By UN Department of Economic and Social Affairs (DESA)

The recently released ‘Report of the Secretary-General on Progress towards the Sustainable Development Goals’ reminds us that it will take exceptional efforts and commitments to deliver a “rescue plan for people and planet.” At a time when many countries are grappling with climate change related disasters and conflict, recovery from the COVID-19 pandemic, the war in Ukraine, and the inflation and cost of living crises, we must accelerate progress towards the SDGs.

This requires a two-pronged approach. The first is to secure a surge in SDG financing. The second is to reform the international financial architecture to make it resilient, equitable, and accessible for all. The existing architecture, designed by industrialized countries in the post-war period, has not kept pace with the ambition of the SDGs. Its structural inequities and inefficiencies stand in the way of international goals and objectives and have resulted in inadequate responses to a variety of crises. World leaders recently met in Paris to try to reorient the international financial architecture towards climate finance and finance for sustainable development.

The SDG Stimulus

To enable developing countries to deliver on the SDGs, the Secretary-General has called for an SDG Stimulus: an additional USD 500 billion per year to be delivered through a combination of concessional and non-concessional finance. The plan calls for the international community to significantly scale up funding for global public goods, and for countries to align all forms of finance with the SDGs, including by utilizing Integrated National Financing Frameworks (INFFs).

Public development banks and multilateral development banks (MDBs) need to update their business models to ensure their lending has the greatest possible sustainable development impact, and their financial instruments reflect today’s vulnerabilities, such as from climate disasters. Approaches that are making an impact, including debt for sustainability swaps, should be scaled up.

Many developing countries, especially small island developing States (SIDS), still face significant obstacles in accessing critically needed climate financing. In emergency situations, when they most need funds, they end up falling even deeper in debt that they can scarcely afford. The climate funds under the UNFCCC and the Paris Agreement on climate change, such as the Green Climate Fund (GCF), must be fully capitalized and better coordinated. The Loss and Damage Fund should be able to provide financing that is automatically triggered by climate change-related events, such as heat waves or storms, and helps build resilience.

Reforming the international financial architecture

The international financial architecture must also be reformed to better support the implementation of the 2030 Agenda for Sustainable Development and the SDGs. As a starting point, this means delivering on the Addis Ababa Action Agenda (AAAA) and other relevant international frameworks.

Developing countries need to invest in the SDGs but face unreasonably high borrowing costs in financial markets. Many governments spend most public revenues servicing debt payments, at the expense of investments in health, education, climate adaptation, and social protection. But debt markets can be reoriented to support SDG financing. This could be through more transparent debt sustainability analysis and credit ratings, distinguishing between liquidity crises and solvency crises, and improving debt contracts by incorporating state contingent clauses that automate debt relief when countries face disasters.

Concurrent global shocks, high interest rates, and a strong US dollar have pushed many countries to the edge, and 40% of developing countries face severe debt problems. While they account for 2.5% of the global economy, they are home to 15% of the world’s population and 40% of those living in extreme poverty globally. To have a chance to turn things around for the SDGs, mechanisms for fair and effective resolution of debt crises, as called for in the Addis Ababa Action Agenda, need to be in place.

Multilateral development banks must adapt to better support the SDGs. This means greater representation for developing countries in their governance structures, massively increasing development lending, and improving the terms of lending. It also means phasing out fossil fuel financing and substantially increasing the quality and quantity of finance for climate change mitigation, adaptation, and resilient infrastructure in developing countries.

The international financial architecture also sets the tone for global private finance. With a conducive regulatory and operating environment, it could “crowd in” private sector financing for the SDGs without saddling governments with even more debt. But this will need de-risking mechanisms, guarantees, and transparency around key risk markers. Urgent action is also needed to prevent tax evasion and avoidance, address illicit financial flows, bolster national fiscal capacities to strengthen domestic resource mobilization, and boost international tax cooperation. Globally agreed concepts and tested methods now exist and can be used by all countries to curb illicit finance. Combined, all these steps can help realign incentives for both public and private actors to deliver on the SDGs.

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This article is the fourth in a five-part series by the UN Department of Economic and Social Affairs (DESA), published in partnership with IISD. Focusing on the SDG Progress Report special edition themed, ‘Towards a Rescue Plan for People and Planet,’ the series puts forth areas of collective action necessary to turn things around so we can deliver on the promise of the 2030 Agenda.