Second Regular Session of the Executive Board 2023
August 30, 2023
As prepared for delivery
Mr. President, members of the Executive Board, colleagues and friends. I am honoured to join you today for this second regular session of the UNDP/UNFPA/UNOPS Executive Board for 2023.
Before I start, I would like to welcome Haoliang Xu to his first Executive Board in his new role as Associate Administrator, as well as Chris Taylor, the new Director of the Office of Audit and Investigations, and Isabelle Mercier, the new Director of the Independent Evaluation Office. I would also like to take this opportunity to thank Jordi Llopart for his seven years of exemplary service and unwavering commitment and support as the Secretary of the Executive Board.
Today our focus is on development finance. If we are far behind on poverty, education, decent work and climate action, as detailed in the latest SDG Progress Report, and to be discussed at the SDG Summit, it is in part because we are consistently behind on finance.
Development finance is not adequate. It is not reaching the right places. Why? Because even while risks are accelerating and change is constant, we are still attempting to achieve a transformative agenda with out-of-date policies, regulations, institutions and investment incentives.
Global systems of finance prioritize risks to lenders over risks to people. Policy focuses on economic output without factoring in issues that more growth cannot address. The security of nations receives more attention than the fragility and inequities of the global economy.
No part of the current scenario is working well, even as everything we hope for our common future depends on finding the money to pay for it today. Ironically, it is not that we are short of funds. The world has over $450 trillion in assets. Less than 1 percent of this - $3 trillion a year - would be enough to achieve the SDGs and climate goals in all developing countries except China.
Looking just at the numbers, this is a highly solvable problem. First, it requires more money aligned to sustainable development, from all sources. Second, the quality of finance has to improve to reach the highest development return on investment. And third, developing countries need greater support in developing capacities to attract more and higher-quality investments to achieve the SDGs and climate goals.
UNDP operates on all three levels. We bring in expertise and tailored advice that helps individual countries unblock and redirect financial flows, in line with their immediate needs as well as the broader transformation embodied by the SDGs and climate goals. Our experience points to several cross-cutting priorities, namely, to:
- Align national financing strategies with the SDGs—everywhere
- Define new means to mobilize finance
- Develop road maps and standards, including for the private sector
- De-risk development to improve lives and reduce costs
I will speak about each of these elements today. I want to begin by sharing some recent UNDP analysis on the current state of development finance. I also want to highlight a few countries making gains in financing climate action and the SDGs as a way of reminding us of how much is possible with the right commitment and capacities.
Current finance is undermining sustainable development
UNDP’s latest research chronicles how systems of finance are putting us far behind in achieving the SDGs. On debt servicing, we found that the average low-income country spends about 2.3 times more on interest payments than on social assistance and 1.4 times more than on health care. In the 48 countries facing this situation, home to 3.3 billion people, those most left behind will pay a devastating price in lost health care, social protection and resilience to shocks. Without an immediate course correction, the consequences will worsen over time.
The inefficiency of this system is evident in our calculation that it would cost around $14 billion to mitigate poverty among the additional 165 million people living on less than $3.65 a day due to recent economic shocks. That is only about 4 percent of total external debt service payments for low- and middle-income countries in 2022, which reached $370 billion. It is just one illustration of how much money is turning away from sustainable development - instead of towards it.
One other example comes from our SDG Insights work, which provides a unique glimpse into real-time SDG decision-making in nearly 100 countries. It is finding that countries are heavily focused on growth, jobs and poverty reduction - even if that rapidly enlarges carbon footprints. In fact, 64 per cent of the countries in UNDP’s analysis are on a path that will increase the carbon intensity of their economies.
The focus on jobs, growth and poverty reduction reflects well-grounded concerns about slow recovery from the pandemic and continued vulnerability to risks, including from social polarization as people struggle to keep their lives on track. It also indicates increasingly tight fiscal space and difficult choices. Countries are willing to invest in energy transitions and many see the potential of green economies, but a precondition is the availability of technology and finance. For a variety of reasons, too many developing countries still find it too difficult to obtain these.
