Time to scale up creative solutions to bridge the SDG funding gap

Financing to implement the Sustainable Development Goals (SDGs) is off track. The annual funding gap has widened and is currently estimated at over $4 trillion. How can we close this gap and what role will the High-level Dialogue on Financing for Development on 20 September play to secure financing for the goals? We spoke with UN DESA’s Shari Spiegel who explains.

Before COVID-19 struck, financing to implement the SDGs was already off track. It is estimated that the annual funding gap has risen from $2.5 trillion to over $4 trillion today. How can we close this gap?

“Financing will have to come from a range of sources: domestic public resources, such as tax revenues; international public finance, such as grants or loans from bilateral donors or multilateral institutions; and private finance either from domestic or international businesses. These different types of financing are not fungible -- they come with very different terms and purposes. For example, private finance is generally motivated by financial returns, while public finance aims to provide public goods. To close the SDG financing gap, we will need improvements in each of these areas.

One of the lessons from the Addis Ababa Action Agenda – the global agreement of financing for development – is that finance is about more than the financing flows. It is also about policies that incentivize and align financing with the SDGs. Countries need to improve their tax capacity to fund public goods, just as they need to ensure that sustainable development projects that can be commercially viable under the right circumstances are attractive for private investors.

However, domestic actions alone will not be enough to close the massive financing gap we face. Many developing countries, especially the most vulnerable who need financing the most, experience systemic barriers that limit their access to finance. For example, some developing countries face borrowing costs up to eight times that of a developed country. This is why development finance – official development assistance and development bank lending – is so important, and why so much of the international community is now focusing on scaling up MDB lending and concessional finance.

The UN Secretary-General has proposed two pathways forward to guide our efforts. The SDG Stimulus aims to massively increase lending, including through public development banks. It can be implemented right now within our current financial system. The second is longer term in nature and seeks to reform the deeply ingrained inequities in our international financial architecture."

Could you tell us more about the Secretary-General’s two proposals to close the financing gap? How will these proposed measures benefit efforts towards achieving the SDGs?

“Many countries have not been able to respond to the series of shocks that have rocked the world economy since 2020 because of a “great finance divide”. The SDG Stimulus Plan would go a long way in offsetting this finance divide by mobilizing an additional $500 billion annually for investments in the SDGs. The $500 billion a year would come from instruments and reforms already in the works, such as more effective use of multilateral development banks’ balance sheets, rechanneling unused Special Drawing Rights to countries in need, and more impactful leveraging of private finance. It will also require increased capitalization of public development banks, along with public development banks working together more effectively as a system. The Stimulus would also assist developing countries that are dealing with high debt burdens and borrowing costs.

But over time, this investment boost from the Stimulus alone will not sustain the progress needed. We need transformative change. The international financial architecture – put in place more than 80 years ago – must be brought up to date. The existing ‘rules of the game’ of international finance are no longer fit for purpose for sustainable development. For this reason, the Secretary-General has called for ambitious reform, starting with more inclusive, representative and, ultimately, more effective global economic governance.”

The High-level Dialogue on Financing for Development is taking place on 20 September. What results can we expect from this event? How will it contribute to financing the goals for a world where no one is left behind, considering for example the situation of LDCs and vulnerable groups around the globe?

“The High-level Dialogue on Financing for Development is a unique opportunity that only happens every four years. At the Dialogue, stakeholders will discuss progress on aligning financing flows and policies with economic, social, and environmental priorities. It creates an open space to discuss creative solutions to financial challenges – to find solutions that are both ambitious and politically feasible.

This year’s dialogue is particularly important since we are at the mid-way point of the SDGs. We expect participation at the highest level – from presidents and prime ministers to CEOs and Director-Generals. We anticipate a massive recommitment to the SDGs, including creative solutions and new commitments.”

Are there any new initiatives, partnerships or solutions which could inspire other international actors to invest in the SDGs?

“The SDG Stimulus is a proposed solution that countries could support right now, without any changes necessary to the international financing architecture. It is also one of 12 High Impact Initiatives that the UN is highlighting at this year’s SDG Summit. These High Impact Initiatives were selected to mobilize leadership, investment and support for greater impact at scale. These initiatives present opportunities for getting the SDGs back on track.

Additionally, many initiatives and partnerships were announced at the 2019 High-level Dialogue on Financing for Development and continue to deliver results today. For example, in 2019, more than a dozen countries announced that they would pioneer integrated national financing frameworks (INFFs) to improve domestic policies and raise resources for SDG investments. Today, more than 80 countries are in various stages of implementing INFFs. We hope the successes from the previous dialogue will inspire others to act and invest in the SDGs.”

For more information: High-level Dialogue on Financing for Development