A once-in-a-decade UN summit, the 4th International Conference on Financing for Development, pulled together governments, businesses and NGOs in Seville recently to address a massive gap in funds to fight poverty. Can it succeed amid US isolationism? Can India help?
Where’s the world on development finance?
This may be one of the toughest challenges facing the world. Developing countries are grappling with a $4-trillion-a-year gap in financing for development and the worst off, as always, are the poorest indebted countries. The money is needed for the world to realize 17 sustainable development goals (SDGs) that countries adopted in 2015. These range from ending poverty to women’s equality, health, education and fighting climate change. In 2024, official development assistance (ODA) by the world’s wealthiest countries in the Organisation for Economic Cooperation and Development (OECD) fell 7.1% to $212.1 billion.
What is development financing achieving?
The news is mixed. The latest UN data shows 9% of the global population lived in extreme poverty (surviving on less than $2.15 per day by purchasing power parity) in 2022, compared with 10.5% in 2015. But global poverty reduction is “virtually at a standstill”, the UN says. For the first time, in 2023, more than half the world population is covered by at least one social security scheme. However, data shows that in every respect, the poorest countries are the worst off, emerging nations are in the middle, and rich nations lead in development metrics. Debt remains a huge problem for the poorest nations to shake off. In 2023, total debt servicing costs for low- and middle-income countries reached a record high of $1.4 trillion.
Which are the main areas hit?
The decline in funding impacts all areas of development. Interestingly, the fall in OECD assistance shows the cuts were led by reduced spending in contributions to international organizations, as well as a decrease in aid for Ukraine, lower levels of humanitarian aid and reduced spending on hosting refugees in donor countries. Spending on Ukraine and hosting refugees shows the money may not be going to the poorest nations.
What can India offer in this bleak scenario?
India’s role has always been more about raising capacity than financing. At the summit in Sevilla, finance minister Nirmala Sitharaman called for urgent action to build a “comprehensive, equitable, development-oriented global financing framework.” With many SDGs off track, India is well placed to share its experience in lifting 250 million people out of multidimensional poverty. Other areas of sharable capacities include digital public infra, digital reform in tax administration, building ecosystems for startups and targeted lending for micro, small and medium enterprises.
What is the future of development finance?
The fall in ODA seen in 2024 came after five years of increases, albeit some of it driven by post-pandemic imperatives. Now, the future looks bleak. The US did not attend FfD4, and doesn’t agree with many core objectives like reforming multilateral institutions. OECD officials say some major donors have signalled further, and quite significant, ODA decreases over the coming years. This makes targeted funding crucial. Sitharaman said developing countries can be both drivers and beneficiaries of such funding. India is well-placed to take a leadership role here.