By Bodo Ellmers

From 22 to 26 June 2024, the international community gathered in Addis Ababa for the first session of the Preparatory Committee (PrepCom) for the UN's Fourth International Conference on Financing for Development (FfD4). The well-attended meeting took place against the backdrop that time is running out to close the financing gap for the SDGs. At the same time, high debt levels in many developing countries are making it increasingly difficult to find suitable financing instruments. 

Wrapping up a decade of development finance 

The task in Addis Ababa was to take stock of what has been achieved in the nine years since the last summit. Ideas were also collected for the elements paper, due to be drafted in autumn, which will form the basis of the next multilateral agreement on financing for development to be negotiated by the FfD4 Summit in Sevilla in June 2025.

Addis Ababa, the Ethiopian capital, hosted the first session of the Preparatory Committee session  to demonstrate continuity, as it was the venue for the last major Financing for Development Conference (FfD3) in 2015, where the Addis Ababa Action Agenda (AAAA) was agreed on. The AAAA had complemented previous FfD-Agreements – the Monterrey Consensus and the Doha Declaration – and was widely seen as the central pillar of the means of implementation for the Agenda 2030 on Sustainable Development and its SDGs, which had been agreed in the same year, alongside the Paris Climate Agreement. Symbolically, Ethiopia was ideally suited to illustrate the central challenges currently facing the financing for development agenda, as the country is struggling to overcome the consequences of violent conflicts and a severe debt crisis. 

Public finance: New institutions for tax cooperation, mixed picture on ODA 

The concept was that this first session of the PrepCom would focus primarily on taking stock, in order to lay a solid foundation for the negotiations to come. The AAAA had indeed sparked a number of new initiatives, perhaps most notably in the area of tax and domestic resource mobilisation, where delegations pointed to the Addis Tax Initiative, the Platform for Collaboration on Tax, and the recently launched UN process towards a UN Framework Convention on International Tax Cooperation. The new process to improve tax governance is perhaps the greatest success of the Addis Decade. However, it was launched late and it remains to be seen how effective it will be. The specialized committee of the UN General Assembly met immediately after the PrepCom meeting in Addis Ababa.

In the area of international public finance, the results are meagre. While Carsten Staur, chair of the OECD´s Development Assistance Committee (DAC), reported that official development assistance (ODA) had reached its highest levels ever, increasing by 21 percent since 2015, civil society organizations criticised that with an ODA/GNI ratio of 0.37% per cent, this was still only half of the 0.7 per cent pledged, forcing poor countries to look elsewhere for more expensive financial resources. In addition, the official figures were significantly inflated, in particular by the inclusion of refugee costs. On the quality side, the years since the FfD3 conference have seen a massive deterioration in aid effectiveness indicators, particularly in the use of country systems, and increased fragmentation. The need to revitalise the aid effectiveness emerges as one of the key tasks for the FfD4 process, as mentioned by Staur and others.

Private finance: Access to expensive liquidity caused new debt crisis

The “Addis era” in development finance has put a strong emphasis on mobilising private finance for development. This is partly because the World Bank has, over the past decade, promoted the so-called “from billions to trillions”-approach, which was never formally agreed in the AAAA but which has nevertheless become the dominant approach in development finance. According to this approach, public finance, including ODA, should mainly leverage private investment, including through blended finance instruments. 

The problem is that it has worked. Because there has been a lot of liquidity on the global financial markets in the last decade due to the expansionary monetary policy in rich countries, many developing countries have indeed been able to mobilise substantial resources from private investors for a number of years – but it has not translated into development results. This is primarily because private investors lend to developing countries on much less favourable terms, at higher interest rates, than to developed countries, a phenomenon that the Inter-Agency Task Force on Financing for Development, in its 2022 Report, has dubbed “the financial divide”. Under these conditions, the financial and development returns on investment have not kept pace with sky-high cost of financing.

A world of debt

The result is, as debt expert Matthew Martin has put it at the PrepCom’s thematic roundtable on debt, “the worst debt crisis ever”. Many delegations pointed to the high cost of servicing debt, which undermines countries´ ability to use revenues for development spending, shrinks fiscal space that is badly needed elsewhere. In a report entitled “A world of debt”, the UN had calculated that 54 countries spend more than 10% of their public revenues on interest payments. Many countries transfer more money to their creditors in interest payments than they can spend on health and education combined. Rising debt levels have created a major dilemma for development finance, because most financing instruments are debt-creating, they use loans. When a country reaches the limits of debt sustainability, there are few instruments left. Many delegations said the debt situation was threatening to derail their countries´ development agendas. 

The point was also stressed by Amina Mohammed, the Deputy Secretary-General of the United Nations, who spoke at the opening of the conference. She called for a change of course and defined tackling the debt and development crisis as the number one priority on her six-point FfD to-do-list. Debt crises and what to do about them also dominated the list of side events: five out of nine events dealt with this single pillar of the FfD agenda. 

However, the most significant concrete innovation in the area of debt architecture, the completely insufficient “Common Framework on Debt Treatments”, was a result of the G20 process. The nine ECOSOC Forums on Financing for Development follow-up since 2015 have not achieved any significant result in this area. It was only in 2023 that the FfD Forum first recommended the introduction of a tool to involve private creditors, and in practice this did not lead to any reforms. 

Lessons for FfD4 - Towards a more effective multilateral framework for development finance?

The stocktaking exercise in Addis Ababa provided us with some relevant lessons for the FfD4 conference. The first is certainly that the AAAA never contained strong enough agreements to serve the ambitious 2030 Agenda. There was a mismatch between goals and means from the outset. The second is that the implementation of the few concrete agreements in the AAAA has not worked. Just one example is the call for all governments to adopt national legislation against vulture funds, paragraph 100 of the AAAA. In 2015, the baseline was three countries. Nine years later, in 2024, we are still at three. 

One of the main reasons is certainly that the AAAA was agreed in such a way that it exerts little pressure on the parties. Concrete instructions for specific actors are only given in a few places in the 134-paragraph document. The rest consists of vague agreements that do not really commit anyone to anything. In addition, only seven of the 134 agreements have quantified targets and/or deadlines. Six of these were incorporated into the AAAA from agreements that already existed before 2015, namely those on remittances (paragraph 40), ODA (51), climate finance (61), exports from Least Developed Countries (82), trade-related intellectual property rights (86) and the UN Technology Bank (124).  The only new time-bound agreement in the AAAA, namely to “consider the need to hold a follow-up conference by 2019” (134) was missed by four years. 

From the perspective of results, the matter is clear. Several speakers at the Addis Ababa PrepCom session pointed to the dismal state of SDG implementation. Only 16 per cent of the SDGs are on track. Since achieving development results is the FfD agenda´s ultimate objective, the past decade cannot be seen as a FfD success story. Therefore, if we want to make the FfD process effective, any new agreement needs to be stronger, it needs to match means to ends. And it must be accompanied by a stronger follow-up process, including an effective monitoring and accountability framework, to ensure the actual implementation of the political agreements made. 

Surprisingly, although the PrepCom session in Addis Ababa was primarily intended to deal with stocktaking, the delegations used most of their speaking time primarily looked ahead. Perhaps because there was not much to report from home in terms of progress made. Perhaps because they are keen to do things better at FfD4.