In representing the Secretary-General in the finance track at the G20, I have been closely following the international discussions on development resources, seeing the palpable gap between what is needed and what is on offer. Some movement to reform the multilateral development banks and reorient the Special Drawing Rights is positive but not happening at the speed or scale required. Inadequate progress on debt restructuring and climate financing is most worrisome.
With the Secretary-General, UNDP advocates for an SDG Stimulus that would allow more liquidity, more concessional lending and debt restructuring for developing economies. In tandem, the international system should speed up development of a science-based case for sustainability and a coherent, compelling economic rationale. It should further elaborate new metrics for going beyond GDP, and amplify developing country perspectives on a global economy that is inclusive, equitable, just and sustainable.
We can make better choices
At a moment of fraught discussions and many concerns about the future, a few UNDP experiences in working with countries remind us that progress is possible. These show innovative ways of bringing together finance to meet longstanding needs and reset the directions of institutions and, in some cases, economies at large.
An unprecedented push for poverty reduction: You may remember hearing at the Board in June about how the Government of the Democratic Republic of the Congo is collaborating with UNDP and the International Monetary Fund on a massive $1.7 billion community development programme to improve local infrastructure, services and market links in marginalized communities. UNDP helped to broker a process of drawing together an unprecedented sum of finance for local development in a country beset by conflict and fragility, where human needs are acute. Funds have come from domestic and international sources, including under the IMF’s Special Drawing Rights. For local communities across 145 territories, some of which will be gaining power, water systems, schools and roads for first time, this is a gamechanger.
Configuring the blue economy: In collaborating with small island developing States, UNDP is working with a range of public and private partners to link different financing mechanisms and sources of finance aimed at charting a course to the blue economy. With grant finance, countries in three SIDS regions are working together to plan and coordinate strategies to develop the blue economy. Through the Global Fund for Coral Reefs, a UN multi-partner trust fund instrument where UNDP is a founding partner, blended finance is unlocking private investment in commercially viable, coral-positive businesses that generate jobs, benefit communities and protect the ocean. Fiji’s first sovereign blue bond is underway to transform several industries, including aquaculture and waste management. Cabo Verde’s recently issued blue bond injects capital in smaller businesses in coastal communities and is meant as a step towards decentralizing and diversifying a heavily tourism-dependent economy.
Reshaping energy finance: UNDP’s sustainable energy work is moving forward rapidly. I have spoken before about our Africa Mini-grids Programme, aimed at closing energy gaps for 265 million people in 21 countries. A partnership between UNDP, the Global Environment Facility, the Rocky Mountain Institute and the African Development Bank, it will demonstrate how solar mini-grids can deliver electricity in remote communities and pull in private sector investment at scale. We are about to launch a dedicated financing facility to aggregate and structure funding in order to reduce risks and improve both financial and development returns.
In tandem, UNDP’s Climate Aggregation Platform is crowdsourcing innovative financial solutions for clean energy in East Africa, such as through bundling carbon credits so that smaller clean energy companies can tap carbon markets. In Latin America, we are partnering with CAF, the regional development bank, to scale up private finance for a just energy transition through a network of national development banks and local financing institutions. New blended finance instruments are expected to catalyse investment of up to $5 billion by 2028, flowing towards new businesses, novel financial instruments and effective regulations.
Triggering digital development with multiple returns: Well-placed investments in digital technology can generate both development benefits - and new funds. That’s the case in Malawi, where UNDP helped establish a national digital ID system that has improved an array of services, curtailed losses in social benefits schemes by $20 million, and freed funds to improve livelihoods for 4 million small farmers.
