While acknowledging the UN’s ongoing efforts to shape an ambitious development agenda, it is clear that previous Financing for Development Summits have faced implementation challenges. But as the global community continues to grapple with debt and systemic reforms in international finance, the next Summit, taking place from June 30 in Seville, Spain, is a critical opportunity to find innovative solutions in challenging circumstances.
In addition to the UN-endorsed document, stakeholders should commit to specific, measurable, and timebound contributions. The IMF, World Bank, development banks, private sector, and willing country coalitions should use this platform to pledge new commitments, ensuring broader ownership and accountability of the 4th International Conference on Financing for Development (FfD4).
The 3rd Preparatory Committee of the FfD4 left a disconcerting impression that we are following a conventional process in unconventional times. This Committee, the first to negotiate the outcome document – usually agreed upon by consensus – revealed a shift in geopolitical dynamics that could ultimately limit progress in the discussion. While the United States took a more reserved approach to multilateral engagement, China showed increased participation and interest in this international forum. Concurrently, the discussions confirmed ongoing challenges in bridging perspectives between developed and developing nations.
Debt stress is a key concern
The hottest issue, unsurprisingly, has become the increasingly acute debt stress facing many countries. To respond, the text will need to reflect that climate vulnerability increases debt burden, which in turn consumes fiscal space for interest payments, rather than development-related investments.
Overall progress on debt treatments has been too slow, and the process is not yet complete. The IMF, G20, and Paris Club need to act to provide liquidity support, while reviewing the G20 Common Framework to make it more efficient. Simultaneously, debtor countries should put forward sound, growth-enhancing multiannual national reform programs that promote debt sustainability.
This does not necessarily require new frameworks, but rather a resolute commitment to genuinely tackle the issues. Both the upcoming review of the low-income countries (LIC) debt sustainability framework by the IMF and the World Bank, to better reflect climate-related risks and opportunities, and the proposed dialogue between the Paris Club, official creditors, debtors, the UN, IMF, World Bank, and other relevant actors, present promising avenues for progress.
Opportunity to reform international finance architecture
Negotiations also revealed broad agreement on the need to increase the effectiveness of development banks to scale public climate finance.
However, a retreat from official development assistance (ODA) delivery and a lack of inclusivity at the international financial institutions are undercutting growth, security, and economic partnership – the agenda at the heart of these deliberations. The draft text is full of good ideas: re-channeling special drawing rights, more useful metrics for concessional finance allocation, ODA targets, and new levies to fund progress.
But calling for these reforms is a far cry from pledging to enact them by a certain date. As the delegate from Belize put it, “Recommendations without deadlines are empty promises.”
With contributor budgets tight and COP30 just around the corner, FfD4 presents an opportunity to reform the multilateral development bank (MDB) system and international finance architecture, especially if supported in parallel through the Baku to Belem Roadmap to $1.3T.
Pressure on private sector to act
The private sector’s role in development finance is recognized as essential. While there are opportunities through blended finance arrangements, including the development of a specific asset class, more can be done to improve public-private leverage ratios in the least developed countries (LDCs).
Regulatory changes must balance promoting financial flows towards LDCs, with safeguarding financial stability. Increasingly, it’s recognized that a strong transition in LDCs contributes to global financial stability and that failure to unlock finance could in and of itself be a driver of instability.
Therefore, technical tweaks in prudential regulation, such as reducing the cost of capital via more accurate credit risk assessments and premium would help. Stronger engagement with Credit Rating Agencies to promote best practices in assessing risks in emerging markets and in their treatment of development banks, as well as greater participation in data initiatives such as the Global Emerging Markets (GEMs) Risk Database Consortium, will also support action by regulators. The development finance system can act in the meantime to provide support through risk sharing instruments like guarantees.
Preparations for the FfD4 Summit are off to a promising start, with a draft document that surfaces all the right issues. Delegations now have until June to get from agreeing sustainable development finance solutions to a commitment to implement them.
