Financing for Development: Dialogue on Viable Alternatives

When, in April 2024, a United Nations (UN) report stated that development financing was at a crossroads, it was difficult to imagine that just over a year later the outlook would be even more complex. Since then, rising geopolitical tensions and the shift in the United States’ international relations have further contributed to a more troubled environment.

Meanwhile, the challenges remain. One only needs to look at the recent statement by the International Monetary Fund (IMF) in a document aimed at contributing to the discussion on the subject. According to the multilateral organization, “achieving the Sustainable Development Goals (SDGs) by 2030 is becoming increasingly unlikely.” The paper adds that the targets “would require financing that exceeds credible assumptions and surpasses what countries could absorb without creating further macroeconomic imbalances.” In just five key areas—education, health, road infrastructure, access to electricity, and water and sanitation—the IMF estimates a need for USD 3.5 trillion between 2025 and 2029.

A particularly critical aspect is the action needed to contain climate change, especially after the World Meteorological Organization confirmed that last year was the warmest since reliable records began. The 1.55-degree Celsius increase over pre-industrial average temperatures confirms that the scenario experts feared is now a reality.

The above does not ignore the fact that in forums such as the COP29 Climate Change meeting, held in Baku last November, a new collective goal of USD 100 billion in financing was adopted, with plans to triple that amount by 2035. Particularly critical for Latin America is the need to mobilize USD 200 billion annually for biodiversity by 2030, of which USD 30 billion would come from international financing.

However, beyond good intentions, reality tells a different story. In fact, apart from the fact that some consider the commitments insufficient, many of them have gone unfulfilled, partly due to bottlenecks both in the sources of funding and in the absorptive capacity of potential recipients.

Because of this situation, and in contrast with the enthusiasm that once surrounded the achievements of the Millennium Development Goals, the current sentiment clearly borders on discouragement. Returning to the UN, nearly half of the 140 concrete targets set under the SDGs are not on track and are projected to be missed.

As is often the case, there are multiple explanations, and it is worth exploring some of them. Doing so is essential because, amid the harsh diagnosis, it is necessary to find ways to alleviate the plight of hundreds of millions of people living in desperate conditions, and to close the income and opportunity gaps that make this world an even more challenging place.

Uphill Battle

Even if achieving the proposed goals was a challenge from the outset, the truth is that global conditions have worsened in recent years. Several major shocks have increased the obstacles that countries must overcome—even just to maintain relative normalcy.

Without a doubt, the hardest hit came with the pandemic. In addition to the nearly 15 million people who lost their lives to COVID-19 by the end of 2021, the health emergency disrupted the rhythm of life across the globe. From the perspective of mobility, mandatory and voluntary lockdowns affected the daily lives of billions of people, causing major disruptions—especially in urban areas. In Latin America, where nearly 80% of the population lives in municipal centers, the impact was most pronounced on households reliant on informal work, and was linked to the rapid spread of the virus and higher mortality rates.

Economically, the crisis forced governments to take on extraordinary spending. This began with the purchase of face masks, ventilators, and the conversion of hospital rooms into intensive care units. Next came the urgent procurement of vaccines in a market where sellers had the upper hand. These efforts were complemented by aid programs for vulnerable households and businesses, in an attempt to protect formal employment. While responses varied widely, in general they added considerable pressure to national budgets.

The abrupt economic standstill also triggered an unprecedented contraction, which in turn slashed government revenues. As a result, public deficits soared and debt burdens rose significantly across all five continents.

As if that weren’t enough, the road back to normalcy was anything but smooth. On one hand, reopening occurred unevenly, creating bottlenecks in the supply of primary goods, intermediate products, and manufactured items. On the other, Russia’s invasion of Ukraine on February 24, 2022, caused further complications—particularly in the supply of oil, minerals, fertilizers, and grains, among others.

This confluence of unexpected events led to a sharp spike in inflation, which in the Global North reached around 10% annually by mid-2023—the highest average in four decades. For many countries that are net importers of food, the rising costs of fuel and food became another source of social tension and fiscal strain, as governments were compelled to subsidize essential goods and services.

Beyond all this, trade tensions have now resurfaced. The unilateral imposition of tariffs by the United States has cast doubt on the stability of the international trade system. Beyond the ongoing bilateral negotiations and recent agreements between Washington and other capitals, existing paradigms have been replaced by uncertainty.

All of this impacts global economic performance. According to the IMF, global growth in 2025 is projected at 2.8%—half a percentage point lower than the forecast made last January. While the figure could rise to 3% the following year, it would still fall well below the 3.7% annual average recorded between 2000 and 2019.

That being the case, the outlook is far from promising at the moment. According to the IMF, “depending on their individual circumstances, developing economies may be affected through various channels, including new tariffs, cuts in official development assistance from major donors, pressure on commodity prices due to slower growth (with some tending upward), tighter international financial conditions, and exchange rate fluctuations—all of which add to long-standing challenges.”

