A decade ago, leaders gathered in Addis Ababa to find ways to finance development and help it flourish across the globe. Hopes were high. In a week, the reckoning with reality begins.
Also in today’s edition: Critical but underutilized finance development tools such as guarantees and debt transparency.
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Many of the discussion topics haven’t changed in a decade: Mobilizing domestic resources. Attracting private sector investment. Committing official development assistance.
But the vibe between the Third International Conference on Financing for Development in Addis Ababa, Ethiopia, in 2015 couldn’t be any more different than the mood heading into the fourth iteration in Sevilla, Spain, next week.
Mahmoud Mohieldin, a United Nations special envoy, tells my colleague Elissa Miolene that Addis felt like “peak collaboration” on sustainable development. That may not be replicable in Sevilla, Elissa writes in her detailed breakdown of what did — and didn’t — happen between the two FfD conferences.
Those promised billions to trillions never materialized. ODA has plummeted, not risen, with the world’s seven richest countries poised to slash foreign aid spending by 28% next year. Illicit financial flows — from tax evasion to money laundering — continue to drain domestic resources from the global south. Foreign direct investment has dwindled to its lowest levels since 2005. And the issue of debt is now front and center.
“The financing landscape for development has been upended,” Indermit Gill, the World Bank’s chief economist, wrote in a 2024 opinion piece. “Since 2022, foreign private creditors have extracted nearly $141 billion more in debt-service payments from public-sector borrowers in developing economies than they have disbursed in new financing.”
Rising interest rates around the world are just one of the external forces that have buffeted low- and middle-income countries in recent years. They’re also still reeling from the ripple effects of the COVID-19 pandemic and Russia’s war in Ukraine.
“In 2015, there was this narrative that really it’s up to developing countries to get their own house in order, but we have seen in the decade since how much their ability to finance development depends on factors outside their control,” says Tim Hirschel-Burns of Boston University’s Global Development Policy Center.
“In 2015, development just looked much more attainable for developing countries,” he adds. “It was more of a positive moment, so it was easy for the parties to think that positive moment would last forever. And it really hasn’t.”
Read: What happened at the last FfD conference, and what has changed since?
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The idea of “billions to trillions,” coined by the World Bank, became synonymous with Addis. It was premised on the idea that small amounts of public money could catalyze larger flows of private cash. For example, if a multilateral development bank guaranteed to shoulder some of the risk of a project, it would entice private investors to come on board.
It hasn’t quite panned out that way, especially for guarantees — which is a wasted opportunity, according to Leslie Maasdorp, the head of the United Kingdom’s development finance institution, British International Investment.
“Guarantees are the most underrated, underutilized instrument in development finance,” Maasdorp said during a recent Devex Pro Briefing.
Guarantees offer protection against risks such as political instability, project failure, or borrower insolvency. This makes it easier for commercial banks and private investors to back infrastructure, energy, and social sector projects in low- and middle-income countries.
Despite their potential, guarantees only account for about 2% of total business across many of the world’s largest MDBs.
While billions to trillions never added up, the private sector will again be a focal point of the Financing for Development conference — by sheer virtue of the fact that public money is drying up.
Maasdorp laments that a new “inward-looking,” transactional model of development has set in since 2015.
“Now, unfortunately, we’re on a journey almost without maps,” he told us. “We don’t know what this final architecture of development will look like. … We should be making the case, in a new way, for why development is in fact necessary.”
Read: Are guarantees the most underrated tool in development finance? (Pro)
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To better understand a country’s debt outlook, you first have to have a good picture of what that debt looks like — but with ever-more complex borrowing arrangements in response to a tightening financing environment, it’s getting harder and harder to assess public debt exposures.
That’s according to the World Bank’s new report “Radical Debt Transparency,” which shows that only 25% of low-income countries disclose loan-level information on newly contracted debt.
