Introduction
The Fourth International Conference on Finance for Development (FfD4) held in Sevilla, Spain, in late June, presents a crucial opportunity to forge consensus on policies and strategies needed to finance inclusive and sustainable development, including climate action. The stakes have never been higher: securing access to affordable, long-term financing that could transform the lives of billions worldwide.
The Global Development Agenda at Risk
Growing uncertainty over the future of global trade and multilateralism threatens to derail long-term development agendas. Amid volatile markets and geopolitical tensions, the FfD4 stands out as a significant event. Over the past two decades, overlapping crises and profound geopolitical and economic shifts have dramatically altered the global financial landscape, hindering developing economies’ access to necessary financing and jeopardizing progress. Financing gaps have widened in the poorest and least developed countries, reaching approximately 15% to 30% of their GDP.
The Rising Cost and Uncertainty of Borrowing
In this context, obtaining new loans has become more expensive and uncertain. Sovereign spread differentials for frontier market economies—those with less integration into global financial markets—have widened by about 150 basis points following the US tariff announcement in early April, increasing borrowing costs and complicating debt refinancing and investment in critical sectors like renewable energy.
Limited Foreign Intervention and Declining Official Development Assistance
Foreign actors have not stepped in to bridge the gap. Official development assistance decreased by 7.1% in 2024—the first decline in years—and this trend is likely to accelerate as donors cut their aid budgets to address other priorities. Private investment in developing countries has also slowed significantly; over the past three years, these countries have paid more to private creditors in debt-service terms than they have received from them. While multilateral development banks’ disbursements have nearly tripled between 2000 and 2023, with the World Bank disbursing $89 billion in 2023-2024, they cannot cover the growing gap alone.
Unsustainable Debt Burden
Meanwhile, the debt-service burden has become unsustainable for many developing countries. In 2023, nearly half of the low-income countries—mostly in Africa—spent 10% or more of their public revenues on debt-interest payments. For frontier market economies, long-term debt interest costs rose by 42% that year due to rising official interest rates in advanced economies. Over half of the low-income countries face debt distress or are at high risk, but only four—Chad, Ethiopia, Ghana, and Zambia—have sought debt restructuring under the G20 Common Framework beyond the Debt Initiative for Arrears Clearance. Debt restructuring has become slower, more expensive, and complex due to the prevalence of private creditors, who held 67% of public debt with public guarantees in emerging market economies in 2022.
The Role of FfD4
FfD4 can offer a strategy to address these challenges by ensuring affordable, long-term, and predictable development financing. Delegates must also help countries transition from “financing for development” to “financing from development,” emphasizing economic growth to mobilize additional domestic resources through capital market promotion, tax base expansion, or export income diversification and increase.
Tackling the Debt Crisis
FfD4 delegates should address the limitations of existing debt resolution frameworks and push for reforms to reduce debt burdens, service costs, fiscal space, and balance of payments strength. To prevent temporary disruptions from becoming structural debt crises, they must focus on improving short-term liquidity access.
Broader Reforms for Global Integration
These efforts should be complemented by broader reforms to help developing countries integrate into the global economy. FfD4 delegates should advocate for a fairer multilateral trade system, better investment and technology transfer frameworks, and a more development-friendly intellectual property regime.
The Role of the UN and Expert Groups
UN Secretary-General António Guterres established the Expert Group on Debt to identify policies that can mitigate the current debt and development crisis. The group has proposed three sets of measures, focusing on multilateral system reform, cooperation between borrowing countries, national policies of these countries, debt solutions, and systemic changes in areas like trade, finance, and economic governance.
Addressing Vulnerabilities
The rise of protectionism and slowing growth—reflected in the IMF’s downward revision of the 2025 global growth forecast from 3.3% to 2.8%—only exacerbates existing vulnerabilities in the developing world. Policymakers’ urgent task is to revitalize the development financing agenda and foster a virtuous cycle where external financing drives internal growth and generates long-term resilience. FfD4 presents an opportunity to achieve this.
Authors
Yan Wang is a Senior Researcher at the Global Development Policy Center, Boston University.
Trevor Manuel is a former South African Minister of Finance and Co-President of the Expert Group on Debt.
Paolo Gentiloni, former European Commissioner for Economy, is Co-President of the Expert Group on Debt.
