If you take an unhealthy interest in development finance statistics, as I do, you’ll know all is not well in the state of Denmark.
The ambition of the Sustainable Development Goals — agreed in 2015 by the world’s governments to eradicate poverty and preventable diseases by 2030 — is simply not matched by the investments needed to achieve them.
Domestic resources in Africa are declining. In nominal terms, total revenue was $411 billion in 2017, a decline of $11 billion from the previous year, driven in part by reductions in resource revenues.
This is coupled with an alarming rise in the number of countries facing debt distress. Debt challenges are now faced in almost half of low-income countries. Although debt to GDP ratios have not reached the alarming levels of the late 90s, the rate of accumulation has been much faster and interest payments are comparable to the last debt crisis, reaching 10-15% of exports in sub-Saharan Africa in 2017. Developing countries have seen a 60% increase in the amount of service paid on debt in the past three years alone.
Aid too has flatlined, and while we haven’t seen declines in the overall figures, much aid is not targeted to those in greatest need. ONE’s own analysis shows that only a third of aid (36%) is gender-responsive; only a third (32%) is invested in health, education, and social protection; and less than a third (29%) goes to least-developed countries. In fact, donors spent $4 billion more of their aid budgets in their own countries than the poorest ones.
In response, some policymakers have sought to use aid to leverage private resources. But for all of the promises of an agenda that turns “billions to trillions,” evidence from the Overseas Development Institute — a think tank — suggests that every dollar invested in this way mobilizes on average $0.75 of private finance for developing countries, a figure that falls to $0.37 for low-income countries.
In Africa, these declining resources meet a population that is set to double by 2050. The ultimate impact is a significant reduction in per capita spending, affecting basic services such as health and education — and at a time when the worst effects of climate change are hitting the poorest people.
As finance ministers meet in Washington, D.C. for the World Bank and International Monetary Fund Annual Meetings, they need to consider a radical rethink of the development finance architecture.
A lack of investment in education and opportunities for young people in fragile contexts is at best myopic — at worst, gross negligence — for the costs of dealing with the consequences will be greater in the long term.
First, aid donors should target their spending to where it is needed most and spent in ways that are proven to have an impact. Those seeking to plunder aid budgets to fund domestic expenditures, R&D for climate change, or trade promotion should think again.
Second, we need a high-level solution to the looming debt crisis, on the scale of the Heavily Indebted Poor Country Initiative. The Paris Club should be more transparent and address the priorities of other lenders. China and private lenders to which much of the debt is owed should agree to new terms on the transparency of lending to sovereign states, as well as new arbitration mechanisms for those who cannot sustain their debt levels.
Finally, we need a dramatic shake-up of the global tax and anti-money laundering rules, rather than the incremental steps currently being taken by the G20, OECD, and others. This should deal with the corrosive banking and company ownership secrecy that allows the corrupt to evade tax, launder money, and undermine the fiscal sovereignty of countries — both rich and poor. But equally, we need a solution to the fundamental challenges of multinational taxation, particularly for the digital economy.
These issues aren’t easily tackled — they require multilateral cooperation and leadership at a time when attentions are elsewhere. But, much like inaction on climate change, kicking the can down the road will be much costlier in the long run.