Opinion: In Sevilla, we can deliver a game changer for development finance

Five years from the 2030 deadline for the Sustainable Development Goals, we face a development crisis. Our collective ambition to eradicate poverty and hunger, combat catastrophic climate change, and achieve a sustainable future for all is at serious risk. The SDG financing gap has widened dramatically and is estimated at more than $4 trillion per year. This was before recent global setbacks: declining aid, escalating trade barriers, and a deteriorating economic outlook. The primary source of this crisis is a lack of long-term financing and investment. We must urgently reverse course. This is why the Fourth International Conference on Financing for Development, or FfD4, starting in Seville, Spain, at the end of this month, is so important. It presents a historic opportunity to renew the global financing framework for sustainable development. FfD4 is a chance to adopt concrete, actionable measures that bridge the financing gap, ignite a targeted SDG investment push, and reform the international financial architecture to make it fit for today’s challenges. The draft Seville outcome document, currently under negotiation by U.N. member states, sets out an ambitious package of actions toward these objectives. The investment push must focus on sustainable development impact. It must lower the cost of capital for low- and middle-income countries, recognize public leadership and a central role for public development banks, and mobilize private finance for impact on public purpose. It must be country-owned and -led, with countries defining their own investment priorities. A publicly led investment push would see LMICs strengthening their domestic resource base. FfD4 could establish an indicative target floor for tax revenue at 15% of gross domestic product, a ratio widely seen as a minimum floor below which it is difficult for a state to perform its functions effectively, while donors could commit to double their support for strengthening the systems for collecting and spending these resources. The international financial system must also tackle the burden of high borrowing costs. The Seville outcome could commit the international community to provide more debt swaps, credit enhancements, and other tools to enlarge LMICs’ fiscal space. Through the Seville outcome document, U.N. member states are considering strengthening public development banks significantly, in order to achieve sustainable development investment at scale. With constrained public budgets, these institutions offer the most powerful lever to scale up financing. One of the proposals under consideration is to triple the lending capacity of multilateral development banks. This includes strengthening collaboration among all development banks — national, regional, and multilateral — to leverage the entire ecosystem of institutions, as well as measures to recapitalize banks, including through rechanneling Special Drawing Rights. SDRs are an international reserve asset created by the International Monetary Fund to supplement the official foreign exchange reserves of its member countries. More and better-quality private investment is central to this investment push. Member states could lower barriers to private investment in LMICs by creating enabling environments and supporting robust pipelines of investible projects in areas such as infrastructure. Blended financing instruments can be used more by including guarantees, making investments more attractive for private investors while delivering development impact, and developing instruments to share risks and rewards fairly between public and private players. The FfD4 outcome also considers reform of the international financial architecture — the rules, systems, and multilateral institutions meant to ensure stability of the global financial system. Such reform would aim to: i. Lower the cost of borrowing for countries to help countries create the fiscal space needed to sustain the SDG investment push. ii. Better support countries during crises. iii. Make this architecture more inclusive. The draft outcome also proposes more systematic support to countries grappling with high borrowing costs and limited fiscal space. In 2024, more than 1.1 billion people lived in countries that dedicated 20% or more of government revenue on servicing external debt. And the cost of this debt is only increasing. In 2023, LMICs’ average interest rates of new lending from official creditors increased by 2 percentage points to over 4%, and interest rates on private lending reached an average of 6%. The draft envisages a revived debt reduction facility that would support countries in keeping debt service burdens manageable, facilitate debt swaps, and offer credit enhancements. This would tackle the shortcomings of credit ratings, including by focusing on long-term factors, reduced reliance on private credit ratings in regulations, and having an inclusive dialogue at the U.N. for emerging issues. Closing gaps in the financial safety net is another key priority. The draft proposes faster support for countries facing increasingly frequent shocks — on better terms, and with less onerous conditionality. A more inclusive architecture would better reflect LMICs’ priorities and needs. This includes: debtors in the debt architecture, recipients in the development cooperation architecture, and smaller economies in the international financial institutions. This is an ambitious agenda, and one that will take significant political will to deliver. But this is precisely what is needed. This moment calls for real political leadership to deliver on the promise of sustainable development for all.