Rising uncertainty over the future of global trade and multilateralism is threatening to derail the long-term development agenda. But amid volatile markets and geopolitical tensions, the Fourth International Conference on Financing for Development ( FfD4 ) in Seville, Spain, at the end of June must not be overlooked.

FfD4 represents an opportunity to forge consensus on the policies and strategies required to finance inclusive and sustainable development, including climate action. The stakes have never been higher: access to affordable long-term financing that could improve the lives and futures of billions of people.

Over the past two decades, overlapping crises and profound geopolitical and economic shifts have dramatically altered the global financing landscape, leaving developing economies unable to secure the funding they need and threatening to stall progress and squander hard-won gains. Financing gaps have widened in the poorest and least-developed countries, to an estimated 15% to 30% of GDP. The amount of investment required to meet the Sustainable Development Goals by 2030 has jumped from US$2.5 trillion in 2015 to more than US$4 trillion in 2024. Without a huge scale-up of finance, progress toward the SDGs – already disrupted by the pandemic and other global shocks – will remain out of reach.

At the same time, new borrowing has become more expensive and uncertain. Median sovereign spreads for frontier-market economies ( which have a lower degree of financial market integration ) widened by about 150 basis points following the United States’ tariff announcement in early April, driving up borrowing costs and making it harder to roll over existing debt and invest in critical sectors, such as renewable energy. Limited access to emergency liquidity further heightens their vulnerability, raising the risk that short-term shocks will become long-term setbacks.

Foreign stakeholders have not stepped up to fill the gap. In 2024, official development assistance fell by 7.1% – the first decline in years – and this trend will likely accelerate as donors slash their foreign-aid budgets to address other priorities. Private investment in developing countries also has slowed sharply; for the past three years, these countries paid more to private creditors in debt service than they received from them. This was partly offset by a near-tripling of disbursements by multilateral development banks ( MDBs ) between 2000 and 2023, with the World Bank Group alone disbursing US$89 billion in 2023-24. But even with significant and regular recapitalization, MDBs cannot plug the ever-widening hole.

Meanwhile, debt service burdens are becoming unsustainable for many countries. In 2023, 38% of developing countries – nearly half of which are in Africa – spent 10% or more of government revenues on interest payments. In the case of frontier market economies, interest costs on long-term external debt rose by 42% in that year alone, owing to higher policy rates in advanced economies. More than half of low-income countries are either in debt distress or at high risk of it, yet only four – Chad, Ethiopia, Ghana and Zambia – have sought restructuring under the G20’s Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative. Restructuring has become slower, costlier and more complex because of the prevalence of private creditors, which held 67% of external public and publicly-guaranteed debt in emerging-market economies in 2022.

Overall, developing countries pay around US$460 billion more to service their debt and other external liabilities than they earn from their foreign assets each year, according to United Nations Trade and Development calculations based on the International Monetary Fund ( IMF )’s balance-of-payments data. This burden severely constrains essential investments. While creditors continue to be paid, many people in these countries suffer from hunger and malnourishment and struggle to access education and health care.

FfD4 can deliver a strategy that addresses these challenges by securing affordable, long-term, and predictable development finance. But FfD4 delegates must also focus on helping countries shift from “financing for development” to “financing from development”. Economic growth is essential to mobilize additional domestic resources, whether through promoting capital markets, expanding the tax base or increasing and diversifying export earnings.

Equally important is confronting the debt crisis. FfD4 delegates must address the limits of existing debt-resolution frameworks and pursue reforms aimed at reducing debt burdens and the cost of debt service, expanding fiscal space and strengthening balance-of-payments positions. And to prevent temporary shocks from spiralling into structural debt crises, they should focus on improving access to short-term liquidity.

These efforts must be accompanied by a push for broader reforms that would help developing countries integrate into the global economy. To that end, FfD4 delegates should advocate a fairer multilateral trading system, improved investment and technology-transfer frameworks, and a more development-friendly intellectual-property regime.

Against this backdrop, UN Secretary-General António Guterres established the Expert Group on Debt to identify policies that would mitigate the current debt and development crisis. The group has proposed three sets of measures, centred around reform of the multilateral system, cooperation between borrowing countries and national policy in borrowing countries, as well as debt solutions and systemic changes in areas such as trade, finance and economic governance.

Rising protectionism and slowing growth – reflected in the IMF’s downward revision of its global growth forecast for 2025 from 3.3% to 2.8% – are only exacerbating the developing world’s existing vulnerabilities. Policymakers’ urgent task is to revitalize the development finance agenda and set in motion a virtuous cycle whereby external finance drives domestic growth and builds long-term resilience. FfD4 provides the opportunity to do so.

Mahmoud Mohieldin is a UN special envoy on financing the 2030 Sustainable Development Agenda and the co-chair of the Expert Group on Debt, and a former minister of investment of Egypt, senior vice-president of the World Bank Group and executive director of the International Monetary Fund; Paolo Gentiloni is the co-chair of the Expert Group on Debt and a former European commissioner for economy; Trevor Manuel is a former minister of finance of South Africa and the co-chair of the Expert Group on Debt; and Yan Wang is a senior academic researcher at the Boston University Global Development Policy Center and the co-chair of the Expert Group on Debt and a former senior economist at the World Bank.

Copyright: Project Syndicate