The North American Development Bank
Updated June 18, 2020
The North American Development Bank
Introduction
maintain higher capital adequacy ratios than other MDBs.
The North American Development Bank (NADB) is a
NADB financing is also more concentrated than other
binational financial institution created and funded by
MDBs, because, by mandate, projects are geographically
Mexico and the United States. The NADB provides loans
constrained to the border region and targeted in specific
and grants to public and private entities for environmental
sectors. The proposed capital increase has also raised policy
and infrastructure projects on both sides of the U.S.-Mexico
debate about the future of the NADB more broadly. Some
border. Modeled after the multilateral development banks
analysts question the continuing need for NADB financing
(MDBs), such as the World Bank, the NADB has a unique
two decades after NAFTA was created, and whether it is
environmental focus and is the only development bank that
crowding out private sector financing. Other analysts argue
also finances projects in the United States.
that the NADB is critical to supporting needed
environmental and infrastructure projects in the border
Origins and Mandate
region that would not be otherwise funded by private
The NADB was created under the auspices of the North
investors. Some analysts further call for the NADB to
American Free Trade Agreement (NAFTA) in 1994,
expand its activities beyond the border region and to all of
through a binational side agreement between the United
Mexico.
States and Mexico. It was created to address some
policymakers’ concerns that NAFTA could worsen
Lending
environmental conditions in the border region as economic
During the Bank’s early years, much of its lending capacity
activity increased. The NADB’s financing activities
was underutilized. In the Bank’s first decade (1994-2004),
initially focused on projects related to water supply,
outstanding loans remained below $100 million. In 2000,
wastewater treatment, and municipal solid waste disposal.
the NADB Board expanded the range of projects that the
In recent years, the NADB expanded its financing activities
NADB could invest in beyond water and solid-waste
to include air quality, such as financing the development of
management into a wide range of environmental
wind farms for the generation of electricity.
infrastructure projects. In 2004, President George W. Bush
signed legislation (P.L. 108-215), that authorized the
NADB-eligible projects must be located within 100
NADB to expand its geographic jurisdiction and make
kilometers (about 62 miles) north of the U.S.-Mexico
grants and non-market rate loans out of its paid-in capital
international boundary in the U.S. states of Texas, New
resources with Board approval.
Mexico, Arizona and California, or within 300 kilometers
(about 186 miles) south of the border in Mexico. Projects
Figure 1. NADB Outstanding Loans: Over Time and
beyond these limits may be deemed eligible under certain
By Sector
conditions and subject to approval by the NADB’s Board of
Directors.
Funding
In January 2015, then-President Obama and Mexican
President Enrique Peña Nieto agreed to s upport a doubling
of the NADB’s capital base, from $3 billion to $6 billion,
subject to the necessary legislation and availability of
appropriations. The proposed capital increase requires an
additional $450 million in paid-in capital and $2.55 billion
in callable capital, split equally between both countries.
Both countries have pledged to take their individual paid -in
capital to a total of $450 million by 31 December 2022.
Like other MDBs, callable capital may be called if and
when required to meet the Bank’s debt or guarantee
obligations, subject to certain procedural requirements, and
may not be used to make loans. The NADB leverages its
position by issuing debt in international capital markets.
The capital increase is motivated by the Bank’s substantial
Source: Created by CRS from NADB Annual Reports.
increase in lending over the past five years, which has
strained its capital adequacy ratios. Additionally, a change
in credit rating agency methodology requires the NADB to
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The North American Development Bank
NADB approved $138.1 million in financing in 2018. This
implementation, the BECC focuses on technical,
included $131.7 million in loans, $4.1 million in grants, and
environmental, and social aspects of project development.
$2.3 million in technical assistance. Since 2011, NADB
Before a project can be financed by NADB, it must be
loans increased sharply through 2016 due to substantial
certified by the BECC as technically and financially
growth in wind and solar investments, declining moderately
feasible. The NADB and BEEC are governed by a ten-
in 2017 and 2018 (Figure 1). According to Moody’s,
member Board of Directors with equal U.S. and Mexican
consolidation in the renewable energy sector led to lower
representation on the Board. The chairmanship alternates
interest costs and greater availability of financing
between the United States and Mexico each year. All
alternatives. As a result, firms that had borrowed from the
powers of the NADB are vested in the Board of Directors,
NADB were able to secure alternative financing and prepay
which determines policy and approves the Bank’s programs
their outstanding NADB loans. Energy sector and
and financing proposals involving NADB funds.
environment sector loans recovered in 2018. Environment
sector loans, however, have continued to decline.
U.S. Legislative Action
In FY2016 and FY2017, the Obama Administration
In recent years, the Bank’s portfolio has become
requested authorization for U.S. participation in the capital
concentrated in wind and solar energy projects. In 2018,
increase, up to $1.5 billion to meet the U.S. share
wind and solar loans accounted for 77% of the NADB’s
(contributions were pledged to be split evenly between the
outstanding loan portfolio. Public transport, by contrast,
two countries). While recent appropriations bills have
accounted for only 3% of the outstanding loans.
provided some funding toward the U.S. contribution to the
NADB capital increase, they have not included the requisite
While the NADB provides loans to nine of the ten states
authorization for U.S. participation. Specifically, the
allowed by its mandate, the top three s tates in which it
Consolidated Appropriations Act, 2016 (P.L. 114-113) did
lends, Texas, and the Mexican state of Tamaulipas, account
not include the requisite authorization language for U.S.
for 58% of the NADB’s portfolio (Figure 2). In total,
participation in the capital increase. It did, however, allot
56.2% of outstanding NADB lending is in Mexico,
$10 million for paid-in capital and $255 million for callable
compared to 43.8% in the United States. According to the
capital to the NADB to remain available until expended.
Bank, NADB lending in Mexico covers a broader area of
sectors than in the United States, where borrowers have
On January 3, 2019, a bipartisan group of Texas
more financing options.
representatives introduced H.R. 132, the North American
Development Bank Improvement Act of 2019. In addition to
Figure 2. NADB Outstanding Loans, Millions of USD
authorizing U.S. participation in the capital increase, the
bill directs the executive branch to pursue various policy
reforms. These include targeting certain sectors, such as
natural gas and construction of new international land
border crossings. In addition, the legislation seeks to require
the NADB to “develop and implement efficiency
improvements to streamline and accelerate the project
certification and financing process. These measures were
incorporated in H.R. 5430, the United States-Mexico-
Canada Agreement (USMCA) implementation bill, which
was signed into law on January 29, 2020 (P.L. 116-113).
The USMCA legislation authorized U.S. participation in the
capital increase and appropriated the remaining amount of
U.S. paid-in capital toward the capital increase. However,
the legislation did not include authorization for the Unites
States to subscribe to additional callable capital. The FY
2016 appropriations act included a program limitation to
subscribe to up to $255 million in callable capital, resulting
in a shortfall of $1.02 billion. The Trump Administration
has requested authorization for the remaining callable
Source: NADB Annual Report, 2018.
capital in the FY2021 international programs request.
NADB Governance Structure
The NADB works closely with the Border Environment
Martin A. Weiss, Specialist in International Trade and
Cooperation Commission (BECC), created concurrently
Finance
with the NADB. Originally separate entities, the two
IF10480
organizations merged in 2017. Whereas the NADB focuses
on project financing and oversight for project
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The North American Development Bank
Disclaimer
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https://crsreports.congress.gov | IF10480 · VERSION 8 · UPDATED