A handful of examples is not meant to suggest that UNDP has easy answers to financing questions. But they do remind us of the potential to make different, better decisions that lead to better results. Similar choices and more are possible under each of the four priorities I mentioned earlier - to align national financing strategies, define new means to mobilize finance, develop road maps and standards, and de-risk development.
These four turning points speak to more effective management, higher quality finance, more robust implementation and lower risk. They could lead development and finance in radically new directions.
1. Align national financing strategies with the SDGs - everywhere
In general, we know that we have to go beyond a narrow focus on moving discrete pots of money around, from this issue to that one, from one country to the next. That is clearly part of the process. But sustainable development demands the alignment of all forms of finance - from what you spend on groceries to the choices made in finance ministries and corporate boardrooms.
Much of what we do at UNDP starts with a perspective that the public sector must be the fiduciary of global public goods. No other actor or sector can serve that purpose. To achieve the SDGs, governments must have robust institutions and tools to achieve national development priorities, meet needs in every community and sustain natural ecosystems. They must be able to set incentives and manage risks so that private finance operates as the engine of the economy while yielding environmental and social dividends. In other words, so all roads lead to the SDGs.
At UNDP, we are seeing a transformative shift begin in the recognition that sustainable development financing is not an add-on to traditional development finance. Entire budgetary systems and regulatory frameworks can align with sustainable development, in every country.
That is why UNDP, together with an array of UN organizations, including through the vehicle of the Joint SDG Fund, has been a leading partner in the integrated national financing frameworks (INFFs) underway in 86 countries. To manage complex financing choices, the frameworks link public finance policies and deepen the collaboration of international and national actors as well as public and private ones.
The INFFs support a process of planning and policy reform, with over 250 reforms already underway to improve taxation, budgetary systems and investment readiness, among other core issues. The INFFs also institutionalize new practices, such as budget tagging, which tracks public expenditure on the SDGs and climate goals.
Since national budgets are the world’s second largest source of finance after global capital markets, the implications are profound. We are already seeing significant new funds. For instance:
- In 2022, through budget tagging, Colombia ensured that spending aligned with the SDGs rose to a total of $65 billion. This was $4 billion more than in 2021. Further, the increase in aligned expenditure was quadruple the amount of the increase in government spending overall.
- In Uzbekistan, SDG-aligned spending rose to $14 billion in 2022, an increase of $3 billion over the previous year.
- Mongolia has aligned over $900 million in annual public expenditure with the SDGs. Further, its stock exchange has adopted sustainability reporting standards that apply to more than 200 companies with a combined $2 billion market capitalization.
UNDP’s Tax for SDGs initiative is a new offer linked to the INFFs. With a focus on countries in particularly challenging development contexts, it helps governments to evaluate tax systems for SDG coherence and improve tax administration. Timor-Leste recently boosted levies on tobacco, which has drawn in new revenues and reduced smoking rates. UNDP has supported Kyrgyzstan on legislative reforms requiring tax expenditures, often an expensive drain on public revenues, to align with national development goals.
2. Define new means to mobilize finance
The debt crisis that I spoke about earlier is a conundrum, if not an unexpected one. No one should be surprised that interest rate hikes in one part of the world trigger downgraded health services in another. This kind of outcome will happen as long as we continue attempting to achieve sustainable development through unsustainable systems of finance.
With the debt crisis taking off so quickly and insidiously, UNDP recently urged a debt-poverty pause until the multilateral system can catch up on debt restructuring at the scale required. Countries with negative fiscal space and people falling through the cracks should not be expected to simply wait for economic growth to resume.
As much as this is a crisis of unsustainability, it is also an opportunity to shift towards finance aligned with sustainability and more effective governance, combined. Large shares of current debt are maturing and will require refinancing, for instance. Low-income countries will see the maturity of 45 per cent of their outstanding debt by 2024. This coincides with the emergence of a new generation of sovereign thematic bonds that is opening access to significant private capital aligned with sustainable development and climate goals; the thematic bond market’s cumulative issuances, sovereign and corporate, approached $4 trillion over the past decade.
