Global Outlook on Financing for Sustainable Development 2019

External finance to poor countries is declining despite a promise by the international community three years ago to increase development finance flows, in particular through private investment, according to a new OECD report.

The Global Outlook on Financing for Sustainable Development 2019 - Time to Face the Challenge shows there was a 12 per cent drop in external finance to developing countries from 2013 to 2016. A decline that casts serious doubt on the world’s ability to achieve the 2030 Sustainable Development Goals, the authors warn. The report was published in November 2018 by the Organisation for Economic Co-operation and Development (OECD).

The external financing data available beyond 2016 reveals that foreign direct investment to developing countries fell by 30 per cent over 2016-17 and project finance was down 30 per cent in the first quarter of 2018, the report shows. Official Development Assistance (ODA) from advanced economies is steady but below target, while other flows such as remittances and philanthropy are increasing but comparatively small.

Overhauling the development finance system

The report calls for more efforts to mobilise domestic resources, which are at least as important for sustainable development as external flows. For example, tax revenues are by far the biggest financial resource for poor countries. Yet tax revenues in low-income and least-developed countries average just 14 per cent of GDP, less than half the OECD country level of 34 per cent and below the 15 per cent that is the recommended minimum for effective state functioning.

As another example, the transaction cost of migrants sending money home to relatives in developing countries can be as high as 14-20 per cent. The report says that reducing transfer costs by just 1 per cent would increase the value of total remittances (USD 466 billion in 2017) by USD 30 billion – equivalent to nearly a quarter of total ODA flows.

The report calls for an overhaul of the development finance system to improve transparency, set clear international standards and empower recipient countries to make optimal choices. It also calls for more to be done to measure the impact, rather than just the volume, of development finance, and for a more strategic interplay of suppliers, intermediaries and beneficiaries to ensure the maximum impact of each dollar spent.

With regard to domestic resources, the authors state that the international community should support trade and private-sector development, identify and remove barriers to investment, build tax revenue capacities and help developing countries prevent tax avoidance and evasion.

(OECD/ile)

More information and download the report: Global Outlook on Financing for Sustainable Development 2019: Time to Face the Challenge: www.oecd.org/development/global-outlook-on-financing-for-sustainable-development-2019-9789264307995-en.htm