Financing for Sustainable Development Report 2024

Why in the News?

2024 Financing for Sustainable Development Report was recently released by the Inter-agency Task Force on Financing for Development.

Key highlights of the report

• Progress towards SDGs: Countries are off track on 2030 Agenda for Sustainable Development, with around half of 140 SDG targets, deviating from the required path. 
• Financing gaps in sustainable development: Report estimates SDG financing and investment gaps at between USD 2.5 trillion and USD 4 trillion annually. 
• Finance divides: Developing countries are faced with significantly worse terms of access to both long-term and contingency financing, implying a finance gap, which is largest in Middle-Income Countries (MICs).
• Weak enabling environment for SDGs: Currently, public subsidies and private investment in fossil fuels and brown activities are still very high.

About Financing for Sustainable Development

• It is centered around supporting the follow-up to the agreements and commitments on Financing for Development: 
  • in Monterrey, Mexico in 2002; 
  • in Doha, Qatar in 2008; and 
  • in Addis Ababa, Ethiopia in 2015.
• Addis Ababa Action Agenda provides a new global framework for financing sustainable development.
  • It aligns all financing flows and policies with economic, social and environmental priorities and ensures that financing is stable and sustainable.
  • It identified seven action areas for financing sustainable development (see infographic).
  • It mandates the Task Force to 
    • report annually on progress in implementing the Addis Agenda and other Financing for Development outcomes and the means of implementation of the 2030 Sustainable Development Agenda.
    • advise the intergovernmental follow-up process on progress, implementation gaps and recommendations for corrective action.
  • Addis Ababa Action Agenda was adopted at the Third International Conference on Financing for Development held in Addis Ababa, Ethiopia, in 2015. 
• Financing challenges are at the heart of the current sustainable development crisis. 

Challenges in financing sustainable development

• Rise in Systemic Risks: E.g., Covid 19 pandemic, Rise in frequency of disasters etc. 
  • Climate crisis and more frequent and intense disasters raising stresses on public and private balance sheets. 
    • Annual economic disaster damage estimated at $173 billion between 2020 and 2023, up from $108 billion during the first decade of the century.
• Challenging Global Economic Environment: A sluggish world economy has led to subdued growth prospects with GDP growth rates in developing countries falling to just over 4% annually on average between 2021 and 2025. 
• Sovereign Debt burden: Many countries are faced with high risks of debt distress, with median debt service burden for LDCs rising from 3.1% of revenue in 2010 to 12% in 2023 –highest level since 2000.
  • 40% of global population live in countries where governments spend more on interest payments than on education or health.
• Rising geopolitical tensions: Geopolitical tensions, violence, conflict and war have contributed to challenging global macro-environment, risking severe fragmentation of global trading system (which could cost up to 7% of global GDP).

Actions required for bridging financing gap for sustainable development 

• Enabling Environment: Countries’ efforts to create enabling environments for private investment must be aligned with the SDGs, setting the right incentives through fiscal and tax policies.
• Strengthening Public Development Banks (PDBs): PDBs usually provide longer-term funding, and their development focus makes the financial durations of their lending better aligned with social and environmental sustainability. 
• Integrated Financing Approaches: More than 80 countries are now using Integrated National Financing Frameworks (INFFs) to develop national financing strategies and integrate planning and financing policy functions. 
  • The concept of INFFs was first introduced in the Addis Agenda.
• Reforms in multilateral system: There is a need for reforms to enhance coherence between trade, investment and sustainable development. 
  • This includes World Trade Organization (WTO) reform, with a focus on dispute settlement, updating rules to reflect global economic changes, and continued efforts to update investment treaties.