This article posits that it is essential to begin preparing the groundwork for stepped-up financial support to developing countries so they can best manage their response to the global crisis triggered by the Covid-19 pandemic.
- Multilateral development banks (MDBs) have the financial firepower to help developing countries face the impacts of the Covid-19 crisis.
- The major MDBs can expand lending by at least $750 billion (160% above current levels) while maintaining a AAA rating, or as much as $1.3 trillion (nearly triple current levels) if they are willing to risk a rating downgrade to AA+.
- Doing so requires rethinking MDB financial policy in light of the current emergency by including callable capital of shareholders rated AAA and AA+ in capital adequacy calculations, and by reforming or abolishing outdated statutory lending limits.
- Scaling up lending quickly does not require any additional resource contributions from shareholders, and it will not endanger the financial stability of MDBs.
- Shifting MDB policy and expanding lending to face the crisis should be done in a coordinated manner among MDBs, with the explicit support of the G20 and shareholders.
This publication is part of ODI’s series on coronavirus. It showcases emerging ideas and rapid initial analysis from ODI experts.