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Blending Grants and Loans Getting the Most out of the Global Financing Architecture

This session explores the potential of blending grants and loans to enhance financing for development, particularly in middle and low-income countries. It highlights the need for increased concessionality to bridge persistent development gaps while leveraging private sector investment. The discussion will cover various financing pools, including multilateral and bilateral funds, and the importance of innovative financial solutions. With a focus on recent trends in capital flows and the role of development finance institutions, we aim to outline strategies for sustainable growth and improved debt sustainability.

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Blending Grants and Loans Getting the Most out of the Global Financing Architecture

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  1. Blending Grants and LoansGetting the Most out of the Global Financing Architecture Amar Bhattacharya Conference on Marketplace on Innovative Financial Solutions for Development Blending Grants and Loans Session Thursday, March 4 Paris, France

  2. Context • Improved growth performance and debt sustainability across both middle and low-income countries • Persistence of development gaps some warranting concessional financing • Unmet global public goods linked often to domestic public goods

  3. Strong Growth Across the Developing World

  4. Average Annual GDP Growth in sub-Saharan, 1996-2005(Percent) Source:: WDI, WB

  5. Despite Progress Large Development Gaps Remain Source: WDI, 2008, WB

  6. Magnitude of the Income Gap Source:: WDI, WB

  7. The Case for BlendingA Two Way Street Increasing Concessionality MDGs and Social Infrastructure Global Public Goods Reducing Concessionality Infrastructure Private Sector Development

  8. Pools of Financing PrivateMultilateralBilateral Highly Foundations Soft Windows ODA Concessional Carbon Finance Innovative Finance Less Private Debt Multilateral bank or Bilateral Loans Concessional MDB type financing Non-DAC finance

  9. Private Capital Flows1990-2008 9 Source: IMF, WEO Database, April 2009 and GDF 2009, WB

  10. The Uphill Flow of Capital, 1998-2008(US$ billions) 10 Source: GDF 2009, WB

  11. EMBI Spreads (bps) Emerging market bond spread (EMBIG) Source: JPMorgan

  12. Net Private Capital Flows (excl. FDI) and Net Multilateral Lending, 1990-2007(Billions, US$) Source: GDF 2009, WB

  13. Sectoral Composition of DAC ODA to Sub-Saharan Africa, 2002-2006(Percent) Source:: OECD/DAC

  14. External Infrastructure Finance in Sub-SaharanAfrica, 2001-2006.(Billion US$) Source: World Bank–PPIAF Chinese Projects Database; World Bank–PPIAF PPI database (ppi.worldbank.org); OECD database (http://stats.oecd.org/), as of 2008.

  15. Concluding Thoughts • Private debt flows can make important development contribution but tend to be concentrated, volatile and subject to high risk premia • MDB model provides arguably the most important means for harnessing stable market based finance for development but has been greatly under-utlized in recent years • Lessons from Climate Investment Funds • Complementarities between DAC and non-DAC financing • Time to resuccitate bilateral loans? • Synergies extend beyond leverage and concessionality

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