1. The Era That Created Financing for Development

Financing for Development was a core part of the post-war Bretton Woods Agreement in 1944. The establishment of the International Bank for Reconstruction and Development (now part of the World Bank) and the accompanying Marshall Plan to support post-war reconstruction in Europe formed a core part of a vision for macroeconomic stability, development and trade as being central to maintaining international peace.

As countries gained independence from colonialism, the World Council of Churches (WCC) adopted a statement that emphasised the importance of international finance in supporting countries to stimulate economic and social development:

The WCC’s advocacy led to the UN General Assembly endorsing the call in 1960, which was subsequently supported by an influential group of economists. An UNCTAD study and the Pearson Commission recommended that within the 1% overall flows target, donors should give 0.7% of GNI in public finance (aid). The target subsequently endorsed by the UN General Assembly in 1970 emphasised financial flows supporting countries’ development plans. Fast forward to 2002 and the UN’s first formally negotiated declaration on Financing for Development—the Monterrey Consensus—declared that:

The declaration, which was updated in Doha in 2007 and in Addis Ababa in 2015, focused on the importance of domestic resource mobilization, good governance, and prudent macroeconomic management. But it also emphasized the importance of international public finance in supporting countries to maximize the benefits of globalization and attract investment, and a fair trading system allowing countries to develop trading relationships, generate income, and create jobs.

The framework included ‘systemic issues’ that needed to be addressed to support economic development, including financial architecture reform, a debt workout mechanism, steps to support countries during financial crises, and trade and tax reform.

On the international level, governments consistently reaffirmed the goal of allocating 0.7% of gross national income (GNI) to Official Development Assistance (ODA) in subsequent UN declarations; yet only a handful of governments achieved the target. Many of the systemic issues highlighted in 2002—for example, on debt and tax reform—are still in need of resolution.

2. The Era We’ve Lived Through: An Age of Miracles

The period since 2002 has witnessed a significant uptick in public spending on development, and targeted spending toward high impact outcomes—particularly in the fight against preventable diseases (for example, through Gavi, the Vaccine Alliance and the Global Fund to Fight AIDS, TB and Malaria).

The convergence of economic growth, new technologies in the form of vaccines and anti-retroviral drugs and increased development spending led to an ‘age of miracles’ where challenges that have plagued our species since the beginning have been addressed dramatically—child mortality declined by 59% (1990-2023) and maternal mortality declined by 40% (2000-2023), while global life expectancy expanded from 64 in 1990 to 73.2 in 2023.

Declines in extreme poverty in Asia—driven by China and India—have been remarkable. In East Asia and the Pacific, the number of people living in extreme poverty (less than $3.00 a day) has plummeted from 1.2 billion in 1990 to 40 million. In South Asia, the number has declined from 602 million to 95 million. In contrast, in sub-Saharan Africa—in part due to population growth—the number of people that live in extreme poverty has increased 85%, from 317 million in 1990 to 587 million today.

Yet the development architecture has not been without its critics. At the national level, the myriad of processes, institutions and donor priorities frequently worked against national ownership, and efforts to improve coordination through the adoption of ‘Aid Effectiveness’ principles have clashed with national political priorities and trends in donor countries.

Critics have argued that aid is a foreign policy instrument that serves the interests of donors; that it can create dependency and distort economic structures, creating harmful policy conditionalities which they impose on developing countries and which contributed to a ‘lost decade of development’ in the 1980s.

Recent debates on reforming the Bretton Woods Institutions have focused on the lack of representation in institutions that were created before many countries in the Global South gained independence from colonialism.

3. The Era We're In: A Moment of Fragmentation

The 2020s have been characterised by fragmentation. A series of economic, political, demographic and environmental trends have converged to create a fundamentally different climate from when the development finance process began.

In traditional ‘donor’ countries, the politics of scarcity are winning out over the politics of abundance. As inequalities grow and become more visible, many citizens of rich countries no longer feel rich and no longer feel an obligation to ‘the poor.’ Populist movements that pit low-income citizens in their own country against low-income citizens in other countries—and that pit investments in present-day problems against funding for our collective future—are in their ascendancy.

Trust in establishment voices and institutions has collapsed. As the traditional value-based ‘anchor points’ of religion and hierarchical authority diminish, many (usually on the right) turn to ‘strong-man’ politics, which claim to offer certainty, simplicity and ‘basic moral wisdom’ in a complex and volatile world.

