Rethinking the Global Financial Architecture– How UNDP is harnessing all capital for the SDGs

June 22, 2023

Photo:UNDP\ Geneva 2023. Mr. Marcos Neto, Director UNDP Sustainable Finance Hub briefing Member States in Varembé, Geneva

The United Nations Development Programme (UNDP) Office in Geneva recently held a briefing with Mr. Marcos Neto, Director of the UNDP Sustainable Finance Hub (“the Hub”), who presented an urgent call to action to align sustainable finance solutions with member states, finance, and banking partners. The event was an opportunity to summarize the outcomes of the United Nations Economic and Social Council, Financing for Development Forum this year and examine if both public and private sectors redirected financial flows to the most pressing areas for sustainable development and enhanced financed resilience.

Against the backdrop of multiple crises in the past years, such as the COVID-19 pandemic and planetary crisis, a global regression in poverty and human development has stagnated growth.  The situation has raised concerns about the international financial architecture which needs to free more fiscal space and to be fit for purpose to meet the development challenges of today.

The current financial architecture has been unable to break a decade-long stagnation of debt in fragile countries and achieve Sustainable Development Goal (SDG) financial alignment in public spending.

“It is the biggest divergence in human development in the last 30 years – we must put the SDGs back on track”, stated Marcos Neto.

The COVID-19 pandemic and the multiple crises have increased systemic inequalities, exacerbated the deficit to invest in sustainable development and reduced financial resilience causing some states to be at risk of debt distress.

To address these challenges, the UN Secretary General’s SDG Stimulus plan was published. It set out that immediate financial liquidation and debt restructuring efforts must be accelerated where natural hazards and existing crises can further escalate the debt trap cycle of high-risk states crowding out development gains in their own sovereignty.  

Re-thinking the development finance model

Sustainable finance must have integrity” – Marcos Neto

Meanwhile, around 60% of Least Developed Countries (LDCs) are already in or at risk of debt distress, compared to 39% before the pandemic, as presented to member states in the brief. Currently, 25 developing economies have external debt payments that exceed 20% of total revenue. If this debt cycle continues with the current international finance architecture, it will push millions more into poverty.

Neto emphasized that financing the SDGs in developing economies requires USD 4 trillion, representing less than 1% of the global wealth assets. In light of the 2023 ECOSOC Financing for Development, key policy areas for financing long-term sustainable development priorities were highlighted: the accelerated demand to reduce reliance on credit rating agencies, advance gender equality, enhance transparency and progressivity of tax systems, scale up and fulfilling Official Development Assistance (ODA) commitments, and supporting Micro, Small, and Medium Enterprises (MSMEs) through trade finance. 

Public and Private financing to drive sustainable development

As an entry point to address the systemic development finance challenges and better supports public financial management, the Hub, through its "Integrated National Financing Frameworks (INFF) " and "Public Finance for the SDGs" components, has supported over 85 countries, including 31 Least Developed Countries (LDCs) to include sustainability into their financial national strategies. Other key examples include assisting the government of Uruguay in issuing its first Sovereign Sustainability-linked Bonds (SSLB) for USD 1.5 billion, representing a shift in the traditional financial paradigm, towards recognizing global public goods and restructuring thematic financial instruments through whole-of-government and international agreements such as the Paris Agreement.

In addition, UNDP, in partnership with the Organisation for Economic Co-operation and Development (OECD), has launched the "Tax Inspectors without Borders" (TIWB) initiative. Since 2012, the initiative has resulted in a total of USD 2.07 billion in tax collected and USD 4.94 billion in tax assessed across 58 developing countries.

Additionally, the Hub aims to tap into private capital, working with the private sector to gather market intelligence and finance data, and accelerate efforts to reform the international finance architecture through UNDP’s SDG Investor Map. Investors, businesses and policy makers can use this information to direct private capital to where it is needed most and create investment pipelines. The market intelligence from the SDG Investor Maps, enables localised incubators, start-ups and businesses to know which sectors to target to match-make with investors where there is potential for deep development impact.

Fostering a bold and fairer sustainable finance agenda

To facilitate the member states for the brief, H.E. Jerôme Bonnafont, the Permanent Representative of France to UNOG, outlined four working groups in the lead up to a global summit convening a New Global Financing Pact in Paris on June 22-23 led by President Emmanuel Macron and Mia Mottley, Prime Minister of Barbados. The recognition of fiscal misallocation and call to make a paradigm shift in the development finance system in debt restructuring, fiscal stimulus through the private-sector, and navigating the political dimension from pledge to implementation was emphasised by the Ambassador. 

Protecting lives, building resilience, and driving inclusive economic growth

In 2022, natural hazards such as earthquakes, floods, droughts, heatwaves, tropical storms, and hurricanes caused an estimated global economic loss of USD 270 billion. Looking ahead, the United Nations projects that humanitarian needs will reach USD 51.5 billion in 2023. Jan Kellett, team lead for UNDP’s Insurance and Risk Finance Facility (IRFF), emphasised the role of financial instruments like insurance to alleviate financial shocks for countries most vulnerable to climate-induced disasters. 

“Insurance is an antidote to uncertainty” – stated Jan Kellett

Insurance can shift the burden of risk and provide fiscal stability as an alternative to bilateral loans that entrench debt. Currently, the IRFF collaborates with 29 countries across Africa, the Middle East, Asia and the Pacific, Latin America, and the Caribbean to leverage insurance and risk financing solutions to build financial resilience and safeguard sustainable development for vulnerable populations, communities, and ecosystems.

With only seven years remaining until the 2030 agenda, there’s mounting pressure to deliver and shift focus to action. As UNDP has indicated there’s a need for a sustainable financial architecture that is suitable for our complex, interconnected, and post-COVID world - that works for people and planet.

Photo: UNDP\ Geneva 2023. Marcos Neto member state briefing on ECOSOC 2023 Financing for Development Forum

Photo: UNDP\ Geneva 2023. Jan Kellet team lead, Insurance and Risk Finance Facility briefing to member states