Arbeitsgemeinschaft für Entwicklung und Humanitäre Hilfe
Report (EN)
The Financing for Sustainable Development Report 2021 was released by the United Nations to highlight the impacts of the COVID-19 pandemic on the global macroeconomic context and its effects on sustainable development. This report addresses the economic impact that the COVID-19 crisis had on a global scale, especially on developing countries. It provides updates on how the pandemic has affected the financial sector and suggestions for actions that must be taken in response to the current crisis, pandemic, and climate risks.
The COVID-19 pandemic has caused the worst recession in 90 years and left 120 million more people in poverty. The urgency to meet ODA commitments, replenish liquidity and concessional facilities, and offer debt relief to developing countries need to be prioritized. In response to crisis, long-term investments in human capital, social protection, resilient infrastructure and technology can reduce risks, create jobs, and stimulate sustainable growth. Developed countries can support developing countries by providing long term financing and debt swaps along with creating a new business model that works for everyone. It is important to ensure that proposals on taxation in regards to a digitalizing economy, the multilateral trading system, international debt architecture, and the global financial safety net are all aligned with the 2030 Agenda.
While it is important to invest in risks reduction and prevention, they are underfunded due to short-term incentives and lack of knowledge on risk impact, and because of inequalities, especially with those most vulnerable to shocks least able to influence policy decisions. Beginning with the public sector, incorporating risk in the entire policy cycle is necessary for risk reduction. All financing must be risk-informed and resilient by overcoming short-term and ex-post biases, as well as adopting a multi-instrument approach to manage risks to public balance sheets. Financing public investments must be mobilized while incentives and regulations need to be put in place to internalize all risks in terms of the SDGs in private investment. To combat global systemic risk, international cooperation must be strengthened in order to increase the voice of the most vulnerable in global policy processes and to help vulnerable countries reduce and manage risk.
Prioritizing spending on essential health functions and social protection floors and strengthening public financial management can help the poorest countries. It is also an opportunity to align fiscal policy with sustainable development by using taxes to incentivize behavior to act according to the SDGs. Strengthening international tax cooperation is critical to support domestic efforts since a consensus-based global solution is the best approach and allows developing countries to voice their opinions, interests, and perspectives.
The business and finance models need to be redesigned for a sustainable and inclusive recovery. There needs to be greater transparency for companies on their environmental and social impact, more plans to shift activities and investments towards sustainability, and higher incentives that encourage a long-term approach in decision-making, especially those concerning sustainability risks and opportunities.
It is crucial that the international commitment of providing 0,7% of gross national income (GNI) in official development assistance (ODA) is achieved. Additionally, funding for multilateral development banks (MDBs) for concessional pool and general capital replenishment is needed to continue to support developing countries through long-term financing and fixed-interest lending. Integrating national funding frameworks can put country priorities into action for development partners and align activities with the SDGs.
In 2020, world trade decreased by about 9% with trade in goods declining by 6% and services by 16.5%. International communities should continue to keep markets open to ensure the equitable flow of essential goods and services especially in times of crises. Vaccine nationalism and protectionism must be rejected in order for all countries to have access to COVID-19 vaccines. The pandemic has allowed trade to be seen through an inclusive and sustainable context by highlighting the flaws of the multilateral trading system. For trade to become more inclusive, addressing trade finance gaps in essential: paperless trading along with increasing coordination between multilateral development banks and the private sector can help support trade financing needs, especially for small businesses in developing countries.
Debt levels and debt risks are rising globally, with global public debt reaching almost 100% of gross world product. While international support has prevented a global systemic crisis, 56% of the poorest countries are at high risk or in debt distress. COVID-19 has intensified long-standing debt challenges along with increasing debt service in developing countries over the past decade due to rises in level and changes in the composition of debt, increasing debt servicing costs, and rollover risks. Debt crisis prevention continues to be a priority as it requires improving transparency by borrowers and creditors. SDG investment and future crises prevention can be financed by debt swaps and state-contingent instruments. The Common Framework would imply a more universal framework for debt resolution.
The urgency of liquidity and balance-of-payment needs were highlighted by the emergency financing and debt service relief for the poorest countries in 2020. Many countries need additional long-term and low-interest finance to support more inclusive, sustainable, and risk-informed development. The consequences of capital flow volatility need to be prioritized as it remains a challenge to manage. In March 2020, the financial market turmoil emphasized the vulnerabilities in different market segments. Regulating financial intermediation needs to be based on the function it performs instead of the type of institution involved. The integration of climate risks in financial stress tests and mandatory reporting standards for financial institutions needs to be addressed by monetary and regulatory authorities. Central Banks must maintain the integration of climate risks into policy frameworks while safeguarding financial stability. The COVID-19 crisis revealed the necessity for consensus on reforms to the global architecture and align financial, investment, trade, development, environmental, and social policies.
Science, technology, and innovation (STI) has played a major role in the response to COVID-19. Medical knowledge and innovations serve as guidelines for policymakers and pave way towards recovery. Despite this, the acceleration of digitalization has furthered the digital divide and escalated other risks, such as access to the internet and greater gender inequality. In order to reduce risks like new forms of exclusion, mis- and disinformation, and to ensure an even starting point, the need for transparent algorithms, guidelines for the ethical use of Artificial Intelligence, diverse views in the innovation process, and regulatory frameworks can help reach policy guidelines and regulations goals. STIs like mission-oriented innovation can reduce the impact of shocks and build more resilience societies. The enhancement of development cooperation, STI-investment, and knowledge-sharing all contribute to financing for sustainable development.
National statistical offices (NSOs) are updating timely, quality, open, disaggregated, and geospatially enabled data, they require assistance in filling major existing data gaps. The pandemic has adversely impacted the NSO’s ability to produce short-term statistics since 65% of NSO headquarters were partially or fully closed, 90% of employees were working remotely, and 96% had stopped face-to-face data collection in the past year. Global alliances that foster innovative funding mechanisms need to be supported while company sustainability reporting rely on national and international efforts. The pandemic has amplified global data inequalities as low- and lower-income countries need financial support and technical assistance to strengthen capacities. As a response to the COVID-19 crisis, open data has allowed NSOs to see the potential of open data for the public good through updated data governance frameworks. Governments need to acknowledge data as a strategic asset in achieving the SGDs.
As the risk of a sharply diverging world is threatening to ensue, immediate action must be taken, otherwise, another decade for development will be lost. The 2021 Financing for Sustainable Development Report stresses the urgency for long-term investments in risk reduction and reforms in policy and institutional architecture.
United Nations (2021): Financing for Sustainable Development Report 2021
