Year: 2025
Type: article
Abstract: Finance may not be a sufficient ingredient for development, but it is a necessary one.The need for finance to address crises and the consequences of these for development is mounting.The COVID-19 pandemic slowed or even reversed development trajectories in many low-and middle-income countries.Global and national development goals are now further away, and to make progress require more finance than was initially estimated.The impact of cross-border challenges, notably climate change, has become more tangible and widespread.We not only have more crises, but also longer-lasting ones, blurring even further the line between humanitarian and development assistance.Urgent action is needed to turn the tide. But finance is either insufficient or doesn't reach the countries most in need.Traditional foreign aid might have gone up in absolute terms, but the main drivers of this increase have been growing assistance to Ukraine and more spending to support refugees in donor countries (counted as foreign aid despite being spent domestically).In early 2025, many development partners-including Belgium, the Netherlands, and the UK-announced significant cuts to their development budgets.As we write, the largest development partner by volume of assistance and reach, the United States-has slashed its foreign aid programmes at a single stroke.At the same time, the donor architecture has become more and more complex, with a proliferation of bilateral and multilateral donors and facilities.A highly fragmented system of donor providers translates into greater pressure on the public systems of the Global South, higher transaction costs, and fewer economies of scale. Changes to the operations and business models of multilateral development banks (MDBs) have dominated the debate about the reform of the international financial architecture.Despite MDBs being among the few financiers providing relatively cheap loans, their financial contributions remain a drop in the ocean.Private investors find it too risky to invest in frontier markets.The highly touted shift from "billions to trillions," which anticipated that government funding and efforts would attract significant private investments for sustainable development, has failed to materialize.A debt crisis is looming.It might not be as widespread as in the 1990s and early 2000s, but it can have profound consequences in countries where servicing debt obligations consumes a larger slice of the budget than health and
Source: Development Policy Review
DOI: 10.1111/dpr.70009
Author: Annalisa Prizzon
Institution: Open Data Institute
Language: English
Subfield: Development
Field: Social Sciences
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,470
OpenAlex ID: W4409312652