By Erika Yarrow-Soden
The United Nations (UN) 2024 Financing for Sustainable Development Report: Financing for Development at a Crossroads (FSDR 2024), a joint product of the Inter-agency Task Force on Financing for Development, which comprises more than 60 UN agencies, along with other international organisations, says financial challenges are at the heart of the world’s sustainable development crisis. It finds that debt burdens and high borrowing costs are preventing developing countries from responding to the crises they face, and calls for a massive surge in financing, without which the Sustainable Development Goals (SDGs) will not be met.
With only six years to the 2030 deadline to achieve the SDGs, the urgency is now palpable. FSDR 2024 aims to find solutions to the development financing gap, which is now estimated at $4.2 trillion annually, up from $2.5 trillion before the COVID-19 pandemic. In addition to this funding deficit, rising geopolitical tensions, climate disasters, and a global cost-of-living crisis have impacted billions of people across the globe, thwarting progress on development targets.
Summit of the Future
The authors of FSDR 2024 point to the UN Summit of the Future, in September 2024, as a crucial opportunity to change course. This has the potential to set the tone in preparation for the Fourth International Conference on Financing for Development (FfD4), to be held in Spain from 30 June to 3 July 2025, for which UN Member States have been given an ambitious mandate to address the financing challenges that are halting progress. FSDR 2024 aims to inform and lay preparations for FfD4, highlighting four sets of overarching questions to be addressed:
- How can the conference help close the large financing and investment gaps, at scale and with urgency, and enhance the effectiveness of spending?
- How can the conference help close gaps in the international financial architecture and support international rules for trade, investment, and finance, that are fit for purpose for today’s challenges?
- How can the conference help close credibility gaps and rebuild trust in the global partnership and multilateralism?
- How can the conference help to formulate and finance new development pathways to deliver on the SDGs and ensure that no one is left behind?
While it is agreed that financial and funding stagnation is halting progress on delivering the SDGs, the authors of FSDR 2024 believe that by unlocking new financing mechanisms it is possible to turn the tide and get the SDGs back on track.
Commitments have not been met
While climate finance has grown over time, the commitment of $100 billion of climate finance per annum by 2020 agreed at COP15, and confirmed at COP21, is yet to be met. The latest assessment of the Organisation for Economic Co-operation and Development (OECD) finds that climate finance in 2021 amounted to $89.6 billion.
FSDR 2024 notes that this financial shortfall leaves vulnerable countries at increased risk, with insufficient funding for climate change mitigation and adaptation, impacting disaster risk reduction, and creating a vicious circle that prevents many countries from investing in resilience, which in turn makes them more vulnerable to climate shocks.
The report finds that hard-won development gains are now being reversed, particularly in the world’s poorest countries. If current trends continue, the UN estimates that almost 600 million people will continue to live in extreme poverty in 2030 and beyond.
Debt and borrowing
According to the report, debt burdens and rising borrowing costs are large contributors to the crisis. Estimates are that, in the least developed countries, debt service will be $40 billion annually between 2023 and 2025, up more than 50% from 2022.
It finds that stronger and more frequent climate-related disasters account for more than half of the debt upsurge in vulnerable countries. Extreme weather events have occurred more frequently over the past few decades, while their economic and social impact have become increasingly more pronounced. The poorest countries now spend 12% of their revenues on interest payments – four times more than they spent a decade ago. This sorry state of affairs finds roughly 40% of the global population living in countries where governments spend more on interest payments than on education or health.
FSDR 2024 concludes that the window to rescue the SDGs and prevent a climate catastrophe is still open but closing rapidly. It finds that the international financial system, which was set up at the 1944 Bretton Woods Conference, is no longer fit for purpose and proposes a new coherent system that is better equipped to respond to crises, scales up investment in the SDGs through stronger multilateral development banks, and improves the global safety net for all countries. Furthermore, it identifies that the most cost-effective actions to tackle growing humanitarian needs are those that are preventative, such as investments in disaster risk reduction, peace, and security.
The SDGs are not yet out of reach, but the perfect storm of global unrest, fiscal woes, climate change, and increasing incidents of natural disaster, will demand financial astuteness on a grand scale, if the SDGs are to be met by 2030. Smart decision-making and the swift adoption of new, effective, financial models will be the keys to success, along with the political will to make FfD4 count.