The Options

Such a backdrop might suggest that the Financing for Development Summit in Seville (Spain) will struggle to achieve meaningful progress—especially in light of the Action Agenda agreed upon in Addis Ababa (Ethiopia) a decade ago. As noted in the report prepared for the meeting by the International Commission of Experts on Financing for Development, “the much-heralded transition from ‘billions to trillions,’ which envisioned that public finance and interventions would leverage large amounts of private investment for the Sustainable Development Goals, never materialized.”

Compounding this is the weakening of the architecture that supports international rules and institutions. As more nations sideline written rules and prioritize national interests over consensus-based solutions, the path for collective action becomes increasingly difficult. Geopolitical tensions, declining security in numerous parts of the globe, environmental degradation, migration pressures, and rising xenophobia all add to the list. On the social front, the fight against poverty is advancing slowly, while income inequality among individuals, countries, and regions within nations shows no sign of narrowing.

Giving up and losing hope might be the easiest response in such a difficult context. However, many believe that the current moment is precisely the right one to give renewed momentum to efforts aimed at closing the gaps between the Global North and South.

José Antonio Ocampo, who led the task force that drafted the experts' report mentioned above, is one such person. For the former Colombian minister, what is needed is a candid look at the obstacles in order to find viable solutions.

Among the tasks, “the most urgent issue is undoubtedly the management of debt distress affecting a large group of developing countries,” Ocampo writes. It’s not only about the size of the debt relative to each country’s economy, but also the high cost of servicing that debt, which tends to rise amid expectations of higher international interest rates.

Given the urgency of corrective action, Ocampo suggests that the solution lies in “a new emergency policy to renegotiate these debts.” The mechanism would be an expanded version of the Common Framework approved by the G20 in 2020—“broadened to ensure the participation of all creditors, speedier negotiation processes than those seen in the few African countries that have used it, and access for middle-income countries.” Responsibility for the process would fall to a permanent institution, potentially under the UN or IMF, with strict technical governance mechanisms. The proposal goes as far as to stress that “it would be advisable to improve the existing negotiation mechanisms in the international bond market, particularly collective action clauses and aggregation mechanisms.”

In addition, the expert group focuses on other fundamental issues. The agenda begins with international tax cooperation and the fight against illicit financial flows. The goal is to correct the inequities of a system that includes under-taxation of wealthy individuals, profit shifting by corporations to low-tax jurisdictions, and evasion enabled by tax havens, among other irregularities.

Equally important is to strengthen instruments that promote development cooperation. This includes the role of multilateral and national development banks, as well as the promotion of domestic bond markets. Alongside issues related to capital, solvency, and operational space, there’s an emphasis on working with the private sector and improving institutional coordination.

Lastly, the discussion must address official development assistance and concessional financing. A review of recent trends shows, in the task force’s view, a rise in geostrategic interests overriding the needs of populations that most require support. Given fiscal constraints, the solution isn’t necessarily more funding, but rather better implementation, alongside greater use of South-South cooperation and triangular partnerships.

Among the proposals, environmentally sustainable financing could not be left out. While it's true that criteria such as climate impact or effects on biodiversity are now more frequently considered, there is still a long way to go—both in terms of simplifying and strengthening the current system, and in correcting imbalances and mobilizing more resources.

The current environment may not be the most favorable for discussing issues related to trade, industrialization, or investment, but the conversation is unavoidable in a world where no one is fully self-sufficient. While the most intense debates may take place elsewhere, it should be clear in Seville that most countries understand the benefits of greater integration—something that must involve lowering barriers and taking advantage of comparative advantages.

Can positive outcomes be expected without falling into excessive optimism? Many experts agree that the answer is yes. Beyond the complex global context, there remains a willingness to engage in dialogue and mutual understanding in order to tackle challenges that are common to many.

This is not about constructing clichés, but about ensuring that development financing plays an increasingly central role in advancing global progress. Few investments yield such high returns from a collective human perspective as those that ensure a more equitable and sustainable future for the billions of people currently facing multiple hardships. The road is not easy, but that is no reason to lose motivation when the goal is a better present for all.

CAF, Present in Seville

The Fourth International Conference on Financing for Development (FfD4), which will take place from June 30 to July 3 in Seville (Spain), will address key issues such as accelerating the implementation of the 2030 Agenda and reforming the international financial architecture. For the first time, this summit—held under the auspices of the United Nations—will be hosted in a country of the Global North. Previous editions were held in Monterrey (Mexico), Doha (Qatar), and Addis Ababa (Ethiopia).

CAF –Development Bank of Latin America and the Caribbean– will participate with a broad and strategic agenda that combines its own initiatives with collaborative efforts alongside partners. In addition, it will host additional activities in a dedicated space (Royal Artillery Factory), enabling it to strengthen its institutional presence and promote a regional vision of sustainable development across the various facets of the conference.

On June 29, CAF will convene its Board of Directors in Seville. This governing body, composed of economic authorities from its shareholder countries, will hold a session of particular significance. The meeting aligns with the global debates of FfD4 and reinforces institutional governance at a pivotal moment for redefining the path of development financing in Latin America and the Caribbean.