Financing for development: at a crossroads

The challenge of finance is at the heart of the current sustainable development crisis. Yet financing also holds the key to turn our fortunes around. Only with a sustained investment push in the Sustainable Development Goals (SDGs) and ambitious reform of the international financial architecture can we hope to achieve the Global Goals by 2030. That is why the Fourth International Conference on Financing for Development (FfD4), to be held in Spain in June 2025, is such a big opportunity, and one that we cannot afford to waste.

Only 15% of assessable SDG targets are on track – and more than a third are either stagnant or going in reverse. Among those off-track are core commitments to poverty eradication and climate action. Current projections estimate that almost 600 million people will continue to live in extreme poverty in 2030, more than half of them women. Progress is woefully inadequate on climate action, with global greenhouse gas emissions still rising when rapid and deep reductions are needed.

Achieving the economic transitions needed to reach the SDGs will require investments at unprecedented scale. Unmet financing needs for SDG and climate action in developing countries are estimated to be in the trillions of dollars annually. Instead of closing these gaps, we see them widening amid a series of shocks and crises. The 2024 Financing for Sustainable Development Report estimates that financing gaps have grown from around USD 2.5 trillion before the COVID-19 pandemic to around USD 4 trillion now. The numbers are daunting – but the costs of inaction, both economic and social, are much larger. 

Progress since Addis Ababa

Nine years on from the SDGs’ adoption, financing needs remain particularly acute in many developing countries, which face higher costs of capital and significantly worse terms of access to financing. Poor countries pay twice as much in interest on their total debt stock as developed countries, despite having access to concessional financing facilities. Due to misaligned incentives, both public and private actors still invest in environmentally harmful activities and have not yet fully aligned their decision-making and financing with the SDGs.

At the same time there has been real progress across the financing agenda since 2015. Countries have strengthened their capacities to mobilize public resources domestically, concessional financing has increased alongside multilateral development bank reforms and updates to policies, and there is a clear uptake in private sector sustainable investing. But it is equally clear that these steps have not been enough to keep pace with rising needs amid a changing and less benign global environment.

Systemic risks, especially climate and disaster-related risks, have risen since 2015 – in many cases dramatically. There has been a sea-change in global macroeconomic and macro-financial conditions, with GDP growth rates in developing countries falling to just over 4% annually on average between 2021 and 2025, down from around 6% before the 2009 global financial crisis. Income, wealth, gender, and other forms of inequality, which are often perpetuated by financing policies, have become entrenched. Enormous technological change, digitalization in particular, is affecting all financing areas. And there are growing risks of fragmentation in the global economy. While some of these trends have created opportunities for development and financing progress, in totality they have put national financing frameworks and the international financial architecture under severe stress.

Today, many countries are faced with tight fiscal constraints and high risks of debt distress, with the median debt service burden for least developed countries almost quadrupling from 3.1% of revenue in 2010 to 12% in 2023 – the highest level since 2000. Private sector activity, a key driver of sustainable growth and development, has stalled in recent years as investment growth, trade, and technology diffusion has slowed. Structural changes pose new challenges for countries’ productive integration into the world economy, necessitating a search for new growth and development strategies. And while financial inclusion is a bright spot, financial and capital markets remain underdeveloped in many developing countries, with financial volatility contributing to a dearth of long-term investment.

An action plan for Spain

The window to rescue the SDGs and prevent a climate catastrophe is still open – but closing rapidly. United Nations Member States have given FfD4 an ambitious mandate to address financing challenges “in the context of the urgent need to accelerate the implementation of the 2030 Agenda and the achievement of the SDGs and to support reform of the international financial architecture.” To live up to this mandate and meet the challenge of the moment, the 2024 Financing for Sustainable Development Report has put forward four sets of overarching questions that need to be answered in Spain in 2025.

First, FfD4 must find ways to close large financing and investment gaps, at scale and with urgency. Building on the Secretary-General’s call for an SDG Stimulus, the conference should adopt a package of reforms that can help deliver the rapid scaling up of public and private investments in the SDGs. These reforms should contain actions across:

• tax
• private investment and blended finance
• concessional financing and development bank reform
• innovative financing instruments

Second, FfD4 provides a once-in-a-generation opportunity to support reform of the international financial architecture and support international rules for trade, investment, and finance that are fit for today’s challenges. The current architecture, despite efforts for reform, has not been able to sufficiently enhance countries’ resilience in a more crisis-prone world or enable access to financing on the right terms and conditions. The international community must also find ways to fully align trade, investment, and technology agreements and rules with sustainable development, so that countries can integrate productively in the global economy.

Third, the conference must help countries formulate and finance new development pathways to deliver the SDGs. There is an ongoing rethinking of economic development paradigms, not least the relationship between states and markets in achieving sustainable transformations. In a digitalizing global economy at risk of fragmentation, old models are no longer working. FfD4 should inform new national and international financing policy frameworks for sustainable development.

Finally, if the conference delivers on closing financing and architecture gaps, it can also help close credibility gaps and rebuild trust in global partnership and multilateralism at large. Public and private actors must move from rhetoric to action. The international community must meet commitments it has made on concessional financing and global governance reform, and must fully align domestic and international policy frameworks and investment allocations with commitments to the SDGs.