Developing countries still have to regain lost ground from the COVID-19 pandemic. The pandemic has put more countries at risk of debt distress, constrained their fiscal space and hampered economic growth. The war in Ukraine is exacerbating all these challenges. In this context, the “2022 Financing for Sustainable Development Report” identifies a “great finance divide” – the inability of poorer countries to raise sufficient resources and borrow affordably for investment.
The great finance divide leaves developing countries unable to respond to crises and invest in sustainable development. On average, developed countries use 3.5 per cent of revenue to pay interest on their debt, versus 14 per cent of revenue for the least developed countries. About 60 per cent of LDCs and other low-income countries are now assessed at a high risk of or in debt distress, double the 30 per cent in 2015. The Ukraine conflict is compounding stresses, through higher energy and commodity prices, renewed supply chain disruptions, higher inflation coupled with lower growth, and increased volatility in financial markets.
This 2022 Financing for Sustainable Development Report of the Inter-agency Task Force lays out recommendations to enhance developing countries’ access to financing for their crisis response, and for productive investments in recovery, climate action and the SDGs. Three key messages emerge from the Task Force’s analysis and inform recommendations across the Addis Agenda action areas:
First, financing gaps and rising debt risks must be urgently addressed. This includes raising resources from all sources of finance, as well as ensuring that these resources are spent well. Given short-term constraints, an increase in long-term sustainable public finance is needed. The international community also needs to step up efforts to address sovereign debt challenges;
Second, all financing flows must be aligned with sustainable development. Recent crises have once again highlighted the inter linkages between the social, environmental and economic dimensions of development. They have underscored the need to address climate change and inequalities head on to preserve economic prospects.Growth can, in turn, help to finance environmental and social action.This implies, for example, adjusting fiscal policies, addressing greenwashing, increasing climate finance and also rethinking incentives in the international financial system;
Third, enhanced transparency and a more complete information ecosystem will strengthen the ability of countries to manage risks and use resources well and in line with sustainable development. Better quality data is needed not only to enable monitoring and accountability, but also to support public and private sector planning and management, and financial integrity. Sovereign debt markets can also be more efficient with higher quality and more complete information.
More information: https://developmentfinance.un.org/fsdr2022