Now is the time to mobilize blended finance instruments

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Thierry Gouegnon/IFC

People across the globe are grappling with the many unknowns of the coronavirus pandemic (COVID-19). One thing is certain, though – in addition to the heavy human toll, the long-term economic impact will be significant, and the pandemic is already having a severe effect on trade, incomes, and jobs. Now is the time for governments, humanitarian agencies, philanthropists, multilateral organizations, and the private sector to use all of the tools at their disposal to mitigate this impact. 

IFC, the largest global development institution focused on the private sector in emerging markets, has already made available $8 billion to support private companies and their employees that are hurt by the economic downturn. Of this, 40 percent will be focused on lower-income countries – including those eligible for concessional financing from the International Development Association (IDA), the World Bank’s fund for the poorest countries.

While news headlines have largely focused on the impact in high-income economies, the poorest and most fragile countries will likely be hardest hit. With weak health systems, informal economies with limited steady jobs, poor housing infrastructure, and greater dependency on food imports, they face an uphill battle in protecting the health and livelihoods of their citizens.

Developing economies also have limited fiscal space to respond. On the eve of the crisis, half of all IDA-eligible countries were already in debt distress or at high risk of it, according to World Bank and IMF assessments. Bailouts that we see in high-income economies are unthinkable in most emerging and developing economies. IFC can do its part to help soften the blow by extending financing so its client companies can continue to operate and workers can continue to receive paychecks.

One way we will deepen the impact of our initial response in the poorest countries and crowd in more capital is through the strategic use of blended concessional finance. IFC and IDA have received approval from their Boards, which represent shareholder countries, to tap into the IDA Private Sector Window (IDA PSW) to support the first phase of IFC’s response.

The IDA PSW was established in 2017 to catalyze private sector investment in low-income countries, with a focus on fragile and conflict-affected states. Through its four facilities, it de-risks or “blends” this private financing with IFC investments or MIGA guarantees to support highly developmental private-sector investment.  These efforts complement IDA’s extensive support to governments for policy and business climate reforms.

Up to $400 million of IDA PSW resources will be allocated under IFC’s Global Trade Finance Program to fill a trade-financing gap in eligible countries that is now widening because of COVID19. Companies in the poorest economies are struggling to continue their operations and are in critical need of payment-term extensions on their trade transactions so that they can ensure employment and the flow of goods.

An additional $80 million of IDA PSW Resources will support IFC’s Real Sector Crisis Response Facility, which will work with existing clients in industries that are vulnerable to the pandemic, including infrastructure, manufacturing, agriculture and services. IFC will offer loans and guarantees to companies in need, and if necessary, make equity investments.

Blended concessional finance is an important tool to help de-risk and re-balance the risk and reward of investments that offer major development impact. And in this crisis, the IDA PSW will serve to help those who are most vulnerable—people who live in the world’s poorest countries and most fragile regions.

But blended finance should be used only on an exceptional basis – it should never be the rule and should not be used by organizations to conduct business that falls within their normal risk parameters. In recent years, blended concessional finance has been used to help open new markets and extend development impact.  In this period of extreme uncertainty, blended finance can help IFC support its clients’ continued economic activity, ensuring that progress is not erased and that they will emerge in good standing on the other side of the crisis  – continuing to provide jobs, goods and services, and domestic revenue for developing economies, including the most vulnerable ones.


Martin Spicer

Regional director for Latin America and the Caribbean at the International Finance Corporation

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