In answer to the call expressed within the Addis Ababa Action Agenda to mobilise all available resources –domestic and foreign, public and private– in support of the Sustainable Development Goals (SDGs), the Development Co-operation Directorate (DCD) develops a new work stream on transition finance to explore the evolution and interaction of public (official development assistance and other official flows) and private (foreign direct investments and remittances) sources of finance across the development continuum -studying multiple stages of development: low income countries, middle income countries, fragile contexts, and different regions of the world. Its ultimate objective is to advise the Development Assistance Committee (DAC) in preparing countries for transition (outlining the optimal financial mix and offering policy recommendations) and in building resilience.
Transition is the journey to sustainable development, and transition finance the financing of that journey. The analysis of transition finance focuses on the evolution and interaction of public and private sources of finance. The optimal transition finance mix is country specific. Nonetheless, lessons can be learned from the success and failure of certain countries to attract certain types of finance. The objective of this paper is therefore to develop a methodology for benchmarking, and provide initial conclusions of this exercise.
The working paper:
– Introduces the concepts of transition and transition finance, with a focus on external finance in particular from the perspective of the DAC.
– Raises the question of what happens with financing for sustainable development when countries transition.
– Suggests that the optimal transition finance mix is country specific.
– Expands the scope of transition finance analysis beyond the DAC. The emergence of new donors and their increasingly important role in financing development raises questions about the future of the DAC and its priorities.
These preliminary observations call for further research and observations, but already suggest that the dialogue with non-DAC members on transition finance should be further developed, and issues such as debt sustainability or the respective roles of DAC and non-DAC members in leaving no one behind (orphan countries and sectors or SDGs) should be reviewed.