There is an urgent need to address the $4 trillion financing gap for meeting sustainable development goals (SDGs), Finance Minister Nirmala Sitharaman said on Saturday. Speaking at the Finance Ministers’ Session of the 3rd Voice of Global South Summit, Sitharaman also flagged the “pressing challenge” of inadequate access to development finance that hinders developing economies from achieving their development goals, adding that it is important that the dedicated concessional windows are made available for middle-income countries to address climate related challenges.
Elevated debt distress and high debt service costs have severely constrained resources available for financing developmental needs particularly in low-income countries, she said, adding that tight global financial conditions and procyclical sovereign credit rating have restricted access of developing economies to market finance, making them resort to riskier sources of financing, exposing them to currency, interest rate and refinancing risks. “The underlying drivers of debt distress are complex, addressing them will take time and effort involving a combination of short, medium and long-term measures and continuous policy engagement at national and global levels,” she said during the virtual session.
Sitharaman also sought views from other countries on how to strengthen the efficacy of existing mechanisms for debt relief and liquidity support for low and middle-income countries, including the G20 common framework, and the global sovereign debt roundtable along with the safeguards to be put in place to prevent future debt crises.
“I would like to draw your attention to a pressing challenge that hinders developing economies from achieving their development goals — inadequate access to development finance. Recent reports reveal that implementation of many SDGs in developing economes is stagnating with some indicators even regressing. The SDG financing gap is estimated at $4 trillion annually for developing countries. The Global South is disproportionately affected by global uncertainties,” she said.
As per the United Nations (UN), the world is facing an annual financing gap of about $4 trillion to achieve sustainable development, leaving countries with hardly any resources to invest in better education, healthcare, renewable energy or social protection.
The 3rd Voice of Global South Summit, with the overarching theme of “An Empowered Global South for a Sustainable Future”, is aimed as a platform to expand discussions held in the previous summits on a range of issues such as conflicts, food and energy security crises, climate change, which disproportionately affect developing countries.
Sitharaman said even as growth remains the best antidote to many economic and social challenges, it remains insufficient to drive progress in development and poverty reduction. “Growth creates a positive feedback loop where improved economic performance leads to greater financial opportunities vice versa. Our priority should be a people-centric growth path that empowers the most vulnerable and marginalised to participate in the development journey. The World Bank’s June 2024 report states that by the end of this year, one in four developing economies will be poorer than they were before the pandemic. Growth, thus, remains insufficient to drive progress in development and poverty reduction”
“To accelerate progress on SDGs, there is an urgent need to address the $4 trillion financing gap. During India’s presidency, the G20 recommended wider adoption of social impact instruments and other blended finance instruments, monitoring and measurement frameworks, and risk mitigation measures,” she said.
The Union Finance Minister also said it is critical that the financing requests made to multilateral development banks (MDBs) are met with speed and agility. “This will require reforms both at operational levels as well as identifying new additional sources of finance. Fresh capital infusion should remain an active option for consideration of MDB boards along with balance sheet optimisation measures and financial innovations. On concessional finance, while low income countries will remain the priority, it is important that the dedicated concessional windows are made available for middle-income countries to address climate related challenges. On private capital mobilisation, MDBs need to engage with credit rating agencies and explore how to better incentivise the flow of private capital for development financing,” she said.
She pointed out that developing countries continue to face a significant shortfall in climate financing. “Research indicates that developing countries require approximately $6 trillion dollars by 2030 to achieve just half of the existing nationally determined contribution targets. The current level of financing falls far short of the climate adaptation needs of developing countries expected to reach $500 billion by 2050, five to ten times greater than the current funding levels. I seek your suggestions on pragmatic action to address this issue,” she said.