organisations’ ability to target poverty and engage with countries facing public debt sustainability risks.
4.4.2. Key recommendations
Safeguard the system’s capacity to support the poorest and most vulnerable: Preserve multilateral organisations’ capacity to target poverty-relevant sectors and support the poorest and most vulnerable countries by monitoring the impact of their reforms and increasing their concessional resources.
Commission an assessment through the G20 or another relevant global forum to understand the impacts of recent and ongoing reforms on aid allocation across sectors, regions and country groupings.
Complement efforts to increase MDBs’ financial leverage with measures to stock up their concessional resources, reversing the decade-long trend of stagnation in donor contributions.
Promote greater complementarity of multilateral aid portfolios: Support research on multilateral aid portfolios at the sectoral and country levels, such as OECD portfolio similarity analyses, to inform multilateral reforms and programming. This can contribute to greater transparency, coherence and co-ordination among multilateral activities by clarifying their complementarity in terms of sector, geography and instrument.
Catalyse private investment: Build on, and learn from, innovative portfolio approaches to tap into different sources of private finance, including institutional investors. Adopt clear criteria to evaluate the additionality and opportunity costs of blended finance initiatives, especially in least developed countries and other challenging contexts. Support a greater role for multilateral organisations in creating an environment conducive to private investment at the country level, such as by supporting initiatives to address risk misperceptions, to complement the current focus on deploying financial instruments at the project level.
Accelerate climate efforts in high-impact areas: Ensure the additionality of multilateral climate finance and development finance, such as by targeting win-win investments to support country-led strategies. This includes strengthening efforts to expand adaptation finance, including by mainstreaming climate into sectors beyond infrastructure and production. Ensure climate diagnostics are embedded into country strategy and results frameworks. Improve and standardise climate reporting to rigorously assess the climate contribution of projects ex-ante and ex-post. Enhance co-ordination among multilateral and bilateral development partners through joint monitoring and knowledge work, including through country platforms.
References
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← 1. Special purpose vehicles (SPV) are legal entities created to fulfil specific or temporary objectives. It can be used to isolate a company from financial risks of large investment projects, or to structure different layers of investment with different levels of risk participation in complex financing operations.
← 2. Syndicated loans is a form of financing offered by a group of lenders, which allows lenders to take part in an investment loan, which is too large for them to extend on a standalone basis.
← 3. Credit lines are extended to banks and other financial institutions, allowing continuous and repeated access to credit to flexibly respond to emergencies and evolving financing needs.
← 4. Climate-related development finance is recorded differently for bilateral and multilateral donors:
All bilateral donors, and a few multilateral institutions, report their development activities that have climate objectives through the Rio markers. Data collection on ODA with Rio markers started in 1999 at the request of the UN conventions. Rio markers indicate if – and to what extent – a developmental activity has a principal or significant environmental objective.
MDBs – and most other multilateral institutions – report the climate component of their development finance activities, i.e. the share of their activities that is specifically devoted to climate action.
← 5. Part of this rise is due to the fact that the number of reporting entities increased.
← 6. The correlation coefficient between bilateral finance and poverty headcounts is negative and very low.