War and natural disasters affect over 125 million people around the world and the number continues to rise, according to the UN’s High Level Panel on Humanitarian Financing in its January 2016 report, titled, ‘Too important to fail: addressing the humanitarian financing gap.’ These human-made and natural disasters come at a high price to government budgets – the world spent US$25 billion on humanitarian interventions in 2015, a record high. But while resources allocated to humanitarian action have climbed over recent years, the gap between the resources needed and the funds supplied is estimated at more than US$15 billion annually. The need for more funds will be one of the topics on the table at the World Humanitarian Summit in Turkey.

In 2015, the international community met just 45% of the UN’s appeals for humanitarian aid for that year, according to the UN Office for the Coordination of Humanitarian Affairs (OCHA). For Syria, despite being the year’s highest-profile international emergency, the humanitarian response plan attracted just 36% of the financial contributions requested. Other appeals fared even worse. The five most underfunded humanitarian appeals in 2015 were: South Sudan (18% of funding requirements met); Senegal (16% met); the Sahel (15% met); Djibouti (15% met); and Gambia (with just 5% of the year’s humanitarian funding requirements met). The flash appeal for Nepal in the wake of its April 2015 earthquake topped the ‘most funded’ list, but no appeal attracted more than 59% of the amount requested .

Humanitarian crises like these have caused large-scale displacement and migration, introducing additional challenges beyond each of these country’s borders. Last year, according to estimates from the UN High Commissioner for Refugees (UNHCR), over a million refugees and migrants arrived in Europe, mostly from Syria, Iraq and Afghanistan. This number is expected to be even higher this year. One result is that several donors are now spending increasing shares of their development aid budgets on the costs of receiving these refugees, which is having notable effects on aid spending patterns.

Under Organisation for Economic Co-operation and Development (OECD) rules as to what counts as development aid, the costs of supporting refugees may be counted as aid for the first year. Typically, these costs have amounted to less than 5% of host countries’ total aid, but in 2015 and 2016, it is expected that Norway and Sweden – among the world’s most generous aid providers – will have spent around 20% of their development aid budgets on in-country refugee costs. Greece and Italy, which are at the frontline of Europe’s refugee and migrant crisis, spent 46% and 61% of their respective aid budgets in this way last year.

UN Development Programme (UNDP) Administrator Helen Clark and OECD Development Assistance Committee (DAC) Chair Erik Solheim have called this trend “devastating” for donor countries’ ability to support long-term development interventions in developing countries.

Climate and Sustainable Development Agendas Enter Year One

These developments are occurring just as governments around the world have set ambitious new social, environmental and climate change targets. The Sustainable Development Goals (SDGs), adopted by world leaders in New York in September 2015, aim to eradicate world poverty, among other noble aims, in just 15 years. In Paris, in December 2015, Parties to the UN Framework Convention on Climate Change (UNFCCC) agreed to take new measures to address climate change. Making good on these promises will require unprecedented investments from all sources, in areas such as sustainable infrastructure, health and nutrition, education, environmental protection and peace and security. A recurring topic at these major international events has been how to resource the shared ambitions and challenges under discussion.

Given the scarcity of aid relative to international demands, the conversation on financing sustainable development has turned increasingly to ways to strengthen private financial flows, while downplaying the role of development aid and other official financial flows in attaining the SDGs and climate-related objectives. But decision makers should pay attention to the specific characteristics of aid and other forms of government financing for developing countries, which make these flows indispensable to sustainable development. It is not clear that private flows will be able to meet all needs. Three key reasons are outlined below.

First, aid and other official financial flows from donors are used to “crowd-in” private investment in infrastructure, health and other sectors through mechanisms such as blended finance, advance purchase agreements, guarantees, interest rate subsidies, insurance, incentives for successful performance, and matching funds. While the amount of public financing supplied for a particular project may be smaller in volume terms than that provided by the private sector, many projects could not be realized without some form of public support. Particularly in the area of infrastructure where projects are complex to develop, risks are high and finance is needed over the long-term, private investment can be difficult to secure without some public sector intervention.

Second, where private capital flows are pro-cyclical, donor financing and lending by multilateral financial institutions performs an important counter-cyclical function. In periods of economic shock, commercial finance can dry up or become more expensive, and anti-cyclical funds may be required rapidly. The 2008 financial crisis showed how important financing from the multilateral financial institutions is in helping countries to mitigate the worst impacts of the crisis. Official lenders have also used innovative financial instruments such as “hurricane clauses” and “counter-cyclical loans” which see debt service fall or drop to zero when a major shock occurs. These can help developing countries to manage risk and vulnerability.

Third, international public financing plays a critical role in countries that find it difficult to raise domestic resources or attract private investment. This includes many least developed countries (LDCs) and small island developing States (SIDS). In the 48 LDCs, official concessional and non-concessional financing from OECD donors represents about 75% of international financing inflows. In fragile states and countries experiencing protracted humanitarian crises, official sector financing is the resource most likely to be present for the long haul.

UNDP is working to promote development financing instruments that support countries’ abilities to manage risk and vulnerabilities. One such instrument is GDP-linked official debt, in which debt repayments are contingent on economic performance in the borrower nation. In a report with the French Development Agency, AFD, we will explore how the poorest countries can make use of new financing instruments from bilateral and multilateral development finance providers, such as blended finance, local currency financing and guarantees.

Our narrative needs to recognize that all sources of financing will have a role to play in supporting international development and climate objectives, and that financing from public sector entities can be innovative and catalytic. It is essential that the international community redoubles its efforts to increase the amount of international public financing available.

Gail Hurley can be reached at: gail.hurley@undp.org or @gailmlhurley.