Multilateral development banks (MDBs), chief among them the World Bank, were established to provide capital to developing countries that couldn't raise it at home or on affordable terms abroad. For decades, they filled that gap. But as more countries move from low- to middle-income status (according to the World Bank's classification), and the global financial environment becomes more challenging, the role of MDBs must evolve, too.
Consider India, where there is no longer an appreciable gap for MDBs to fill. In 1991, according to our calculations, external finance covered about 15% of the central government's fiscal deficit; by 2025–26, that figure had fallen to 1.5%. In the intervening years, the country's capital markets have deepened significantly to the point that domestic market borrowing now covers more than 70% of the deficit.
