Developing economies labeled as “blend” countries are paying far more to finance schools, power and health projects because they cannot fully access cheaper multilateral bank loans, a report finds. The research quantifies the extra cost and points to constrained concessional lending, donor shortfalls and bureaucratic drag that push nations toward pricier international bond markets. It also lays out technical fixes that could free up hundreds of billions in lending capacity without new donor checks.
The term blend countries refers to nations that sit between the poorest states and richer emerging markets, and they include Kenya, Ghana, Senegal and Bangladesh. These countries can tap both concessional and market-rate windows at multilateral development banks but often get stuck paying bond-market rates instead. That mismatch means infrastructure and social programs cost more, squeezing budgets and delaying needed projects.
The report estimates blend countries could have saved up to $20.8 billion over 2020-2024 if $40.6 billion of sovereign bond issuance had been financed through cheaper MDB lending windows. In practice, limited concessional volumes and rigid eligibility rules force many governments to sell bonds at higher yields to preserve access to markets and credit ratings. The net result is higher debt-service costs that reduce room for public investment in health and education.
International bond markets become the fallback not because countries prefer them, but because MDB finance is sometimes unpredictable and undersized. A survey of 650 officials across 125 countries found widespread demand for predictable, flexible finance, yet only about two-thirds felt development banks delivered that reliably. That gap drives governments to accept higher borrowing costs to maintain market access and reassure investors.
Problems inside the MDB system magnify the challenge: slow approvals, tight eligibility criteria and constrained replenishments limit what concessional arms can offer. The International Development Association is the main source of soft financing, and it relies on voluntary donations from wealthier nations. Cuts or delays in donor contributions translate directly into less concessional lending at a time when demand is rising.
“Every year that IDA is underfunded, every month that restructuring is delayed, every loan that is slowed down by bureaucratic processes adds up to resources that do not reach schools or clinics or power grids,” the authors said. That blunt assessment highlights the human cost of finance gaps: delayed projects mean missed health treatments, stalled school builds and slower electrification that hold back growth and resilience.
The report proposes practical measures to expand MDB lending capacity and speed up disbursements, including capital adequacy tweaks and operational reform. Notably, the G20’s Capital Adequacy Framework could create $300-$400 billion of new lending headroom by allowing banks to leverage capital more efficiently. Separately, recent moves from rating agencies could free another $600-$800 billion of lending potential without asking shareholders for fresh cash.
For blend countries, the stakes are immediate: cheaper, more predictable MDB finance would lower borrowing costs and free up resources for service delivery and long-term investments. Reform measures that improve predictability, streamline approvals and protect replenishments of priority concessional windows would reduce reliance on expensive bond issuance. If policymakers and donors act on the technical levers outlined, governments could redirect billions toward tangible development outcomes rather than interest payments.
