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Making Development Finance Work Harder in a Changing Climate

Despite the clouds of uncertainty and existential crises, the recently concluded Spring Meetings of the World Bank Group (WBG) and International Monetary Fund (IMF) struck a notably solutions-oriented tone. The key takeaway was clear: in an era of declining development assistance and constrained funding, it is crucial to deploy both pragmatic and creative options to stretch every development-bound dollar.

The White House, a stone’s throw away from World Bank and IMF offices, cast a shadow over the weeklong proceedings. Some feared that the U.S., the largest shareholder of the Bretton Woods institutions, would reduce or withdraw its support, calling into question their very existence. There was inevitably palpable relief when, in the midst of the week, the U.S. announced it would continue to . Yet, at the same time, those in the aid community felt devastated when it came to light that the Millennium Challenge Corporation (MCC), the independent U.S. foreign aid agency, .

This was the latest signal in a broader shift: development finance is shifting away from grants and aid toward investments and private capital mobilization. While much of the discourse has centered on the U.S., this “is not only about one country,” as Ajay Banga, the President of WBG pointed out at  co-hosted by Harvard’s Institute of Politics and CID in March. , perhaps much more quietly, well before the cuts by the U.S. Earlier this year, the United Kingdom decided to . The mood in other parts of the world too is changing. Recipient nations of Gulf Cooperation Council support report that the era of easy or unconditional capital is over, with equity stakes and board seats now expected in return. Even in the U.S., while USAID and MCC face cuts, the government continues to support the Development Finance Corporation (DFC), which mobilizes private investment and delivers returns to U.S. taxpayers.

Getting More from Every Development Dollar

With limited concessional capital, maximizing impact is the name of the game. Some actors, like the Rockefeller Foundation, advocate for extending past solutions, namely decreasing the equity-to-loan ratio of the IBRD arm of the .

Nonetheless, other creative solutions are required. Blended concessional finance has been touted as one such option, a key focus of By strategically deploying small pools of concessional capital, development finance institutions (DFIs) can address specific investment risks, making previously unviable projects bankable and crowding in private capital. Panelists illustrated the flexibility of blended finance: for the Gates Foundation, it’s a tool to advance equitable health outcomes; for BlackRock’s Global Infrastructure Partners, it supports emerging market infrastructure.

Yet, scaling blended finance remains a challenge, chiefly due to a lack of transparency and data. Frederique Dahan of ODI Global noted the difficulty of accessing information on key deal terms, such as the level of concessionality, structural details, rationale for concessionality, and outcomes. Without such data, learning from experience and replicating effective models remains elusive. Institutions like IFC do publish some information but must balance transparency with the confidentiality of client data, as noted by Joon Park, IFC’s Global Head of Blended Finance. A possible compromise, Dahan suggested, is greater openness among trusted shareholders, perhaps a group of DFIs, rather than the general public.

Climate Finance: A Strategic De-Emphasis

A subtler form of “blending” is unfolding in the framing of climate and development finance.

While climate finance was less prominent in the official agenda than expected, this isn’t the time to write its obituary. The World Bank . The change is less about substance than style: emphasizing the development aspects of projects over their climate benefits.

The World Bank’s own one-word summary of the Spring Meetings, “jobs,” reflects this strategic choice of where to shine the spotlight. At the Harvard event, Banga clarified, “Don’t mistake climate to not be an integral part of development or jobs.” Projects that focus on “roads that don’t get washed away in a monsoon or heat-resistant varieties of seeds,” emphasize the nexus between climate and development.

This intersectional nature of development finance was on display at the WBG panel, “Driving Food Security and Jobs in Africa: The Transport Imperative.” Rania Dagash-Kamara, Assistant Executive Director of the World Food Programme, recounted a visit from USAID’s head to her team during a major food crisis in Sudan 25 years ago. Asked what they needed most, she answered simply: “roads”, to the chagrin of her boss, who wanted her to focus on food insecurity hotspots. Her logic was simple: “I have food rotting two states away and a famine this side – roads will fix this.”

Significant progress has been made since then, but the gap remains stark. Roughly 60% of rural Africa still lives more than two kilometers from an all-season road. This contributes not only to 37% post-harvest food loss but also to higher costs of transporting inputs and food—undermining both farming productivity and food security.

Holistic Approaches to avoid being Firefighter and Arsonist

Towards the end of the session, the panelists were asked about a single strategic solution. The takeaway, at least from Ricardo Viegas D'Abreu, Minister of Transport of Angola, is that there is no silver bullet. What is required is a “comprehensive approach” that spans various themes such as transportation, energy, private sector participation, technical assistance, technology, and much more.

This echoed a familiar refrain I heard at COP29 in Baku during a . There, Jiwoh Abdulai, Sierra Leone’s Minister of Environment and Climate Change, made a similar pitch for “integrated approaches that address multiple issues” whether it be coastal erosion or declining yields. As I reflected during a , global problem-solving too often resembles playing both firefighter and arsonist. Take agriculture: in our pursuit of food security, we embraced high-yield techniques that increased emissions, depleted water, reduced biodiversity, and degraded land.

To be sure, there are examples of comprehensive solutions underway. A “great” one is the a village-level project in India that’s helping farmers adopt greenhouse-based permaculture, alongside investments in fruit cultivation and anaerobic digestion. The initiative promises multiple goals: carbon sequestration, improved soil health, reduced use of chemicals and pesticides, and potentially higher farming productivity and outputs. Led by the Global Alliance for a Sustainable Planet (GASP), the project demonstrates how achieving ambitious, multi-faceted objectives requires holistic partnerships, such as with “greenhouse-in-a-box” startup Kheyti, reforestation charity SayTrees, rural development specialist Global Vikas Trust, and blended finance investing from Federated Hermes. While the stakeholders have different goals, “as they come together, the whole is bigger than the sum of the parts,” said Satya Tripathi, the Secretary General of GASP.

That the whole is greater than the sum of its parts is a lesson that should be heeded by those slashing aid and development budgets in pursuit of national goals. As that message sinks in, the rest of us practitioners must stretch increasingly scarce development dollars to meet multiple objectives at once such as boosting food security, addressing development challenges, and reducing environmental harm. This is partly strategic so that in putting out today’s fires we don’t ignite new ones for the future. In an ever-shifting political climate, it calls for tactical pragmatism, clear communication about what’s being accomplished, and the use of holistic, creative alliances to overcome financial barriers.

I am thankful to Fatema Sumar, Executive Director of Harvard’s Center for International Development (CID) and Wasim Tahir, Research Fellow at CID and the Belfer Center, for supporting my trip to the World Bank Group Spring Meetings as well as their helpful advice and insights. I’m grateful to Satya Tripathi and Anke De Boer, Secretary General and Chief of Staff, respectively, of the Global Alliance for a Sustainable Planet (GASP) for helping me learn from GASP’s incredible work, particularly around COP29 in Baku. I appreciate the Salata Institute for funding support to attend the World Bank Spring Meetings in April 2025 and the UNFCCC COP29 Conference in Baku, Azerbaijan in November 2024, and Oona Gaffney’s constant support. Views expressed are my own.