By Qudsia Bano

Closer cooperation between the Asian Infrastructure Investment Bank (AIIB) and the World Bank Group is creating new opportunities for infrastructure investment in developing economies, as the two institutions seek to expand co-financing, mobilise private capital and support major development projects at a time when high borrowing costs and limited fiscal resources are restricting public investment.

The renewed partnership, formalised through an updated memorandum of understanding signed on October 15 on the sidelines of the 2026 IMF and World Bank Group Annual Meetings in Bangkok, identifies water, digital development, private capital mobilisation and policy-based financing as priority areas for deeper cooperation.

The agreement builds on an established relationship between the two multilateral lenders. According to AIIB, it remains the World Bank's largest co-financier, reflecting the scale of their existing cooperation in financing development projects.

The partnership comes as developing economies face growing infrastructure requirements alongside fiscal constraints and high debt-servicing costs. By combining financial resources, technical expertise and risk-sharing arrangements, multilateral institutions can help governments undertake projects that may otherwise be difficult to finance through public budgets or commercial borrowing alone.

Maham Imran, Research Associate at Foundation Securities, told Wealth Pakistan that closer cooperation between major multilateral development institutions could help developing economies address the widening gap between infrastructure requirements and available public resources.

“Infrastructure projects generally require substantial upfront financing and long repayment periods. For countries already facing fiscal constraints and high debt-servicing costs, combining resources from multiple development institutions can provide an alternative to relying excessively on expensive commercial borrowing,” she said.

The updated agreement also reflects a broader shift in development financing, with multilateral institutions increasingly combining direct lending with guarantees, co-financing and private capital mobilisation to support long-term investment.

AIIB has expanded significantly since beginning operations in 2016. The bank currently has 111 approved members and authorised capital of $100 billion. Its approved financing commitments stood at $63.67 billion as of June 30, 2026.

The World Bank Group has also increased efforts to mobilise capital beyond its own balance sheet. In fiscal year 2026, the Group mobilised $112 billion in private capital, more than three times the $35 billion recorded in FY2022.

During the same fiscal year, it issued more than $25 billion in guarantees and delivered $123.5 billion through loans, grants, equity investments and guarantees.

Imran said the partnership could become particularly important in cases where multilateral institutions help reduce financial and operational risks that discourage private investors from participating in infrastructure projects in developing economies.

“The larger opportunity is to use development finance as a catalyst. If guarantees, co-financing and risk-sharing arrangements improve the financial viability of a project, they can make it more attractive to institutional and private investors that might otherwise remain on the sidelines,” she said.

World Bank figures indicate that private capital mobilisation in lower-middle-income countries increased from $14 billion in FY2022 to $37 billion in FY2026.

In upper-middle-income economies, mobilisation rose from $12 billion to $50 billion over the same period, while private capital mobilised across Africa increased from approximately $9 billion to $22 billion.

Guarantees are also becoming an increasingly important instrument in development financing. The World Bank Group Guarantee Platform issued $17.9 billion in guarantees supporting 110 projects across 32 countries during FY2026, representing an increase of 46% over the previous fiscal year.

Recent infrastructure projects demonstrate how cooperation among multilateral lenders can expand financing options and support large-scale development programmes.

AIIB provided a $500 million sovereign-backed loan for South Africa's Metro Trading Services Program, which supports improvements in water and sanitation, electricity and solid-waste services. The project is co-financed with the World Bank and forms part of a broader $3 billion programme led by the South African government.

In Georgia, the Trans-Caspian Transport Corridor project has a total cost exceeding $750 million. The World Bank Group is providing $372 million, while the remaining financing is being provided through co-financing arrangements involving AIIB and the Asian Development Bank.

Rashid Ali, founder of Economic Lens, told Wealth Pakistan that cooperation among development institutions could improve infrastructure investment by addressing weaknesses in project preparation and financing arrangements.

“Access to financing is only one part of the challenge. Many developing economies also struggle to develop projects that are technically prepared, economically justified and structured in a way that lenders and investors can evaluate with confidence,” he said.

Ali explained that combining financing with technical expertise, project appraisal and implementation support could improve the chances of infrastructure proposals progressing from planning to execution.

“Multilateral participation can strengthen project credibility because financing is accompanied by assessment, implementation support and risk management. That can be particularly valuable in transport, energy, water and digital infrastructure where investment requirements are large and returns often emerge over a longer period,” he said.

The updated AIIB-World Bank agreement specifically includes digital development and water alongside private capital mobilisation, indicating that future cooperation could extend beyond conventional transport and energy infrastructure.

The partnership also has direct relevance for Pakistan, where both institutions are involved in major infrastructure development programmes.

The World Bank approved financing totalling $375.9 million in July for the first phase of the Grid Stability Enhancement Project under the Boosting Energy Security through Transmission in Pakistan programme.

AIIB is separately proposing $92.5 million in sovereign financing for the same project, with its project documents identifying the World Bank as the lead co-financier.

The project aims to strengthen Pakistan's national electricity grid against operational disturbances, increase south-to-north transmission capacity, improve the utilisation of generation resources and modernise the country's transmission network.

Ali said such cooperation could become increasingly valuable for Pakistan as investment requirements expand across electricity transmission, transport, water and digital connectivity.

“For Pakistan, the potential benefit goes beyond securing an additional loan. Co-financing can help diversify funding sources, improve project structures and create conditions in which larger pools of private capital may eventually participate,” he said.

However, expanded cooperation among multilateral institutions does not automatically guarantee additional financing for every developing economy.

Imran said countries would still need credible project pipelines, transparent procurement processes, regulatory consistency and stronger implementation capacity to benefit from the growing availability of development financing.

“Multilateral institutions can reduce some financial and project risks, but they cannot replace sound project preparation. Countries that can present bankable infrastructure projects and demonstrate implementation capacity will be better placed to benefit from the expansion of co-financing,” she said.

The renewed AIIB-World Bank partnership reflects the growing importance of coordinated development financing, with multilateral institutions increasingly using direct lending alongside guarantees, co-financing and private capital mobilisation to support infrastructure investment.

For developing economies, including Pakistan, the opportunity lies in using these financing arrangements to develop viable infrastructure projects, attract additional investment and strengthen the foundations for sustainable economic growth.

Credit: INP-WealthPk