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Adam Fishman
Thematic Expert for 2030 Agenda for Sustainable Development (US)
18 April 2019
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SDG Knowledge Weekly: Public, Private and Blended Finance Update
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This week’s brief summarizes recent developments in the finance world around the 2019 Spring Meetings of the World Bank Group and IMF and the 2019 Financing for Development Forum.
OECD issued a summary of preliminary data for 2018 official development assistance.
The Overseas Development Institute published its findings on “unrealistic” expectations on blended finance to bridge the SDG financing gap.
This week’ SDG Knowledge Weekly looks at recent developments in the finance world, with the 2019 Spring Meetings of the World Bank Group and the International Monetary Fund (IMF) having been held from 12-14 April, in Washington, DC, and the 2019 Financing for Development (FfD) Forum underway from 15-18 April, at UN Headquarters in New York, US.
Launched at a press conference on 4 April, ahead of the Financing for Development (FfD) Forum, the ‘2019 Financing for Sustainable Development Report’ of the UN’s Inter-agency Task Force on Financing for Development (IATF) introduces “integrated national financing frameworks” to help countries align their financing policies with their strategies and priorities. While the report highlights progress in some countries and increasing interest in sustainable investment, it also notes that investment is falling in many countries and that 30 developing countries are at high risk of – or are already in – debt distress. In addition, the report flags that tax revenues are inefficient, inequality is on the rise, wage growth is at its lowest since 2008, trust in the multilateral system is eroding, and greenhouse gas (GHG) emissions grew 1.3% in 2017. The report therefore calls for “repurposing” the global institutional architecture to create a more sustainable global economy. A more detailed summary is available on the SDG Knowledge Hub here, and a summary of UN Deputy Secretary-General Amina Mohammed’s remarks at the report launch is here.
During the 2019 Spring Meetings, the World Bank hosted an event titled, ‘SDGs in Action: Integrating the SDGs into National Budgets.’ The event explored how countries can “cost out” finance gaps in achieving the SDGs, and discussed means of filling those gaps. Speakers included World Bank CEO Kristalina Georgieva, UN Deputy Secretary-General Amina Mohammed, and IMF Managing Director Christine Lagarde, among other development finance institution (DFI) heads and ministers of finance. A video recording is available at the above link, and SDG Knowledge Hub coverage of the Spring Meetings and their outcomes is here.
On international public finance, the Organisation for Economic Co-operation and Development (OECD) released preliminary data for 2018 official development assistance (ODA) in a note titled, ‘Development Aid Drops in 2018, Especially to Neediest Countries.’ The note highlights that foreign aid from donors in 2018 totaled USD 153 billion, calculated using a new “grant-equivalent” methodology. Under the old “cash-flow basis” methodology, 2018 ODA was USD 149.3 billion, down 2.7% in real terms from 2017. The OECD attributes the drop “largely due to less aid being spent on hosting refugees.” An interactive page containing the data is available on the OECD website, and coverage of the release is also available on Devex.
Investable governance is the capacity of government entities, their advisers and local institutions to develop strategic financing plans for their SDGs.
A post on the World Economic Forum (WEF) blog by Gavin E.R. Wilson, Co-Chair of the WEF-convened Global Future Council on Development Finance, identifies four ways by which “countries can finance their SDG ambitions.” The first entails moving from “funding” to “financing,” which amounts to a shift away from reliance on ODA and considers the holistic mobilization of additional public, private, domestic and international sources of capital. The second calls for “investable governance,” defined as “the capacity of government entities, their advisers and local institutions to develop strategic financing plans for their SDGs.” Thirdly, Wilson calls on DFIs to adopt a more open system, highlighting the importance of understanding risk and different investors’ risk appetites (a recent Devex op-ed on DFI transparency by Gary Forster of Publish What You Fund is here). The fourth point touches on collective action and increased collaboration in the development finance community. As Adva Saldinger highlights on Devex, DFIs are grappling with their “growing role,” noting that “more cooperation… could lead to better standardization or industry standards.”
While collaboration is key, a study by the Overseas Development Institute (ODI) finds that expectations on blended finance to bridge the SDG financing gap are “unrealistic.” Titled, ‘Blended Finance in the Poorest Countries: The Need for a Better Approach,’ the report flags that recent pushes around blended finance risk undermining the poverty eradication agenda in the poorest countries. The authors note the need for policymakers to better understand the poverty and development impacts of blended finance, as well as its true costs, to ensure value for money and effective allocation of aid funding and policymaking around it. Further, the report calls on multilateral development banks (MDBs) and DFIs to collectively adopt a more distinct and tailored approach to blended finance in low-income countries (LICs). A summary write-up is available on Devex, which notes that the report “casts doubt” on the “billions to trillions” agenda.
A second paper, by Sony Kapoor for Stamp Out Poverty, is also skeptical of the billions to trillions agenda. Kapoor argues that DFIs’ blending strategies are “the latest fads in development.” He distinguishes between “soft” and “hard” blending (the latter of which entails a loss for the donor in order to attract private capital), and identifies tools available to DFIs that have facilitated development-related transactions. The paper’s policy recommendations call for a moratorium of new blending facilities of one to two years, a bottom-up analysis of mobilization targets and the institutional changes that may be necessary to deliver on higher-ambition targets, and an independent audit of larger blending facilities, among other proposals.
Shifting to private sector financing, the Center for Global Development hosted an event on 10 April 2019 that asked whether such financing in developing countries is “full of promise or over-promised.” An expert panel addressed questions such as, “What lessons can be learned from middle-income countries? What capacity building is needed for governments to be able to select the right projects, monitor their construction, and implement them post-construction? How can public-private partnerships be used to mobilize new financing, without subsidizing private sector activities and generating unsustainable debt liabilities for the government?” The event recording is available at the above link.
Continuing on private sector funds, the International Finance Corporation (IFC) launched nine Operating Principles for Impact Management, on 12 April 2019, during the World Bank and IMF Spring Meetings, with 60+ investors publicly signing on. The Principles fall under five main elements: strategy; origination and structuring; portfolio management; exit; and independent verification. They “describe the essential features of managing investment funds with the intent to contribute to measurable positive social, economic, or environmental impact, alongside financial returns.” The principles go beyond aligning investment portfolios with frameworks such as the SDGs by requiring a “robust investment thesis” of how investments yield impact. A previously released guide to investing for impact is also available at the above link, and a summary write-up is available on Devex.
Additional issues of the SDG Knowledge Weekly can be found here.
related events
Financing for Development (FfD) Forum 2019
2019 Spring Meetings of the World Bank Group and the International Monetary Fund
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1. No Poverty17. Partnerships for the Goals
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Governance, Sustainable Development, Poverty Eradication, Economics & Investment, Stakeholder Participation
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Means of Implementation, Finance, Capacity Building & Education, Systemic Issues, Policy & Institutional Coherence, Multi-stakeholder Partnerships, Data, Monitoring & Accountability
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IMF, OECD, World Bank, Stakeholders and Major Groups, International Financial Institution, Intergovernmental Organization, UN Secretariat
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