October 2013: A report from the World Bank calls for an expansion of actors and instruments and greater aid effectiveness in order to fund development needs in the post-2015 era. ‘Financing for Development Post-2015’ argues that “the world is experiencing a growing mismatch between available financing and investment needs.”

The report is presented as input to the UN-led consultations on the post-2015 development agenda, with comments and contributions from across the World Bank Group (WBG) and the WBG Task Force for the Millennium Development Goals (MDGs) and Post-2015. According to the report, its writing was prompted by the report of the UN High-level Panel (HLP) on the Post-2015 Development Agenda (HLP), which notes the connection between the MDGs and the international community’s ability to support them.

The World Bank report finds that a key problem for developing countries is limited access to long-term financing through capital markets. In the context of heavy fiscal pressures on traditional donors, slow global economic growth and constraints facing multilateral development banks (MDBs), the report suggests that developing countries must make themselves more attractive to the private sector and new donors. Three ways to do this are: improving effectiveness in the use of existing resources; enhancing domestic resource mobilization; and tapping into new sources of financing. Tax administration, better harnessing of natural resource revenue, and curbing illicit financial flows are among the recommended actions.

The report reviews a range of tools that could improve funding conditions for development, such as, inter alia: bond financing, institutional investors, diaspora bonds, pull mechanisms, advance market commitments, resources-for-infrastructure deals, climate finance. Noting that not all of these options are suitable for every country, it says the real challenge is to establish a “supporting country-level policy framework and credible commitment to build domestic capacity and combat poverty in order to expand the options available.”

On climate change, the report underscores that comprehensive carbon pricing policies, the removal of inefficient fuel subsidies, and cap-and-trade schemes are constructive options to mobilize larger and higher-return investments to cope with mitigation, adaption and poverty policies.

The report highlights changes in the aid landscape, including the rise of upper middle-income countries as donors, and philanthropic foundations. Overall, aid from developed countries, including through contributions to multilateral agencies, has become a less important source of development finance at the global level.

Finally, the study notes that the World Bank Group and regional development banks contribute to the post-2015 development agenda by providing technical expertise, risk management policies, clear standards for project design, encouraging corporate governance, and cross-country experience, among others. [Publication: Financing for Development Post-2015] [UN Division for Sustainable Development Announcement]