Several pioneering developing countries have shaped this promising market through collaboration with UNDP. Mexico issued the world’s first sovereign SDG bond for 750 million euros followed by a second for 1.25 billion euros. Indonesia has issued sovereign green Islamic bonds worth more than $6 billion and SDGs bond for more than $1 billion.
Sovereign thematic bond instruments, however, remain a stretch for many lower-income countries. Debt burdens are high; markets are less developed; States are still developing expertise. That is where UNDP increasingly provides tailored assistance to assess benefits, risks and overall ‘fit’ with national objectives.
We map the potential for transitioning existing sovereign debt into thematic SDG debt, which can lower debt costs, strengthen fiscal positions and improve countries’ credit ratings through de-risking. The INFFs guide debt decisions that match national policy choices around domestic resource mobilization, expenditure efficiency and sustainable development.
With this kind of customized support:
- Honduras is developing its first SDG bond.
- Bolivia’s National Development Bank expects an SDG bond issuance on the domestic market this year.
- Bangladesh anticipates that a forthcoming SDG thematic bond framework for debt issuances and an impact management and reporting framework, supported by UNDP, will both popularize thematic bonds and strengthen the bond market.
Another initiative is the Green and Resilient Debt Platform, a partnership between UNDP, the European Investment Bank, the European Union, the Green Climate Fund and the Nordic Development Fund. It will help African and least developed countries improve investment readiness and financial de-risking to scale up the issuance of green bonds. So far, it has attracted seven countries: Angola, Cameroon, Côte d’Ivoire, Kenya, Namibia, Senegal and Uganda. An important feature is that the platform will expand green bonds to finance climate adaptation. Most past issuances have focused on greenhouse gas mitigation.
UNDP continues to draw attention to inequities in international financial systems that penalize and crowd out countries and people—like the credit ratings system that leaves countries across sub-Saharan Africa facing some of the world’s highest interest rates. No country there has issued a bond on international markets since early 2022. By tracking discrepancies between models that assess risk and set rates, we found that those better reflecting the realities of many African economies could lower rates and generate savings of up to $75 billion for 16 countries based on current loans.
3. Develop road maps and standards, including for the private sector
The emphasis on growth and jobs that surfaced in UNDP’s SDG Insights work is part of what we are seeing as a global push for faster convergence between developing and developed countries. This is a powerful opportunity to embed sustainability as a central operating principle of economies and businesses. The right finance, policy and regulatory choices can reduce climate risk, align more private sector finance with inclusive, green development, and avoid locking in unsustainable investments.
Such an argument is not new. But its urgency is escalating, requiring systematic road maps and standards to push the rapid evolution of entire markets. Some INFFs have become a locus for this kind of transformation. For instance:
- Namibia’s INFF supports a major policy shift towards developing a domestic green hydrogen industry, making the country a forerunner in Africa. Amid interest from major economies, including China, the United States of America and the European Union, and with a series of grants and early investments that have already surpassed $100 million, it is developing a blended finance mechanism to lower capital costs. Namibia predicts that the sector could emerge as an engine of the broader economy, more robust tax revenues and hundreds of thousands of new jobs.
- In its INFF, Nepal plans to spur the growth of digital finance, among other sectors, by emphasizing blended public and private finance. Its approach is based on existing successful experiences in de-risking commercial bank debt and using impact-based blended debt instruments in renewable energy.
New UNDP-developed tools help map entry points for market shifts and measure compliance with new standards. For example:
- In 34 countries, SDG Investor Maps have identified over 550 investment areas or business models with strong sustainability contributions. In Africa and Latin America, Baraka Impact Finance LLC, a leading health-care investment data provider for emerging markets, has applied the maps in framing a pipeline of high-impact health sector deals in emerging markets.
