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Sustainably bridging the infrastructure finance gap in emerging economies – are multilateral development banks the answer?

Low-and-middle-income countries (LMICs) desperately need sustainable critical infrastructure to drive forward their economic development. Unable to fund major infrastructure priorities through their own balance sheets, LMIC governments increasingly turn to international creditors to meet the funding gap. While most debt is financed by private creditors, bilateral debt finance casts the greatest shadow over the LMIC infrastructure financing landscape. LMICs increasingly find themselves burdened with infrastructure they do not need and cannot afford – due to a combination of often-termed ‘debt trap diplomacy’, failure to meet ESG and other infrastructure standards1, and the influence of geopolitical factors. With LMIC infrastructure needs rising to over $1 trillion per year, stronger partnerships between lenders and more innovative financing solutions will be needed to sustainably bridge the infrastructure funding gap.

Where is funding to LMICs coming from now?

Public and publicly guaranteed debt owed by LMICs rose to an estimated US$3.6 trillion in 2022, roughly 61 per cent of which is owed to private creditors (e.g. commercial banks). Multilateral creditors (e.g. the World Bank Group) come a distant second, making up around 23 per cent, with the remainder owed to bilateral creditors.2

While private creditors provide vital access to finance, debt servicing is often more costly and subject to more burdensome terms than borrowing through multilateral creditors.3 The Paris Club plays a key role in aligning many of the largest bilateral creditors on sustainable debt repayment solutions that are mutually beneficial to both creditors and LMICs.4 However, bilateral debt owed by LMICs to non-Paris Club members has grown significantly in recent years and now amounts to well over half of all bilateral debt. China is owed the greatest share of this debt5 as the world’s largest bilateral creditor to LMICs, and most visible presence in the global south infrastructure development landscape, notably through its Belt and Road Initiative (BRI) – recently celebrating its 10 year anniversary. This has given rise to concerns around debt sustainability and allegations of ‘debt trap diplomacy’ given the tendency of non-Paris Club lenders such as China to burden LMICs with collateralised lending – lending subject to conditions including in many cases guaranteed receipt of future shares of natural resources or other commodities.6 This is exacerbated by at times lower quality infrastructure, due to creditors observing lower social and economic standards and often engaging in large-scale importation of foreign construction labour and minimal investment in local communities.

What exactly is sustainable infrastructure, and why is it so important?

When we speak of sustainable infrastructure in this article, we mean built infrastructure that is “planned, designed, constructed, operated and decommissioned in a manner that ensures economic and financial, social, environmental (including climate resilience), and institutional sustainability over the entire infrastructure life cycle”7. Sustainable infrastructure development is core to the global sustainable development agenda – prioritised under Sustainable Development Goal (SDG) 9, critical to realisation of SDGs 6,7, 8, and 11, and a key driver of economic growth and poverty reduction.8

Multilateral development banks (MDBs) will be influential in sustainably bridging the infrastructure funding gap, and shifting the balance towards better quality infrastructure that LMICs both need and can afford. MDBs bring not only available finance on affordable terms, but also a commitment to sustainable development and experience convening technical expertise to support infrastructure development. Heads of MDBs recently reaffirmed their commitment to “to strengthen our collaboration and individual actions for greater impact” to overcome the challenges to economic development caused by “increasing debt levels and strained government budgets” globally.9 A renewed focus by MDBs on enhancing climate action, amplifying investment capacity and exploring innovative funding mechanisms extends to infrastructure development, and to supporting LMICs to deliver on infrastructure priorities aligned with their climate adaptation plans.

To effectively drive forward sustainable infrastructure development and bridge the gap, the UK and others will need to facilitate and leverage strengthened MDB collaboration, and multiply the investments and efforts of MDBs – following like-minded footsteps including partnerships between Australia’s Infrastructure Financing Facility for the Pacific (AIFFP) and the Asian Development Bank10, the G7’s Partnership for Global Infrastructure and Investment (PGII)11, and the European Union’s Global Gateway12. Strengthening partnerships with MDBs also presents an opportunity to influence how MDBs use available infrastructure finance, and the effectiveness of finance in meeting LMIC development needs.

It’s not all about the money…

… we continue to see a significant gap between available funding and a pipeline of feasible projects ready to be funded…

Advancing sustainable infrastructure development will require like-minded partners to do more than simply bridge the infrastructure funding gap. LMICs face a variety of complex demand and supply side barriers and constraints that deter responsible lenders and inhibit investment. A lack of policy, institutional and regulatory capacity is a major obstacle to effective infrastructure planning and the preparation and procurement by LMIC governments of ‘bankable’ projects. While there are a myriad of infrastructure priorities that are worthy of funding in principle, LMIC governments’ lack of capacity to sufficiently prepare projects – through rigorous planning, design, due diligence, procurement, feasibility study, and application of acceptable ESG standards – renders many projects too high risk for responsible creditors to consider. Essentially, we continue to see a significant gap between available funding and a pipeline of feasible projects ready to be funded. In this regard, effort and investment must prioritise capacity-building of LMIC governments through targeted provision of technical assistance to key institutions and the development of their human capital and expertise in infrastructure development. This will empower LMICs to take control and drive forward their infrastructure development agendas, unlocking greater investment on sustainable terms.

What is the UK Government saying about this?

