Century Bonds May Transform Development Finance Agency
Hannah Wanjie Ryder: Former diplomat, she is the CEO of the development consulting firm “Development Reimagined” and a senior fellow at the Africa Program at the Center for Strategic and International Studies.
Beijing — In recent years, the world’s poorest countries, most vulnerable to climate change, have presented one clear truth: the current development finance system in low- and middle-income economies is failing. At annual climate conferences and through notable reform efforts such as the Bridgetown Initiative, these governments have loudly and persistently called on wealthier nations to make greater effort and to do so more effectively.
However, a problem remains. While financing needs have increased, so has political resistance to “aid” funds. In donor countries, financial pressures, rising interest rates, and a growing nationalism have sacrificed development budgets. In this climate, traditional grants from donors—which remain predominant in financing multilateral development banks—have become politically toxic or financially burdensome.
If these factors are so restrictive, why not have wealthy nations loan money to multilateral development banks instead of donating? Or more precisely: Why not issue 100-year bonds at extremely low interest rates to these banks, allowing them to repay slowly, just as they do with their regular bondholders?
This idea is neither revolutionary nor unprecedented. When the British government abolished slavery in 1833, it committed to pay £20 million (roughly $27 million)—about 40% of its annual budget at the time—to “compensate” slave owners. To fund the program, the Treasury issued long-term government bonds that British taxpayers didn’t finish repaying until 2015—over 180 years later. To put this into perspective, today’s 100-year donor bonds worth $5 billion from the UK would equal only 0.3% of the current government budget.
If governments can provide loans for centuries to redress historical injustices, surely they can do the same to finance Africa’s future. Financially, the idea should be straightforward. Eventually, the funds will be repaid. After all, the budgets of multilateral banks such as the World Bank or the African Development Bank are strong, their credit ratings excellent, and cash flows from their loan portfolios stable. They are already borrowing from global capital markets; why can’t they also borrow directly—at favorable interest rates—from the very nations that keep pressing them to make more effort?
Imagine a wealthy country issuing 100-year bonds to a multilateral development bank at an interest rate of 0.1%. The bank could immediately deploy this capital to finance investments in infrastructure, climate resilience, education, and more. Unlike grants, however, the funds would be reimbursed over time. The initial financial cost would be negligible, and managing the political implications would be easier. Voters can be reassured that this is not charity, but investment.
Multilateral development banks would also benefit. They would acquire abundant, flexible capital that they can use to scale up lending without weakening their balance sheets or jeopardizing their credit ratings. If donor bonds are designed as secondary or hybrid capital, they could act like equity. For instance, large 100-year donor bonds issued directly for the African Development Bank could enable the bank to offer loans with maturities nearing 30 years or more to middle-income countries. Under the current situation, only low-income countries (at best) receive such terms, and only for relatively small projects costing less than $500 million.
Donor bonds structured this way could support development in ways simply not included under the current system. Currently, the African Development Bank’s capital and financing base limit the duration of loans it can safely provide. Due to funding constraints and risk management protocols, loans to middle-income countries tend to have shorter maturities (10-25 years) and higher interest rates (at least 4%).
Furthermore, differences in access to low-cost financing create barriers for cross-border projects involving a low-income country and another middle-income country. Often, mixed financing in these cases ends up being more costly for the low-income country than for a domestic project of the same size.
Thus, long-term donor capital—provided on a much broader scale than official development assistance grants—would bolster the African Development Bank’s balance sheet and reduce the cost of capital. This translates into more patient and stable financing for massive infrastructure, energy, and climate-related projects, particularly those that are cross-border. These are precisely the types of investments that take decades to yield returns.
For low-income countries, a more robust and responsive system run by multilateral development banks would mean greater financial capacity and less reliance on unpredictable capital replenishments—along with the ability to borrow alongside neighboring middle-income countries.
With this proposal in mind, my colleagues and I at Development Reimagined modeled a scenario where each G20 country contributes $5 billion in 100-year bonds to the African Development Bank. This total amount of roughly $90 billion would represent one of the largest capital injections in the bank’s history, increasing its paid-in capital by about 4.5 to 6 times and nearly doubling its lending capacity.
Such a massive increase in financial resources would change the game in Africa. It could lower the cost of capital on the continent (by improving the African Development Bank’s credit standing and reducing financing costs). It would also enable the bank to offer long-term loans to middle-income countries, filling a substantial gap in financing infrastructure and climate action. Additionally, it would support large and sustainable cross-border infrastructure projects requiring very patient capital.
By making this proposal a core part of the G20 agenda, South Africa could use its presidency of the group to send a strong message. This would not only demonstrate the global leadership urgently needed for climate and development financing but also help shift the narrative from reliance on aid to sustainable investment.
At a time marked by declining official development assistance (which remains important), we have the opportunity to transition from an unpredictable grant-making model to a sustainable, repayable, low-cost capital system that benefits donors, multilateral development banks, and recipient countries alike. The stakes have never been higher. South Africa must seize this opportunity.