At the same time, countries in the Global South have a newfound confidence, stemming in part from geopolitical shifts. The BRICS grouping, dominated by China, now accounts for roughly 45% of the world’s population, 35% of global GDP (PPP), and almost 30% of global oil output (by comparison, the G7 accounts for 25.8% of global GDP and less than 10% of the world’s population). The UAE’s foreign direct investment to Africa in 2022 ($52 billion) was roughly equal to all Development Assistance Committee (DAC) donor’s aid to Africa ($53 billion).

While emerging economies have become increasingly influential donors, they are not captured within Western frameworks for governing development flows, such as the OECD-DAC.

COVID-19, Russia’s invasion of Ukraine, conflict in the Middle East, and the climate crisis have increased financing needs and weakened the fiscal positions of many countries.

• Average growth rates in countries eligible for the World Bank’s Low Income Country fund (39 of which are in sub-Saharan Africa) have declined from 5.6% in the early 2000s to 3.4% in 2020-2024.
• The population of countries whose food insecurity situation is ‘stressed’ has doubled since 2019 to 427 million. Climate vulnerability is higher and institutional quality is lower in these countries.
• 421 million people living in extreme poverty are in countries affected by fragility, conflict and violence.
• By 2030, up to two-thirds of the world’s extreme poor will live in countries characterized by fragility, conflict, and violence. These are countries that will struggle to attract international investment and will be dependent on international concessional finance.
• 20 low-income countries in Africa are in, or at risk of, debt distress (59% of assessed countries). African countries owe US$655.6 billion to external creditors as of 2022 and will pay US$89.4 billion in external debt service in 2024. External debt is equivalent to 22.5% of their combined GDP in 2022.

International governance frameworks are buckling under the pressure of fragmentation and are unable to address these issues. The complexity of today’s creditor landscape has made it difficult to coordinate effective debt relief for countries in crisis, and investment is increasingly tied to the geopolitical and economic interests of donor countries.

Multilateral agreements on coordinating international tax policy have been criticised for their lack of representation from the Global South, and calls for reforms of the Bretton Woods system have focused on the effectiveness of these institutions to tackle modern transnational threats and their lack of representation.

4. The Era To Come: Scarcity or Security?

Much of the debate has focused on restructuring institutions such as the United Nations to respond to the liquidity crisis resulting from funding cuts—at a time when public trust in institutions is collapsing.

While current debates are dominated by scarcity and the gap between available funding and what is needed, this reactionary approach belies a long-running debate about the purpose and structure of development finance.

Debates about the decolonisation of development have sought to challenge the notion that development is something that technical experts, international actors and NGOs can impose from the outside. They instead assert that development should be locally led. Development can, however, be supported through solidarity and cooperation.

These debates about shifting power run counter to the politics of donor countries, where making the case for development finance increasingly requires arguing that aid benefits the donor country’s economy, security and boosts its soft power. Meanwhile, governments in Africa, for example, are increasingly lukewarm on making the case for ODA and are focused instead on private investment, access to capital markets and addressing the high cost of sovereign borrowing.

While development should be led locally and nationally, strong international coordination is essential to manage cross-border capital flows and public finance in order to tackle shared global challenges.

• The first involves the ongoing need for international public finance for countries with no other source of finance for essential services—particularly low-income countries and fragile states.
• The second involves coordination over policy spillovers: for instance, the impact of one country’s trade, tax or climate policy on the economy of another.
• The third involves transnational challenges that require both cooperation and financing, which include migration, climate change and pandemic threats.

One concept that has gained traction among civil society groups is embodied in the principle of Global Public Investment. All countries pay into funds that invest in our collective security, all have a say in how the funds are governed, and all benefit. Some development funds, such as the Global Fund and Gavi, have sought commitments from developing countries to embed this principle. The concept of circular cooperation takes this further by proposing that development cooperation should be more than a transfer of financial resources; it should represent a common investment in mutual learning, research, and development.

But while these ideals are debated within academia and civil society, the immediate political reality in many countries is one of closing space for imagination.

In the medium term, this doesn’t need to be the case. The idea of mutual cooperation is well established in the European Union and in the military and scientific spheres. For example, the EU’s Copernicus Earth observation program and CERN (the European Organization for Nuclear Research) are governed by international conventions, with member states contributing funding proportionally based on the size of their economies. These standardized, stable treaty-based organizations stand in stark contrast to the volatile and politicized nature of ODA, and allow for upstream investments for the future.

5. The Reimagination: Revisiting First Principles

Nobel Prize winner Amartya Sen described development as freedom: freedom to broaden the range of things that a person can be and do in the world. Freedom for people to lead lives that they find fulfilling. Freedom from economic poverty, but also freedom from illness, freedom of speech, to work, worship and love who they want.

