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Wednesday, Oct 22, 2025

How Asian development banks help the poor face coronavirus while the rich fall short

The G20 group of wealthy economies are under fire from debt campaigners for failing to do enough to help poorer places face the pandemic. But the Asian Development Bank and the Asian Infrastructure Investment Bank have been delivering myriad loans to help struggling countries cope

The World Bank and debt campaigners have criticised the G20 group of wealthy economies that includes the United States, Britain and the European Union for falling short on help and assistance to poorer countries, pointing to the low amount of debt suspension.

Multilateral development banks (MDBs), including the World Bank, say they cannot be the ones offering debt relief as it affects their borrowings to lend to poorer countries. They have instead tried to help countries through loans and grants.

Over the last weekend, Finance Minister Mohammed Al-Jadaan of host Saudi Arabia told reporters after a virtual meeting of ministers and central bankers that the G20 would decide on extending the current suspension of debt repayments by the poorest countries towards the end of the year. Analysts saw this as a clear sign the world’s wealthiest countries were not planning to provide additional relief as the Covid-19 pandemic hurts economies around the world.


WHICH COUNTRIES ARE MOST AT RISK?

Those thought to be the most at risk are developing countries and emerging economies, especially those that were already indebted before the pandemic. In some cases, foreign debt payments took up as much as 40 per cent or more of the governments’ annual reserves.

Estimates from non-profit network Eurodad indicated that 69 of the world’s poorest countries were due to pay US$19.5 billion to other governments and multilateral institutions, and US$6 billion to external private lenders this year.

In March, the World Bank and the International Monetary Fund called on official bilateral creditors to provide immediate debt relief to the world’s poorest countries. They argued that reducing or postponing debt payments for the most badly hit countries would free up funds for the resources needed to tackle the pandemic and its resurgence.

According to the International Rescue Committee, some of the countries most at risk include Lebanon, which spends about 41 per cent of its revenue on debt service, and El Salvador, which spends 38 per cent. The Jubilee Debt Campaign put the figure at 29 per cent for South Sudan.


WHAT IS THE DEBT RELIEF OFFERED BY THE G20?

On April 15, the G20 announced the Debt Service Suspension Initiative (DSSI), an eight-month official bilateral sovereign debt payment suspension which allows 77 countries to suspend principal or interest payments on their debts to G20 members from May 1 until the end of the year.

Once the eight-month duration is up, the countries will have to pay the deferred principal and interest over three years following a one-year grace period.

The DSSI is expected to make US$14 billion available for use by struggling economies in tackling the Covid-19 pandemic, of which US$11.5 billion will be from official creditors, with the remaining made up by private creditors.

Even though all member countries have started implementing the DSSI, only 42 countries have requested help under the plan so far, leading to the suspension of US$5.3 billion in repayments.


THE WORLD BANK CRITICISED THE G20 BUT WAS IN TURN CRITICISED. WHY?

World Bank president David Malpass on July 18 criticised the G20 for not doing more on debt relief, and urged the G20 to extend the DSSI to the end of next year, calling it one of the key factors in strengthening the global recovery.

“We’ve made a great deal of progress with DSSI in a short period of time, but more needs to be done,” said the chief of the international financial institution.

Warning that debt burdens had become unsustainable for some countries, Malpass said the pandemic had triggered the “deepest global recession in decades”, and what might turn out to be “one of the most unequal” in terms of impact.

Gayle Smith, president of the One Campaign and previously a special assistant to then US President Barack Obama, said G20 leaders should be at the forefront of efforts to ensure multilateral institutions and private creditors were on board to support the world’s poorest countries.

“This is a missed opportunity to shorten the lifespan of the pandemic by addressing the liquidity crisis impacting the world’s poorest countries. G20 leaders – who have taken extraordinary steps to stabilise their own economies – could have stepped up and extended the debt standstill through 2021, but they chose not to,” Smith said.

However, in the lead-up to the G20, the international advocacy organisation also published a paper highlighting the World Bank’s failure to support a multilateral debt standstill, choosing instead to roll out new loans and grants that have resulted in what it called a “slower, less flexible and less effective pandemic response”.

One Campaign’s analysis showed that since the start of the pandemic, the international financial institution had received US$1.7 billion from the world’s poorest countries in debt repayments.

It noted that despite committing a similar amount (US$1.9 billion) in emergency funding to tackle the global pandemic, the latest public data showed that only US$250 million had been disbursed.

Pointing out that “it’s shocking that the World Bank is receiving more than it delivers to the world’s poorest countries while they’re weathering this crisis”, Smith said the US$1.7 billion in debt repayments could have bought 100,000 ventilators or 14 million Covid-19 testing kits.

