This follows the recent World Bank/IMF Spring Meetings of heads of international financial institutions leaders, finance ministers, and other leaders. These discussions are a timely opportunity to decide on urgent action to address the global crises we face.
Among others, the war in Ukraine, the resulting food and energy crisis, the effects of COVID-19, climate change impacts and rising global interest rates – all have contributed to increased hunger and poverty.
Many hard-hit developing countries have slow growth, high inflation, and unsustainable debt, which undermine development prospects and prevent them from investing in health, education, infrastructure, and the energy transition.
We recently released the Financing for Sustainable Development Report 2023: Financing Sustainable Transformationthe 8th report from the Inter-Agency Task Force on Financing for Development.
Given the scale and number of crises, it won’t be a surprise to learn that financing needs for the Sustainable Development Goals are growing. Unfortunately, development financing is not keeping pace.
Faced with food and energy shocks, there may be a temptation to concentrate resources on urgent short-term problems. But FSDR 2023 It emphasizes that delaying long-term investment in sustainable transformations would put the 2030 Agenda for Sustainable Development and climate targets out of reach and further exacerbate financing challenges down the line.
The Financing for Sustainable Development Report 2023 calls for: (i) a new generation of sustainable industrial policies to chart national green transformations; (ii) immediate international action to scale up development cooperation and SDG investments to support this investment boost, the SDGs, and climate action; and (iii) reforms to the international financial architecture that are needed to support this boost in investment, and to make the system more equitable and fit for purpose.
The possibilities of green industrialization
There is hope.
We have seen in recent years a sharp and swift uptake in new technology and in the transition to green solutions. Energy transition investments rose to US$1.11 trillion in 2022, surpassing fossil fuel system investments for the first time. The green economy has become the fifth largest industrial sector, totaling US $7.2 trillion in 2021.
A new green industrial age is not only possible, but it can be the breakthrough needed to bring the SDGs back on track. Industrialization has historically been an engine for progress. Sustainable industrialization—which would include low-carbon transitions—can lead to growth, job creation, technological advancement, and lay the foundation for poverty reduction and enhanced resilience. Industrialization must also be made equitable and sustainable, aligned with the SDGs, and deliver climate action.
Unfortunately, most developing countries are not yet able to benefit from the new technological advances. Many, especially least developed countries, have insufficient resources to invest in the needed transformations, including green energy and sustainable agriculture. Developing countries cannot make the necessary progress on their own, though their advancement would benefit all countries.
An SDG investment push
The international community must scale up investment to support sustainable transformations, the SDGs, and climate action. The push for greater investment is in line with the UN Secretary-General’s call for an SDG Stimulus, aimed at scaling up affordable long-term financing for countries in need by at least US$500 billion a year.
The SDG Stimulus calls on the World Bank and other multilateral development banks (MDBs) to massively expand lending and offer it in better terms. Development banks can do this through both increased capital bases and better leveraging of existing paid-in capital.
This includes urgently rechanneling special drawing rights through the MDBs, which can then leverage the impact by borrowing on capital, building markets on the model developed by the African Development Bank.
Debt challenges faced by developing countries are among the obstacles to progress. Already, about 60% of poorer countries are in or at a high risk of debt distress, twice the level from 2015. The international community must work together to urgently develop an improved multilateral debt relief initiative.
Reforms to the international financial architecture
Fixing the debt architecture is just one element of needed architecture reforms. The international financial architecture system, which guides how global funds are invested, is in a state of flux, with multiple reform processes taking place simultaneously.
We are undergoing the biggest rethink of our international systems since the Bretton Woods Conference in 1944. But unlike Bretton Woods, which was done as one under the UN umbrella, the current multiple reform processes are piecemeal, fragmented, and lack inter-institutional coherence.
From debt architecture to international tax norms, to trade rules, to revamping investment agreements, the reform processes must aim for a coherent international system that takes the Sustainable Development Goals and climate action fully into account. We must have targeted action to make the architecture fit for the purpose of serving the needs of the world, and developing countries in particular.
Failure is not an option
Given current trends, 574 million people – nearly 7% of the world’s population – will still be living in extreme poverty in 2030. Without urgent and scaled up action on sustainable development financing, the prospects for achieving the SDGs grow dimmer.
In fact, the already great gulf between developed and developing countries could widen to become a permanent sustainable development divide. It will take deliberate and coordinated action to ensure that reforms serve the needs of developing countries – and thus help deliver the SDGs. But it must be done.
There must be a recognition that we all share a common future as we share a common earth. With global financial assets of almost $500 trillion, there is no shortage of money. The world has the means: all that is lacking is the will.
Navid Hanif is a United Nations Assistant Secretary-General, and Acting Director, Financing for Sustainable Development Office, Department of Economic and Social Affairs. He is also the UN sous Sherpa to the G20 finance and main tracks.
The 2023 Financing for Sustainable Development Report: Financing Sustainable Transformations is a joint product of the Inter-agency Task Force on Financing for Development, which is comprised of more than 60 United Nations agencies and international organizations.
The Financing for Sustainable Development Office of the UN Department of Economic and Social Affairs serves as the substantive editor and coordinator of the Task Force, in close cooperation the World Bank Group, the IMF, World Trade Organization, UNCTAD, UNDP and UNIDO. The Task Force was mandated by the Addis Ababa Action Agenda and is chaired by Mr. Li Junhua, United Nations Under-Secretary General for Economic and Social Affairs.
A copy of the report is available at https://developmentfinance.un.org/fsdr2023.
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