ADB and World Bank Sign $3 Billion Risk-Sharing Deal to Boost Lending Capacity

The Asian Development Bank (ADB) and the World Bank have signed a $3 billion sovereign exposure exchange agreement (EEA)—a strategic move aimed at enhancing ADB's lending capacity and strengthening financial resilience in the face of mounting global challenges.

The agreement marks the first-ever EEA between ADB and the World Bank, and ADB's sixth such arrangement with multilateral development banks (MDBs) since 2020. With this deal, ADB's total exchanged exposure now stands at $9 billion, a milestone that underscores the growing importance of collaborative financial innovation among development institutions.

"In an era of overlapping challenges, strategic collaboration among MDBs has never been more critical," said Roberta Casali, ADB's Vice-President for Finance and Risk Management. "Exposure exchanges can be transformative because they allow us to work together systemically, reduce concentration risk, and expand our reach precisely when our member countries need us the most."

What the Exposure Exchange Agreement Means

A sovereign exposure exchange is a financial risk management tool used by MDBs to diversify their loan portfolios and reduce concentration risk. It involves swapping exposure to specific sovereign borrowers with another MDB, creating a more balanced risk profile across different regions and income groups.

In practice, the exchange helps MDBs like ADB to:

• Free up capital that would otherwise be tied to large exposures in specific countries.

• Enhance lending capacity to extend more credit to developing members.

• Mitigate systemic risk by spreading exposure across multiple sovereign borrowers.

By exchanging loan exposures with the World Bank, ADB effectively reduces its capital usage for countries where its loan portfolio is heavily concentrated, creating new fiscal headroom to finance development projects elsewhere.

"This EEA with ADB demonstrates the World Bank's strong commitment to work hand in hand with other MDBs to utilize every opportunity to expand the overall lending capacity in the MDB sector," said Anshula Kant, Managing Director and Chief Financial Officer of the World Bank Group.

The approach reflects an emerging consensus among global development institutions that capital optimization and coordinated action are key to meeting the financing needs of developing economies amid overlapping crises — from climate change and conflict to economic shocks and debt stress.

Enhancing ADB's Financial Flexibility

The $3 billion EEA builds on ADB's broader efforts to modernize its capital management framework and mobilize new sources of development finance. In 2023, ADB revised its Capital Adequacy Framework, unlocking $100 billion in additional lending capacity over the next decade.

This additional financial space enables ADB to better respond to its members' needs, including:

• Climate adaptation and mitigation projects;

• Energy transition and sustainable infrastructure;

• Social protection and human capital development; and

• Private sector engagement through blended finance initiatives.

By combining the EEA mechanism with other financial innovations — such as hybrid capital instruments, guarantee products, and risk-sharing facilities — ADB is enhancing its ability to deliver flexible, high-impact financing across Asia and the Pacific.

"EEAs are not just technical risk management tools—they are catalysts for scaling development impact," said an ADB spokesperson. "By sharing risks with peer institutions, we create more room to finance growth, resilience, and climate action in our member countries."

MDB Collaboration: A Strategic Imperative

This agreement is part of a growing network of exposure exchanges among MDBs, reflecting a new era of interinstitutional collaboration. Since 2020, ADB has engaged in five prior exchanges with regional and global partners, including the African Development Bank (AfDB), the Inter-American Development Bank (IDB), and the European Bank for Reconstruction and Development (EBRD).

These mechanisms collectively help MDBs align with the G20's recommendations on optimizing balance sheets and scaling sustainable finance without requiring substantial new capital injections from shareholders.

By leveraging complementary balance sheets, MDBs can expand aggregate development lending by tens of billions of dollars, enabling faster progress toward the Sustainable Development Goals (SDGs).

"Through exposure exchanges and other capital efficiency measures, development banks are maximizing the value of every dollar of paid-in capital," noted Kant. "Such cooperation helps ensure we can deliver more impact in an increasingly resource-constrained environment."

Supporting Developing Asia Amid Rising Challenges

Asia and the Pacific face a complex set of economic, social, and environmental challenges—including slowing growth, climate vulnerability, food insecurity, and debt pressures. According to ADB estimates, the region requires $1.7 trillion annually in infrastructure investment through 2030 to sustain growth and achieve climate goals.

The enhanced lending capacity created by the EEA will allow ADB to scale its assistance to countries most in need, particularly small island developing states (SIDS), lower-income members, and climate-vulnerable economies.

ADB's recent initiatives include:

• Green finance and energy transition facilities to accelerate the shift from coal to renewables;

• Disaster resilience financing mechanisms to support quick recovery after natural catastrophes; and

• Social sector investments in health, education, and digital inclusion.

The Road Ahead

The ADB–World Bank agreement demonstrates how innovative financial engineering and inter-MDB collaboration can mobilize greater resources for sustainable development. By reducing concentration risks and freeing up balance sheet space, both institutions are better equipped to support their clients in navigating the polycrisis era—characterized by intersecting shocks from pandemics, climate change, and geopolitical instability.

ADB has indicated that it will continue exploring similar exchanges and partnerships to further strengthen its financial resilience and expand development impact.

"As global challenges intensify, our collective response must become more strategic and more united," said Casali. "Exposure exchanges like this are powerful enablers of shared prosperity across regions."

The EEA is a concrete step toward leveraging innovation for scale and solidarity, helping ensure that multilateral finance remains a cornerstone of global stability and inclusive growth.