- In Europe, the SDG Impact Standards developed by UNDP have become the most widely used impact-management framework among SDG-aligned private equity managers, according to the latest European Venture Partners Association Investor Survey.
- The New Development Bank achieved a first by a multilateral development bank by issuing a nearly $750 million SDG Bond for China using UNDP’s SDG Finance Taxonomy and Impact Standards.
- A new ISO management system standard for the SDGs is underway at the International Organization for Standardization, the world’s most prominent source of quality management standards. It is being developed in close collaboration with UNDP, based on the SDG Impact Standards.
UNDP is exploring possibilities that stem from embedding sustainability in criteria for private firms to access finance. Collaboration with the Asian Development Bank on impact measurements will make finance more accessible to businesses oriented towards poverty reduction and inclusive economic growth. A partnership with the Kuwait Finance House, one of the largest Islamic banks in the world, backs closer alignment of business operations with the SDGs through Islamic-compliant investments in green energy and the environment.
UNDP is working with the Global Legal Entity Identifier Foundation and Monetary Authority of Singapore in devising basic sustainability credentials for smaller and medium enterprises that could be used as a new form of collateral. This is particularly exciting because it is a chance to simultaneously promote financial inclusion and green growth.
4. De-risk development to improve lives and reduce costs
Our SDG Insights work confirmed acute concerns about risk and resilience. Many of these arise from the lag in development and worsening social fragmentation, conflict and crisis. Yet as demonstrated in some INFFs, we also need to be clear about the risks that emerge when public and private activities and investments are disjointed and even working against each other. Private operations aligned with sustainable development are central to de-risking development as a whole, from upholding environmental and labour standards to improving financial inclusion.
As just one example, UNDP’s work with 124 countries on digital solutions, including through our Accelerator Labs network, puts an increasing emphasis on establishing digital public infrastructure. In lower and middle-income countries, such infrastructure for the financial sector alone could speed economic growth by up to 33 percent, while making development more inclusive and resilient. For women in particular, the benefits could be enormous. Digitalized financial services can improve financial autonomy and diminish vulnerabilities to poverty, climate fallout and negative health outcomes, among other impacts.
Increasingly, digital payment systems are operating on a mass scale. India’s Unified Payments Interface eases digital payments between banks, people and merchants. It hosts 9 million transactions a month for 260 million users. InstaPay, a retail payment service in the Philippines, now transacts over 50 million small-value payments for e-commerce, tolls and fees every month.
An industry that is a forerunner in de-risking development is the insurance business. In 2022, UNDP’s Insurance and Risk Finance Facility worked in 30 countries with 20 insurance industry partners to develop insurance and risk financing solutions that build financial resilience and safeguard sustainable development for vulnerable people, businesses, communities and ecosystems. The tripartite partnership between UNDP, BMZ and the Insurance Development Forum, representing 17 leading global (re)insurers, has 22 active projects, the first 10 of which have the potential to protect 64 million vulnerable people from climate risks and mobilize $2.2 billion in risk capacity from insurers. We are exploring new frontiers in using AI to improve government financial risk management, insurance regulation and the development of national insurance capacities.
I want to take a moment to recognize that our partnership with the insurance industry made possible the ongoing salvage of a million barrels of oil from the FSO Safer oil tanker off the coast of Yemen. This is in some sense a model for how we can bring different streams of finance and capacity together to reduce risk and solve complex challenges. UNDP, one of the very few organizations globally with the skill set to manage this kind of operation, collaborated with Howden, a global independent insurance broking group that oversaw a set of specialized policies packaged and syndicated across 13 insurers.
UNDP as a preferred partner
A final set of points centres on UNDP and the development finance that flows through it. These funds support all the processes I have described and many more. They also leverage significantly greater flows. To recap from our record $4.8 billion delivery in 2022:
- UNDP invested 91 cents of every dollar in programmes and services to achieve development results, from jobs to higher-quality health services.
- Over 80 per cent of regular programme resources went to low-income countries.