And this freedom runs throughout one’s life. For example:

• As an infant, freedom includes accessing the right micronutrients and inoculations to allow your brain to develop and your body to fight diseases.
• As a child, freedom includes having access to a safe environment to grow and learn.
• As an adolescent, freedom includes accessing the right skills, opportunities and networks.
• As an adult, freedom includes having access to capital, energy, employment opportunities and the right to democratic and religious expression.

But what leads to those economic opportunities and healthy lives? Should the focus be on empowering the individual, or on developing society as a whole? Can a country go it alone, or must it be interdependent through trade and diplomacy? Does economic growth come before other rights-based freedoms, together or afterwards? What is the role of culture and individual responsibility vis-à-vis the state? How does a consumption-based model fit with ecological constraints?

These questions are both highly contested and ideological. But rather than try to litigate these in international negotiation processes—a process that to date has frequently led to slow-moving, lowest-common-denominator solutions—multilateral processes could identify core ‘missions’ built on universal values. And then they could create the conditions to support countries to aspire to and achieve these goals.

Orienting the Financing for Development process around a focused set of goals and outcomes, rather than inputs and institutions, would arguably reduce confusion and duplication and allow for better allocation of resources against priorities.

This could then form a framework for countries, non-state actors and the private sector to orient their contribution around priority goals. For example, donor countries—rather than focusing primarily on 0.7% of GNI as an input metric—could choose an outcome goal that serves domestic and international interests; and then orient resources and policies in pursuit of those goals, inspiring investments and action from governments, civic bodies and businesses.

Social capital could be more precisely framed as a structural and institutional asset, not only as informal networks or trust. In fragile and low-trust environments, civic infrastructure—platforms for participatory planning, grievance redress, and collaborative service delivery—constitutes investable capital in its own right. Models like national civic forums, community health worker platforms, and local governance councils serve as mediating institutions that enable both service access and institutional legitimacy. The breakdown of associational life more broadly (à la Putnam) is very much connected to rising distrust, social cohesion and resilience.

To date, the Financing for Development process has focused on consensus-negotiating texts and language-creating norms that help shape policy-making at the national and international level. But this has led to a dynamic whereby interest groups and states pursue their agendas, negotiating in a way that often leads to lowest common denominator agreements.

An alternative approach is to move towards a set of principles that build on the core principles of the Financing for Development process, but are implemented in a range of fora:

• Subsidiarity: Action devolved to the most local level possible.
• Country First: Root international investments in the economic transformation plans of countries.
• Mission-Driven Outcomes: Identify core drivers of sustainable development that are win-win and track outcome goals on a regular basis, including monitoring commitments and contributions.
• Put Resilience First: Concessional finance targeted to the countries and subnational entities that have no alternatives for accessing finance.
• Finance From Development: the benefits of economic and sustainable growth can be recycled to invest in further development.

6. The Money: Where is it Going to Come From and Where Should it Go?

We cannot ignore the fact that addressing today’s challenges and shifting from scarcity to security will require significant investment. Credible estimates place the costs of achieving the Sustainable Development Goals and supporting the energy transition in the range of 2.4 trillion by 2030.

But it is also clear that mobilising these resources is a function of political imagination and prioritisation. And that mobilising new forms of capital is not just about the cost side of the equation, but about demonstrating returns and addressing barriers to investment.

Increasingly scarce concessional finance (ODA) should prioritise the most impactful programs and be targeted to countries with limited access to other forms of capital. This is true, particularly for Fragile and Conflict Affected States, where two thirds of the world’s extreme poor will live by 2030. And this could include:

• Making the case for humanitarian aid to be integrated with investments that build resilience to shocks.
• Building insurance-based systems to help countries respond to shocks (such as crisis debt suspension clauses).
• Integrating the case for finance with strategic foreign policy and security interventions to end conflicts and increase the conditions for peace to flourish.

For countries with access to alternative forms of capital, a different set of approaches is required. Here, the original vision of country-led development is critical. Advocates and thought leaders could identify the structural barriers hindering economic transformation and work to dismantle them. This could include:

• Supporting the development of a time-bound economic transformation plan that includes outcome metrics and accountability and transparency measures.
• Addressing solvency and liquidity issues and reducing the barriers to investment, including reducing the cost of capital.
• Making the case for concessional finance from MDBs to support the necessary infrastructure and human capital investments.
• Work with diaspora networks to catalyze investments and support through remittance flows.
• Work with local activists to hold the government to account.
• Use of data platforms to bring radical transparency to how domestic, international and private investors are supporting countries' plans.
• Monetary policy mechanisms to address currency risk.
• Steps to unlock savings and investments of the citizens of low and middle-income countries to invest in their own countries and regions.

7. The Future: What needs to change?