22 November 2018
OECD Paints Bleak Finance Outlook, Calls for Smarter Policy Design
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The first OECD ‘Global Outlook on Financing for Sustainable Development 2019’ report finds a growing gap in financing for sustainable development.

The outlook shows a drop in external finance to developing countries and that domestic resources do not meet the recommended threshold for effective state functioning.

The outlook makes recommendations to facilitate better measurement and increase transparency, better incentivize the shifting of finance towards the SDGs, and better coordinate actors for implementation.

12 November 2018: The Organisation for Economic Co-operation and Development (OECD) released the first edition of an outlook report on sustainable development financing. The publication titled, ‘Global Outlook on Financing for Sustainable Development 2019: Time to face the challenge,’ reveals resource constraints in developing countries and a lack of understanding on how new instruments can mobilize funds for sustainable development in an increasingly complex global financial system.

Launched at the Paris Peace Forum on 12 November 2018, the report “takes a fresh look at the interlinkages between sustainable development finance and policy,” and notes that the outlook is “not encouraging.” An OECD press release highlights a 12% drop in external finance to developing countries from 2013 to 2016. Furthermore, based on the limited data available beyond this period, foreign direct investment (FDI) to developing countries “fell by 30% over 2016-17 and project finance was down 30% in the first quarter of 2018.”

Official development assistance (ODA) has held constant, but remains below target levels. As noted by Jorge Moreira da Silva, OECD, during the launch event, donor countries have yet to follow through on their promise to expand development finance flows, as pledged during the Third International Conference on Financing for Development, which adopted the Addis Ababa Action Agenda (AAAA) in 2015. Stagnating private and external finance to developing countries is a critical issue, given that private investment has been a key lever by which donor countries and development finance institutions (DFIs) aim to “ramp up development finance.”

Against this context, where complexities and needs are increasing and capacities are under stress, the outlook provides overarching recommendations to:

  1. Better measure the quantity and quality of finance for the SDGs, thereby also increasing transparency (chapter 4 of the report);
  2. Better incentivize finance already available, smarter policy design, such that it is directed towards the SDGs (chapter 5); and
  3. Better coordinate actors to connect the supply and demand for financing for sustainable development in developing countries (chapter 6).

The report also calls for redoubled efforts on domestic resource mobilization (DRM). It laments that although tax revenues are “by far the biggest financial resource for poor countries,” they remain, in the aggregate, below the recommended minimum for effective state functioning when measured as a percentage of gross domestic product (GDP).

The report notes encouraging signs on philanthropy and remittances, the latter of which totaled a record US$466 billion in 2017. However, the Outlook sounds an alarm on “worrying trends” in DRM and cross-border flows from the private sector, and issues an overall wake-up call to those in the financial system and for policymakers to take immediate action on measuring, mapping and aligning resources with the SDGs. [Publication: Global Outlook on Financing for Sustainable Development 2019] [OECD press release]

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