- Our environment-related portfolio, resourced at $3.9 billion, leveraged $15.1 billion in additional public and private funds, a ratio of more than three to one.
- A surge to meet massive humanitarian and development needs resulted in a the highest-ever procurement volume of $2.8 billion.
- We administered a record-breaking $1.74 billion in pooled financing for joint delivery on sustainable development with our UN sister organizations through the Multi-Partner Trust Fund Office.
- The South-South cooperation trust funds managed by the UN Office for South-South Cooperation have enabled over 70 countries to advance sustainable development initiatives in partnership with over 20 UN organizations.
- The UN Capital Development Fund and its partners catalysed $600 million in additional public and private finance for sustainable development, including for 37 LDCs.
- UN Volunteers has seen the steady growth of its Fully Funded programme, including through diversified funding of $18.2 million from Member States, academic institutions and the private sector.
As a preferred partner, UNDP continues to support more projects and the associated billions of dollars in development finance from major vertical funds than any other international organization. The funds include the Green Climate Fund, the Global Environment Facility (GEF), the Multilateral Fund for the Montreal Protocol and the Global Fund to Fight AIDS, Tuberculosis and Malaria.
Just a few weeks ago, the GEF pledged the highest funding in its history, some $1.4 billion. For more than $500 million of this amount, 88 countries selected UNDP as their preferred implementing partner. UNDP, which has partnered with the GEF for more than 30 years, expects this investment to unlock an additional $9 billion from the public sector, private sector and development banks, including to ensure smaller businesses can thrive and transition to low-carbon practices.
Today you have before you an update on our portfolio approach, a model gaining momentum in reshaping how and where we invest in development by showing how different development and financing solutions best fit together.
In Bosnia and Herzegovina, we have engaged with donor governments and international financial institutions in a portfolio approach to developing a circular economy. This has brought forward investment options in governance, digital transformation, waste and infrastructure. Since portfolios are based on dynamic management and constant learning, they allow adaptation while keeping a focus on long-term goals. They are well-suited to correcting common shortfalls in development finance, including short time horizons and limited coordination.
A countdown to the development we want
Finance already works for development—just too often the wrong kind. We end up with economic growth at any and all costs because that is what is available. It is the ‘growth we get’—fossil-fuel driven, commodity-based, debt-fuelled and frequently unjust. The ‘development we want’ expands human and planetary well-being, creates jobs and accelerates energy transitions all at the same time.
Aligning all flows of finance with sustainable development is a complex task but one already underway, in the public and private sectors, nationally and internationally. Our challenge is to move further and faster. Instead of making trade-offs, we must work together to trade up, starting by financing and achieving the SDGs and climate goals.
Every day, UNDP works with countries seeking development finance and countries providing it. We know that while the choices are difficult, the possibilities are immense. Changes are taking place. We are ready to work with all of you to do much more.
The services UNDP offers to developing countries make a vital contribution in better preparing the world at large to invest in sustainable development. The many initiatives I have shared with you today contribute to that end, helping countries to resolve sticking points, navigate short- and medium-term priorities, and build national capacities to:
- Orchestrate and expand the means to finance the SDGs and climate goals, such as through better approaches to taxation, expenditure and debt
- Capitalize on changes in global financial flows through new regulations and policies as well as investment portfolios that attract funds and advance SDG and climate objectives
As we count down to the SDGs, let’s count down the financing numbers as well—from 3 to 2 to 1. I noted earlier that we need an annual $3 trillion for the SDGs and climate goals in developing countries outside China, as estimated by an independent expert group commissioned by the G20 presidency. Of this, $2 trillion could come from domestic resource mobilization, and $1 trillion from additional external financing through official development assistance and private capital markets.
These are manageable numbers. Some countries are already moving towards them. Transformation at scale is obviously not going to happen today. But it starts today. In short, our countdown to the SDGs is our chance to claim the development we want.