COVID‑19 threatens to undo years of progress achieved towards the 2030 Agenda by least developed countries (LDCs). Even before the current crisis, LDCs faced an uphill battle to achieve the Sustainable Development Goals (SDGs). Now, without ambitious development finance and policy responses, there is a serious risk of the SDGs remaining elusive for LDCs, and this will have a global impact. The development responses to the COVID‑19 health and socio-economic crises must therefore be made with a forward-looking perspective to building forward better and greener.
Financing the recovery will require a co-ordinated multilateral response and the use of innovative tools and risk-mitigation instruments. Blended finance can help to catalyse much-needed additional resources for SDG-aligned projects that private investors would otherwise overlook. It can be used, among other purposes, to leverage digital technologies, finance small and medium-sized enterprises in the “missing middle” gap, and address market failures that prevent LDCs from financing their development needs and reaching the most vulnerable.
Consistent with findings in previous reports on blended finance in the LDCs, the latest data show that too little private finance is mobilised for investment in LDCs. Only 6% of private finance mobilised by official development finance is invested in LDCs, a percentage that has remained constant over the past three years. Positively, we have seen that in the period 2012–2018, the total amount of private sector finance mobilised annually has grown steadily in absolute terms. Also, 45 out of 47 LDCs have received private finance mobilised by official development finance (ODA) at least once. However, as projected by the OECD Global Outlook on Financing for Sustainable Development, the USD 700 billion drop in external finance to developing countries as a result of the COVID‑19 crisis risks jeopardising the trajectory of blended finance for LDCs (OECD, 2020[2]). That is why it is critical that ODA – the most stable source of external finance to developing countries over the past 60 years, even in the face of economic crises – must be protected and leveraged to align more private finance in support of the SDGs in LDCs.
This third instalment of the blended finance in LDCs report presents an analysis and an Action Agenda for how to use blended finance to mobilise additional finance to support LDCs to build forward better from the COVID‑19 pandemic. Through research, data analysis and a collection of curated guest contributions, the report aims to shed light on how blended finance can be used and scaled up to address the socio-economic challenges in LDCs today, and to build long-term resilience.
Achieving the core principle of “leaving no one behind” is key for sustainable development in the LDCs and necessitates innovative solutions to address risk and build resilience to future shocks. To advance this principle will require blended finance to focus even more sharply on supporting the development of domestic financial ecosystems and markets, designing solutions that target the last mile, improving impact measurement and transparency, and employing more systemic and transformational approaches, to catalyse larger-scale investments in country-led priorities and projects in sectors that promote an inclusive, sustainable and resilient recovery.
This report also comes as the Istanbul Programme of Action is coming to an end, and the preparations for the Fifth United Nations Conference on the Least Developed Countries (LDC5), scheduled for January 2022 in Doha, have started. LDC5 is an opportunity for LDCs and their development partners to define key priorities, agree on a renewed partnership to overcome structural challenges, and mobilise additional resources and international support measures, to enable countries to graduate from the LDC category and achieve the SDGs in the coming decade.
Blended finance, as one of the approaches in the development toolbox, should play a more strategic role in securing additional finance for LDCs to achieve these objectives. Now is the time to increase our ambition to leave no country behind, with COVID‑19 serving as a powerful reminder of the interdependence among countries and the need for global solidarity to overcome the crisis. Action today must extend beyond helping LDCs to recover; investments are needed to build resilient economies and societies that bring future opportunities to all their people. We hope that this report sparks discussion about what more could and should be done, followed by urgent action to mobilise private finance for sustainable development that enables LDCs to build forward better.
Jorge Moreira da Silva Director
Development Co-operation Directorate,
Organisation for Economic Co-operation and Development
Judith Karl
Executive Secretary
United Nations Capital Development Fund
HE Mr Perks Ligoya
Ambassador and Permanent Representative of Malawi to the United Nations Chair,
Global Coordination Bureau of the Least Developed Countries