A multipolar world needs to foster resilience and address the significant shortfall in funding for the Sustainable Development Goals. The time for action is now.

• Developing countries face a $4.3 trillion annual financing gap for sustainable development, including $1.8 trillion for climate needs.

• Multilateral Development Banks must reform governance and expand concessional lending.

• Private capital remains underutilized but could unlock significant investments with better risk-sharing mechanisms.

• Climate finance must focus on creating new and lasting solutions that strengthen resilience to change impacts of climate change.

The global financial system is failing to meet the challenges of escalating debt, systemic inequalities and intensifying shocks of climate change. Developing economies are at a critical juncture as they strive to meet the Sustainable Development Goals (SDGs) by 2030.

As the world looks ahead to the 4th International Conference on Financing for Development (FfD4) in Seville, Spain, in July, the need for systemic reform has never been clearer. Convened by UN Trade and Development (UNCTAD), a recent meeting of the Intergovernmental Group of Experts on Financing for Development explored actionable solutions.

Secretary-General Rebeca Grynspan highlighted the human impact of financial decisions: “The financing gaps we are witnessing today are not just economic challenges; they are moral imperatives. Behind the numbers are billions of people waiting for solutions.”

Reforming the global financial architecture into a tool for equity and growth requires rethinking the roles of Multilateral Development Banks (MDBs), reshaping financial instruments and fostering innovative approaches to bridging these persistent gaps.

Drawing on perspectives from government officials, academics, leaders from MDBs, private bankers and credit rating agencies, the discussions centred on concrete strategies to close financing gaps, address unsustainable debt, and unlock new resources for development and climate resilience.

Bridging the financing gap

Developing countries need $4.3 trillion annually to achieve the SDGs, including $1.8 trillion for climate action. Yet, the global financial system, rooted in post-World War II priorities, struggles to meet modern challenges. High debt costs and limited concessional financing leave nations unable to invest in essentials like healthcare, education and infrastructure.

MDBs are vital to closing this gap, offering long-term and affordable financing. Yet, strict risk policies and AAA credit rating priorities limit their impact. While innovations like local currency lending show promise, deeper reforms are needed to boost their capacity.

The upcoming FfD4 conference is a chance to reimagine MDBs as enablers of equitable and sustainable growth, beyond traditional lending.

Breaking the cycle of the debt trap

In more than 25 countries, over 20% of government revenue is spent servicing debt, diverting resources from investments and expenditures that could power the SDGs. High interest rates and currency risks exacerbate this burden, locking countries into cycles of unsustainable borrowing.

Solutions like sustainability-linked bonds and debt-for-nature swaps offer pathways to escape this trap. Egypt’s recent debt-for-equity swap demonstrates how such tools can unlock fiscal space for critical development needs. However, their broader adoption depends on global cooperation and reforms to ensure scalability and impact.

These pressing issues will take centre stage at UN Trade and Development’s 14th Debt Management Conference, set for 17 to 19 March in Geneva.

Participants from governments, international organizations, academia and civil society will dive deep into ways of innovative and resilient debt management to help developing countries mitigate risks amid rising uncertainty in the global economy.

Reforming the international financial architecture

Reforming MDB governance has emerged as a priority leading up to FfD4. These institutions often reflect the interests of major shareholders rather than the borrowing nations they serve. Enhanced representation and equitable resource allocation are critical to ensuring effectiveness.

MDBs must embed climate resilience and social equity in their operations while expanding concessional financing to low- and middle-income countries. They also play a crucial role in supporting local currency lending to reduce exchange rate exposure and risks, assisting borrowing nations to manage their debt sustainably.

Special Drawing Rights (SDRs), reserve assets issued by the International Monetary Fund offer another way to boost liquidity. Rechannelling unused SDRs through regional banks, such as the African Development Bank, could provide critical support for cash-strapped nations. To maximize impact, SDR reforms should prioritize vulnerable economies and tie allocations to innovative mechanisms like climate resilience funds.

Unlocking private capital

Private sector investment remains an underutilized resource for financing development. Perceived risks and weak credit ratings deter capital from flowing into developing economies. To overcome these barriers, MDBs and governments must establish de-risking mechanisms, such as guarantees, to attract private financing for renewable energy and sustainable infrastructure.

Credit rating agencies also hold substantial influence over borrowing costs. Improving the quality of data and debt management systems is crucial for countries aiming to reduce the influence of credit rating agencies on borrowing costs. While these agencies play a critical role in global financial markets, their methodologies are focused on credit risk assessment and are not designed to capture the nuanced challenges facing developing economies. This underscores the urgent need for a global regulatory framework that serves to limit the importance of credit rating opinions to new investment opportunities.

Building climate resilience

Developing economies are bearing the brunt of increasingly frequent and severe climate shocks. To adapt, mitigate risks and transition to low-carbon economies, these nations require additional resources.

Developed countries must fulfill their $300 billion annual pledge agreed at the UN climate conference COP29 and complement traditional aid with green financing tools like sustainability-linked bonds.

Towards Seville: A transformative agenda

The FfD4 conference offers a critical opportunity to lay the foundations for a more effective global financial system, by advancing MDB reforms, scaling innovative financial tools and ensuring climate finance builds resilience. The future of global development depends on the ability to deliver bold and inclusive solutions.

Key priorities at the conference will include:

• Reforming MDB governance and expanding their capacity to lend.
• Strengthening global financial governance to give developing countries greater representation.
• Scaling innovative financial mechanisms, such as debt swaps and blended finance.
• Attracting private capital through de-risking and regulatory reforms.
• Ensuring climate finance is additional and supports long-term adaptation.

The high-stakes conference will not just test political will but also our collective commitment to a more equitable world. The time for action is now.