Hannah Ryder | Century bonds can transform development finance

In recent years, the world’s poorest and most climate-vulnerable countries have made one thing clear: the current system for financing development in low-income and middle-income economies is not working.

At annual climate conferences and through landmark reform efforts like the Bridgetown Initiative, these governments have been demanding – loudly and persistently – that richer countries do more and do it better.

But there is a problem. While financing needs have only grown, so has the political resistance to ‘aid’. In donor countries, fiscal pressure, higher interest rates, and rising nationalism have put development budgets on the chopping block. In this climate, traditional donor grants – which still dominate funding for multilateral development banks or MDBs – have become politically toxic or financially burdensome.

But if these factors are so constraining, why don’t rich countries lend to MDBs, rather than donating the money? Or more to the point: Why aren’t rich countries issuing 100-year, ultra-low-interest bonds to MDBs and allowing those institutions to repay them slowly, just as they do for their regular bondholders?

This idea is neither radical nor unprecedented. When the British government abolished slavery in 1833, it committed to paying £20 million (US$27 million) – equivalent to roughly 40 per cent of the government’s annual budget at the time – to “compensate” slave owners. To finance the programme, the treasury issued a long-term government bond that British taxpayers did not finish repaying until 2015 – over 180 years later. To put this in perspective, a US$5 billion 100-year donor bond from the United Kingdom today would be 0.3 per cent of the current government budget.

If governments can lend for centuries to overcome historic injustices, surely they can do the same to finance Africa’s future. As a financial matter, the idea should be obvious. After all, the money would be paid back.

MDBs like the World Bank or the African Development Bank, or AfDB, have strong balance sheets, triple-A credit ratings, and steady cash flows from their loan portfolios. They already borrow on global capital markets, so why can’t they also borrow directly – at concessional rates – from the very countries that are constantly pressing them to do more?

Suppose a rich country issued a 100-year bond to an MDB at 0.1 per cent interest. The MDB could immediately deploy that capital to finance investments in infrastructure, climate resilience, education, and more. But unlike a grant, the money would be returned over time. The upfront fiscal cost would be minimal, and the politics easier to manage. Voters could be reassured that it is not a handout, but an investment.

MDBs would win, too. They would receive abundant, flexible capital that they could use to expand their lending without diluting their balance sheet or jeopardising their credit ratings. If structured as subordinated or hybrid capital, donor bonds could function like equity. A large 100-year donor bond issued directly to the AfDB, for instance, could enable the bank to offer loans with maturities approaching 30 years or more to middle-income countries. As matters stand, only low-income countries (at best) receive such terms, and only for fairly small projects under US$500 million.

Donor bonds would support development in ways that are simply implausible under the prevailing system. The AfDB’s capital and funding base currently limit the length of loans it can safely offer. Owing to funding constraints and risk-management protocols, loans to middle-income countries tend to have shorter maturities (10 to 25 years), and higher interest rates (at least four per cent).

Differences in access to low-cost finance also create constraints for cross-border projects that involve a low-income country and a middle-income one. All too often, blended finance in these cases ends up being more expensive for the low-income country than a similarly sized domestic project would have been.

Thus, ultra-long-term donor capital – which could be provided on a much larger scale than official development assistance or ODA grants – would strengthen the AfDB’s balance sheet and reduce its cost of funds. And that would translate into more patient, stable financing for large infrastructure, energy, and climate-related projects – especially those that cross borders. These are precisely the kinds of investments that take decades to pay off.

As for low-income countries, they would benefit from a more robust and responsive MDB system – one with greater financial capacity and less dependence on unpredictable capital replenishments – and the ability to borrow together with neighbouring middle-income countries.

With this proposal in mind, my colleagues and I at Development Reimagined modelled a scenario in which each G20 member state contributed a US$5 billion 100-year donor bond to the AfDB. Totalling around US$90 billion, this would represent one of the largest capital injections in the bank’s history, increasing its paid-in capital by roughly 4.5 to 6 times, and nearly doubling its lending capacity.

Such a monumental increase in financial wherewithal could be a game-changer for Africa. It would cut the cost of capital on the continent (owing to the AfDB’s strengthened credit profile and lower funding costs). It would enable the bank to offer longer-term loans to middle-income countries, filling a critical gap in infrastructure and climate finance. And it would support large-scale, sustainable cross-border infrastructure projects that require very patient capital.

By making this proposal a central part of the G20’s agenda, South Africa could use its presidency of the group to send a powerful message. It would not only demonstrate the global leadership that climate and development finance so urgently need; it would also help shift the narrative from aid dependence to sustainable investment.

At a time of declining ODA – which does remain important – we have a chance to move from an unpredictable grantmaking model to a revolving, repayable, low-cost capital system that benefits donors, MDBs, and recipient countries alike. The stakes have never been higher. South Africa should seize the moment.

Hannah Wanjie Ryder, a former diplomat, is CEO of Development Reimagined and Senior Associate at the Center for Strategic and International Studies Africa Program.© Project Syndicate 2025www.project-syndicate.org