…“more needs to be done to build a stronger pipeline of bankable projects, especially in low-carbon, climate resilient infrastructure”…13

The recently released UK Government White Paper on International Development14 provides a clear indication of the UK’s commitment to unlocking sustainable infrastructure finance and supporting the capacity building of LMIC institutions through an approach built on genuine and equitable partnerships. The White Paper states “more needs to be done to build a stronger pipeline of bankable projects, especially in low-carbon, climate resilient infrastructure”. Further, as part of the White Paper’s articulation of China’s role in the international development landscape, it underlines the UK’s commitment to “high quality, sustainable and poverty-focused concessional finance”, “developing LMIC capabilities necessary to make the most of all investment opportunities”, and its intent to draw on comparative advantage to act as an alternative to Chinese lending and investment predicated on “lower social and environmental standards”. The UK’s British Investment Partnerships toolkit will continue to act as a lever to drive investment in “clean green infrastructure and investments” and to help LMICs “avoid loading balance sheets with unsustainable debt”15– a continuation of its commitment underlined in the UK Government 2022 International Development Strategy.

Working in partnership with multilateral development banks

…the UK Government needs international development partners that bring credibility working with MDBs and other bilateral and private creditors globally, and strong ability to innovate in infrastructure financing…

Importantly, the White Paper clearly recognises the need for innovative finance mechanisms to sustainably bridge the infrastructure funding gap, including developing new vehicles to unlock and channel finance to LMICs – for example, through provision of guarantees to unlock finance while not burdening the UK’s ODA budget. Linked to this, it underlines the central role that MDBs will play, and the role of the UK and like-minded partners in enabling MDBs – for example, through implementing recommendations from the G20 Review of MDB Capital Adequacy Frameworks. 16The UK and like-minded G7+ countries should act in concert with the multilateral system in seeking to bridge the infrastructure finance gap on terms that LMICs can afford – central to providing a genuine alternative to the unsustainable debt proffered by less responsible creditors and a counter to non-Paris Club members acting in direct competition with MDBs (and in China’s case creating parallel lending architecture).17 To deliver on its priorities, the UK Government needs international development partners that bring credibility working with MDBs and other bilateral and private creditors globally, and strong ability to innovate in infrastructure financing – at the same time working within debt sustainability constraints, including the IMF-World Bank Debt Sustainability Framework.

Deloitte plays a leading role in bringing together multilateral, bilateral and private sector support to amplify investment in sustainable infrastructure development, including through our work across Africa, Europe, and Asia with The World Bank Group, African Development Bank, European Bank for Reconstruction and Development (EBRD) and ADB. Deloitte believes that investment in infrastructure can have a transformative impact on economies and societies, no more so than in LMICs. Delivering on this belief, Deloitte supports the Economist’s Infrastructure for Good (IFG) Barometer, a programme designed to explore what inclusive and sustainable infrastructure looks like and how to support its development.18 It identifies the combination of securing funding and developing societies’ capacity to prepare projects and spend funding effectively, among other factors, as critical to driving forward sustainable infrastructure development. With the ability to draw on deep infrastructure, transaction advisory, institutional transformation and capacity building expertise across our global network, and leveraging teams of international development specialists working with donors worldwide, Deloitte looks forward to working with the UK Government to ideate, design and deliver on its sustainable infrastructure development priorities.

Bringing it all together…

For too long, LMICs have been saddled with unsustainable infrastructure debt and left with low quality infrastructure they do not need and that is detrimental to their economic growth. Driving forward economic development in LMICs is dependent on working in partnership with these countries to meet their sustainable infrastructure needs. Bridging the funding gap through enhancing availability of infrastructure finance on affordable terms is pivotal to this, but must be coupled with the necessary capacity building to enhance LMICs’ ability to build their project pipeline, access infrastructure finance and effectively spend it. Bringing together the financial and human capital of UK and like-minded bilateral donors and international development partners in concert with MDBs – working in genuine partnership with LMICs – will be a key lever in empowering LMICs to develop high quality infrastructure they need and can afford, and providing a workable alternative to bad bilateral debt.

Coming soon…

Look out for the next release in the economic development chapter of our Deloitte International Affairs and Development #insight series.


Foreign, Commonwealth & Development Office, International Development in a contested world: ending extreme poverty and tackling climate change. A white paper on international development, November 2023

2The World Bank, International Debt Report 2022: Updated International Debt Statistics, Washington, D.C., Washington, DC: World Bank. doi:10.1596/978-1-4648-1902-5. License: Creative Commons Attribution CC BY 3.0 IGO

3See above, n2

4The Paris Club is an “an informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries”.

5China’s share in LMIC bilateral debt stocks exceeded 40% in 2021, according to the World Bank. See above, n2.

6Chen, Muyang, ‘China’s rise and the reshaping of sovereign debt relief’, International Affairs, Vol. 99 No.4 (2023), Royal Institute of International Affairs.

7United Nations Environment Programme, ‘Sustainable Infrastructure Investment’

8United Nations, ‘The 17 Goals | Sustainable Development’,

9The World Bank, ‘Statement of the Heads of Multilateral Development Banks Group: Strengthening Our Collaboration for Greater Impact’, statement published on 13 October 2023,

10Australian Infrastructure Financing Facility for the Pacific, ‘AIFFP signs co-financing arrangement with ADB for climate-resilient upgrades to Nuku’alofa Port, Tonga’, (29 September 2023),

11The White House, ‘FACT SHEET: Partnership for Global Infrastructure and Investment at the G7 Summit’, Government of the United States of America,

12European Commission, ‘ Global Gateway’,

13See above, n1.

14See above, n1.

15Foreign, Commonwealth & Development Office, ‘The UK Government’s Strategy for International Development’, (May, 2022),

16 See above, n1.

17See above, n6.

18Economist Impact, ‘Infrastructure for Good: Barometer – Benchmarking infrastructure ecosystems across 30 countries to identify the unique challenges, opportunities and priorities’,

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