The U.S. administration on Feb. 4, 2025, released an executive order that, in addition to discontinuing support for certain U.N. organizations, will submit all international intergovernmental organizations to a review to determine if the U.S. should continue to support, potentially reform, or leave them. The review will take place within 180 days from the issuance of the executive order, its findings will suggest the course forward for each institution.

We rate nine of the Multilateral Lending Institutions (MLIs) with U.S. ownership that will fall under the review. Their U.S. shareholdings vary from 30% to 6.5%. Shareholder support is an important component of our ratings on MLIs, as many rely on continued capital contributions to effectively carry out their public policy mandate. In this article, we unpack how we incorporate that support and the possible ratings implications of a reduction or abolishment of U.S. backing.

Our base case is that the U.S. will remain supportive and is unlikely to withdraw from the institutions as we believe they are all engaging in activities that are aligned with the administration's stated foreign policy ambitions. Having said that, some might be subject to measures that direct their lending activity and curtail exposure to certain countries or objectives.

In the event that the U.S. withdraws from an MLI, we will consider the implications on its credit profile that could be negative, especially in cases where such a withdrawal would lead to a reduction in the MLI's activities, or where other shareholders prove unwilling or unable to step in.

Frequently Asked Questions

How do you factor in shareholder support for MLIs?

We account for shareholder support in our assessment of an institution's policy importance to shareholders. We assess the strength and stability of the relationship between the institution and its shareholders by looking at membership support over time. Supportive members are those that show that they are willing and able to provide additional resources as required. Conversely, we believe that previously supportive shareholders leaving or reducing their support could demonstrate a weakening of the MLI's importance to policy.

Support can take various forms such as committing paid-in capital to an institution, providing callable capital, or other types of financing such as guarantees or donor funds to augment the institution's policy reach. Historically we have typically focused on capital support which has been a critical component of many institutions ability to carry out their activities given their not-for-profit nature.

We typically attribute our strongest positive assessment to entities that:

• Have structural elements that strengthen their cooperative nature.
• Enjoy certain immunities and privileges due to their respective owners.
• Have a highly creditworthy shareholder collective that, over time, has demonstrated capital support, agreed on increases, and paid instalments on time, thereby allowing the institution to grow.
• Our view of shareholder support also accounts for the provision of significant guarantees for business expansions.

Conversely, entities would be considered to have weaker support where they didn't receive support or where support was uneven or not timely, especially if they are not able to generate their own capital to deliver their mandate.

In our view, larger shareholders play a more important role than smaller ones as they typically have a larger impact in any capital raising decision or the provision of other supportive measures.

How important is the U.S. as a shareholder for rated MLIs?

The U.S. is a shareholder in nine rated MLIs. It is typically the largest or second largest shareholder, and holds veto power at four of them. Many of these institutions were founded during the post-World War II era and are headquartered in Washington D.C.

Chart 1

The U.S. has also been a key partner for the creation of other, large regional institutions such as the Asian Development Bank (with Japan), and the European Bank for Reconstruction and Development (EBRD), to foster democracy and development in former Soviet republics. As far as we know, the U.S. has participated in almost all historic capital injections in those institutions in which it is a shareholder. During the previous administration of President Donald Trump (2017-2021), the U.S. agreed a $7.5 billion capital increase for the International Bank for Reconstruction and Development (IBRD). It also agreed to replenish the International Development Association (IDA) with $3.5 billion, under the IDA20 replenishment, and approved the seventh general capital increase of the African Development Bank (AfDB).

We believe that the U.S. has been key to the development of the MLI sector. Further, it continues to have a large role to play in the development of the institutions--and maintained that role during the first Trump administration.

Do you believe the U.S. will reduce support for MLIs?

Our base case is that the U.S. will remain supportive of the MLI sector, which help fulfill many foreign policy ambitions and have been a very important tool for creating bilateral relationships. In addition, retreating from the global multilateral asset class would leave room for others to step in. We believe that especially China, which has expressed discontent that its shareholding in the World Bank is too low, would be willing to step into any gap. Such an outcome would be at odds with the U.S. administration's strategy.

The executive order initiating the review targets all international intergovernmental organizations, including the MLIs, so it is not specifically targeting the sector. We note that incoming U.S. administrations typically conduct a review of U.S. membership in international organizations, though that isn't normally publicly announced. Given this administration's declared focus on aligning taxpayer funding to U.S. interests, a more public review of commitments to international organizations was not an improbable outcome--especially following the cessation of payments to two U.N. units and the pause in transfers to the U.S. Agency for International Development (USAID).

Reasons that we believe that support will continue include:

• MLI aid for developing countries is mainly in the form of loans and not grants. These loans are highly scrutinized for impact and social and environmental safeguards are plentiful, meaning there are very few inefficiencies in terms of project outcomes involving taxpayer funds. Significant scrutiny continues throughout the life of the loan and impact is measured and transparently reported. Inefficient use of taxpayer funds is one of the current U.S. administration's key agenda items and was cited in its decision to temporarily shut down USAID.
• Almost all MLI loans seek to improve living conditions and increase prosperity. This typically deters migration and radicalization and serves as a tool to align countries to Western democratic and governance standards, which has been a longstanding objective for the U.S. Such loans also tend to facilitate trade relations between MLI shareholders and the borrowing countries.
• Capital provided to an MLI can be utilized repeatedly, making it a more powerful tool than grants, which are disposed of at once.