“Yet as of the end of May, some of the poorest countries have paid back six times more than they have received in emergency support,” Smith said.

“By dragging its feet on debt suspension, the World Bank risks prolonging the life of the pandemic,” Smith said, adding that “business as usual won’t end the pandemic or its aftershocks”.


WHAT IS THE WORLD BANK’S POSITION ON DEBT FINANCING?

In recent months, the World Bank has rolled out new loans and grants to countries from Central Asia to Africa to help provide relief to vulnerable populations, promote faster recovery from Covid-19, and keep basic infrastructure such as water, electricity and telecommunication services running.

In a written reply to the South China Morning Post last week, the World Bank said its focus was on providing large net positive flows to the world’s poorest countries, and debt-suspension efforts on the part of MDBs would be harmful to these countries.
“MDBs depend on financial markets, and instability in the payment stream would have a negative impact on the flows to client countries,” the World Bank said, adding that its Covid-19 emergency assistance programme was its fastest and largest in its 76 years of existence.

According to analysis undertaken jointly by 10 MDBs and led by the World Bank, a debt-service suspension would have a much larger negative impact than the short-term gain from the suspension of payments.

The World Bank added that participating in payment suspension would come at a time when the International Development Association, the bank’s fund for the poorest countries, needed to be able to mobilise “as much resources as possible and to do so at the lowest possible cost”.


WHAT ABOUT OTHER MDBS?

Other MDBs such as the Asian Development Bank (ADB) and the Asian Infrastructure Development Bank (AIIB) have also delivered a myriad of loans and grants to struggling countries and economies over the past few months.

In April, the AIIB created the Covid-19 Crisis Recovery Facility to help affected economies overcome their immediate financial pressures and maintain critical long-term investments.

Over a period of 18 months – from April 2020 to October 2021 – the facility will offer US$5 billion to US$10 billion to public- and private-sector entities facing adverse effects from the pandemic.

In a written reply, the AIIB said it addressed countries’ emergency public health needs and provided the financing needed to preserve the productive capacity of sectors, including manufacturing, that have been hit by the pandemic. The latest assistance last week was a US$250 million loan to help Pakistan strengthen its response to the social and economic fallout from the Covid-19 pandemic.

On April 13, the ADB announced a comprehensive support package of US$20 billion to help developing members cope with the fallout of Covid-19. The Covid-19 Active Response and Expenditure Support programme is funded through the Covid-19 pandemic response option under the ADB’s Countercyclical Support Facility.

The ADB’s director general for Strategy, Policy and Review, Tomoyuki Kimura, said the bank’s main focus was to support government rescue packages, though the Manila-based institution also lends to the private sector by providing loans and guarantees to financial institutions.

“We also support microfinance and provide some liquidity support for small and medium-sized enterprises,” Kimura noted.
On debt suspension, Kimura said while a temporary suspension of payment might provide some temporary relief, this might not be the best approach in the long run.

“By not [suspending repayment], we keep our strong financial position, go to the market, raise cheap funding and give them additional funding.

“Collectively, the MDBs conclude that our role should not be to suspend repayment. Rather, our mission in this crisis is to provide additional liquidity in various forms,” Kimura said.


KEY CONSTRAINTS

In the light of the pandemic, monitoring the progress of the loans and grants has been difficult for the MDBs due to limited “boots on the ground”, a constraint that AIIB president Jin Liqun spoke of in an interview with Euromoney in April. Then, Jin noted that the challenge was to find new ways to keep in touch with clients and counterparts.

“We are [also] leveraging all tools at our disposal, such as technology or local consultants, to ensure that we undertake to the extent possible a robust due-diligence process,” AIIB said.

For the ADB, Kimura said it relied on its field officers and resident missions in client countries to undertake the overseeing.
But even so, he noted that assessing the impact of pollution of projects on the ground was sometimes “difficult or impossible”. This might sometimes lead to a delay or even a cancellation of the projects, especially if environmental and social safeguards could not be maintained, Kimura said.


WHAT LIES AHEAD?

Credendo country and sector risk analyst Raphael Cecchi said if the pandemic dragged on either as a result of second waves or the late discovery of a vaccine, the external debt sustainability of most vulnerable emerging economies would be badly affected.
The debt situation was the most acute for developing countries in Sub-Saharan Africa, Cecchi said.

“As for Asia, the biggest impact on already-high public external debt risks is mainly found in South Asia’s Pakistan, the Maldives and Sri Lanka,” Cecchi said.

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