No. 598 - Will multilateral development banks weather the Covid-19 crisis?

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by Raffaele De Marchi and Riccardo SettimoFebruary 2021

The paper provides an estimate of the impact of the COVID-19 crisis on the lending capacity of the main multilateral development banks (MDBs). For this purpose, it considers some scenarios that reflect the potential channels through which the crisis could lead to an erosion of the lending capacity, based on available capital buffers and while maintaining triple-A ratings. It also offers some policy proposals, with a view to safeguarding the role of MDBs in supporting the post-pandemic recovery.

MDBs' capacity to increase exposures, on aggregate estimated in the range of $860-896 billion, would grow to $985-1,020 billion, benefiting from the capital increases approved recently. Simultaneously, some potential factors - such as the foreseeable increase in lending due to the MDBs' countercyclical role, the deterioration in the ratings of borrowing and non-borrowing member countries, and the possible weakening of the preferred creditor status - could erode this capacity to $116-227 billion.

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