Could the U.S.'s review result in changes to MLIs activities?

We don't rule out the possibility that the review will result in recommendations to some MLIs with regard to lending that should be avoided or reduced, or the discontinuation or reduction of some operations in pursuit of improved efficiency. We consider that the short timeline of 180 days for reviews could limit significant scrutiny of all institutions and might result in a focus on a selected few.

We also expect that pressure might increase on MLIs to accelerate progress in reducing lending to some countries. For example, in 2018, the capital increase for IBRD was approved on the condition that there would be increased differentiation in pricing and product offerings to client segments, such as lower and upper-middle-income countries, small states, and recent IDA graduates--with the goal of making loans more expensive for wealthier eligible countries.

MLIs tend to invest significantly in climate change mitigation efforts. Given that the U.S. has (again) pulled out of the Paris Agreement and the U.S. administration's statements regarding increased fossil fuel usage, efforts to increase "green" lending might be delayed or curtailed.

What are the credit quality implications for MLIs should the U.S. reduce its support?

Our current view of MLIs' credit profiles assumes continued shareholder support from the U.S. in the coming years. If the U.S., or any other major shareholder, were to limit support to MLIs, our criteria states that: "Conversely, previously supportive shareholders leaving or reducing their support demonstrates weakening policy importance," suggesting a negative action if any.

There is a difference in terms of relative impact on credit quality depending on whether there are delays in capital payment or, in a more extreme scenario, a full withdrawal from an institution. In addition, the size of the shareholding would have an impact on our analysis of the effect.

For example, in the event that the U.S. temporarily ceased payments in ongoing capital increases for the AfDB and IBRD, the impact is not likely to affect those institutions' ability to continue to execute their mandates, although their lending expansion could be curtailed.

The impact of the U.S. leaving an MLI will depend on the specific circumstances of the decision and the institution. We would therefore have to analyze all the details surrounding an exit and its potential to negatively affect an issuer's credit profile. That would depend, for example, on the withdrawal agreement and the capital impact, the relevance of U.S. withdrawal to the remaining shareholders, and the willingness of other shareholders to step in to safeguard the institution's policy mandate.

The only instance of a large sovereign recently leaving an MLI was when the U.K. was forced to leave the European Investment Bank (EIB) following the nation's withdrawal from the European Union (see "European Investment Bank Ratings Affirmed At 'AAA/A-1+'; Outlook Stable," July 28, 2017). In that instance, we believed that the financial arrangements were such that it would not impact the EIB's capital position. Those arrangements included the bank's reimbursement of the paid-in portion of the U.K.'s capital over 13 years, and the U.K.'s agreement to issue guarantees for the paid-in and callable capital covering risks from all assets until the lending portfolio outstanding at the date of withdrawal was fully amortized.

We did not lower the rating on the EIB as we considered that the bank's shareholders would continue to demonstrate a high level of support and that the U.K.'s withdrawal would not signify a weakening of the bank's value to EU member states or the EIB's policy relevance. That decision also reflected a repayment schedule that consumed less than 10% of the bank's annual profits and the presence of shareholders that were providing significant guarantees to expand lending under the European Fund for Strategic Investment (EFSI) program, which enabled the bank to continue its elevated disbursements and pursue its role as the main policy financing arm of the EU.

How would a departing member be reimbursed?

As far as we can tell, the procedure for leaving is similar in all institutions in which the U.S. is a shareholder. Any shareholder can leave but they will remain liable for the part of the granted loans that their capital, both paid-in and callable, supported prior to the date of their withdrawal notification. We believe that the part of a member's capital that would be reimbursed in the event of an exit would be limited to the paid-in portion, and not any retained earnings or any other reserves. We note one important exception at IFAD, where we understand that any member leaving would do so with no reimbursement at all.

Are other shareholders likely to step into the breach if the U.S. leaves?

The multilateral aspect of MLIs' roles is appealing to many sovereigns, as evidenced by the membership of these organizations. Some nations, and especially China, have expressed discontent with their shareholding in the IBRD, which they believe is below their share of global GDP. Independent of any U.S. actions, many sovereigns consider these institutions to be a very important forum and tool for furthering trade and development.

MLIs also play a central role in advancing private capital mobilization and helping sovereigns deliver Sustainable Development Goals that align them to the Paris Agreement. We therefore believe they are widely considered to be very useful institutions. In practice, that means that, should the U.S. leave (which is not our base case), forecasting the details of the reallocation of shareholdings will be difficult.

Related Criteria

• Criteria | Governments | General: Multilateral Lending Institutions And Other Supranational Institutions Ratings Methodology, July 26, 2024

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