“The rise of complex and often opaque financing arrangements such as private placements, central bank swaps, and collateralized transactions has further complicated reporting,” according to the report's press release, adding that countries are also turning to “silent” partial and confidential debt restructurings with select creditors, depriving markets of critical information.
“Recent cases of unreported debt have highlighted the vicious cycle that a lack of transparency can set off,” says World Bank Senior Managing Director Axel van Trotsenburg. “When hidden debt surfaces, financing dries up and terms worsen. Countries turn to opaque, collateralized deals. Radical debt transparency, which makes timely and reliable information accessible, is fundamental to break the cycle.”
ICYMI: Calls for overhaul of global debt architecture intensify ahead of FfD4 (Pro)
Saying goodbye is usually not easy. How you do it, though, often matters.
That’s certainly the case for global health institutions such as Gavi, the Vaccine Alliance argues Nelson Aghogho Evaborhene, a global health security expert specializing in governance, regional institutions, and pandemic preparedness.
“The distinction between a well-planned exit strategy and abrupt donor withdrawal is critical,” he writes in an opinion piece for Devex.
Gavi’s CEO Dr. Sania Nishtar has said that “while the aspiration is to put ourselves out of business, there is no timetable for doing so.”
Nevertheless, if Gavi or other institutions do decide to sunset, Evaborhene hopes it’s done in a thoughtful, responsible way. This includes exit strategies that “prioritize justice and partnership over expediency. Countries cannot be expected to absorb donor costs overnight. Instead, bridge financing from development banks and innovative mechanisms should cushion fiscal shocks, allowing gradual and predictable reductions in aid,” he writes.
“Decolonization is about equity, sovereignty, and partnership. It is a deliberate, collaborative process aimed at building sustainable systems with country leadership at the helm,” he adds. “Donor withdrawal, however, can look similar on the surface but is often motivated by nationalism, isolationism, or fiscal austerity — resulting in program disruptions and fragile health infrastructures.”
Opinion: If Gavi plans a ‘sunset,’ let it be a thoughtful transition
On June 3, the DAC-CSO Reference Group wrote an open letter to Carsten Staur, chair of the Organisation for Economic Co-operation and Development’s Development Assistance Committee, “calling for a fundamental overhaul of the global development architecture.”
Civil society organizations argued that “we cannot wait for the DAC with its exclusive membership to embark on another closed-door reflection exercise” and pushed for a new development paradigm “conducted under the auspices of the United Nations, the only fully inclusive and representative space where countries in the global north and south have an equal say.”
On June 13, Staur wrote back, stating that some of the issues raised were “slightly off the mark.”
“I agree that the international development cooperation landscape is undergoing significant changes. That was the very reason the DAC high-level meeting in March this year concluded that it was necessary to launch an ambitious — and inclusive — process to examine the implications of this changing landscape for international development cooperation,” he wrote.
“More will be said at the Fourth International Conference on Financing for Development in Sevilla in a few weeks’ time. As stated, this will not be a closed-door process; on the contrary. We aim for dialogue with a wide number of partners and stakeholders to get their perspectives and advice, and not least from partner countries. Needless to say, dialogue with civil society will also be an important element in this.”
Read: A response by OECD’s Carsten Staur to civil society open letter of June 3
ICYMI: Open letter to OECD’s Carsten Staur, on a new development paradigm
The U.N. Security Council convened an emergency session on Sunday, following U.S.-led strikes on Iranian nuclear sites, with Russia, China, and Pakistan demanding an “immediate and unconditional ceasefire.” [Al Jazeera]
A New York Times investigation into the chaotic 14-day dismantling of USAID revealed a process with no prior plan, with Trump officials framing safety and legal concerns raised by USAID employees as “insubordination” to justify eliminating the agency. [The New York Times]
The Gaza Humanitarian Foundation has requested $30 million from the Trump administration to continue its controversial U.S.- and Israeli-backed aid distribution in Gaza. [AP]
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