Inadequate financing and inefficient deployment of available funds are at the root of the sustainable growth crisis worldwide, says a new UN Report
A new UN report says financing challenges are at the heart of the world's sustainable development crisis. Staggering debt burdens and sky-high borrowing costs prevent developing countries from responding to the confluence of crises they face. Only a massive surge of financing and a reform of the international financial architecture can rescue the Sustainable Development Goals.
The 2024 Financing for Sustainable Development Report: Financing for Development at a Crossroads (FSDR 2024) says urgent steps are needed to mobilise financing at scale to close the development financing gap, now estimated at $4.2 trillion annually, up from $2.5 trillion before the COVID-19 pandemic. Meanwhile, rising geopolitical tensions, climate disasters and a global cost-of-living crisis have hit billions of people, battering progress on healthcare, education, and other development targets.
With only six years remaining to achieve the SDGs, hard-won development gains are being reversed, particularly in the poorest countries. If current trends continue, the UN estimates that almost 600 million people, more than half of them women, will continue to live in extreme poverty in 2030 and beyond.
The crisis in sustainable development confronting the world has been precipitated by inequalities, inflation, debt, conflicts, and climate disasters, stated the UN Under-Secretary-General for Economic and Social Affairs, Li Junhua. The money for the solution is available, but billions of dollars are lost annually because of tax avoidance and evasion. Fossil fuel subsidies amount to trillions. There is no shortage of money globally; instead, there is a shortage of will and commitment.
According to a report, the current crisis is primarily caused by increasing debt burdens and borrowing costs. The report suggests that in the least developed countries, the debt service will be USD 40 billion annually between 2023 and 2025, which is more than 50% higher than USD 26 billion in 2022. Over half of the debt upsurge in vulnerable countries is due to more robust and more frequent climate-related disasters. The poorest countries now spend 12% of their revenues on interest payments, which is four times more than what they spent a decade ago. Shockingly, in roughly 40% of the global population, governments spend more on interest payments than on education or health.
While investment in SDG sectors had grown steadily in the early 2000s, significant sources of development funding are now slowing down. For example, domestic revenue growth has stalled since 2010, especially in LDCs and other low-income countries, in part due to tax evasion and avoidance. Corporate income tax rates are falling, with global average tax rates down from 28.2 per cent in 2000 to 21.1 per cent in 2023 due to globalisation and tax competition.
Meanwhile, Official Development Assistance from OECD countries and climate finance commitments are not being met. While ODA increased to an all-time high in 2022, reaching USD 211 billion from USD 185.9 billion in 2021, much of the growth came from aid to refugees living in donor countries, and the total amount is inadequate for development. Only four countries met the UN aid target of 0.7 percent of GNI in 2022.
The report concludes that the international financial system, established at the 1944 Bretton Woods Conference, is no longer fit for purpose. It proposes a new coherent system that is better equipped to respond to crises, scale up investment in the SDGs, especially through stronger multilateral development banks, and improve the global safety net for all countries.