Development Co-operation Report 2020

5. Pushing the boundaries of international development now and in the future

Masood Ahmed
Center for Global Development

Hannah Brown
Center for Global Development

Abstract

This chapter presents key takeaways from a series of conversations with global leaders about COVID-19 and development hosted by the Center for Global Development. It begins by noting that global support has fallen short of early commitments to help developing countries manage and recover from the impacts of the pandemic, raising concern about overall development progress to address converging crises of climate change, instability, global health, debt and more. By turns alarmed and hopeful, some policy makers point to the urgent need to rethink international development strategies and architecture to make it more resilient, responsive and inclusive.

Financial response to the COVID-19 crisis is not sufficient and the international architecture must change to become more resilient, responsive, and inclusive

•  The global response to support developing countries, despite promising early commitments for debt relief and emergency financing, is largely inadequate.

•  Without a significant scale-up of finance, pre-pandemic gaps in financing for sustainable development, stabilisation of fragile economies and humanitarian response, among other needs, will only continue to widen.

•  Investments in resilience mechanisms and global public goods, too long postponed, must be integrated into development planning and funding.

•  Development co-operation itself, and the international architecture of development and finance, must change to become more resilient, responsive and inclusive of other actors and other voices.

The shadow of COVID-19 will be long and dark, impacting both developing countries and their partners for many years to come. That is one of the conclusions that can be drawn from a series of conversations with policy makers and leaders, hosted by the Center for Global Development (CGD) from April to September 2020, about the implications of the pandemic on their development work. Looking beyond the immediate crisis, the discussions made clear that successful international development post-COVID-19 will need to address a broader range of challenges but with fewer resources. This will make development policy choices more difficult and will require enhanced focus on the effective use of limited resources by both developing country policy makers and their international development partners. At the same time, many policy makers see opportunities to make progress, collaborate further and even rethink development, offering some hope that out of the shadow of the pandemic, the world could emerge better prepared to meet and overcome challenges over the coming years.

This “apocalyptic” moment calls for a bolder and faster response to support developing countries

The extent of the setback for most developing countries is now becoming clear. At least 70 million more people will be pushed into extreme poverty (World Data Lab, 2020[1]). Many more are already struggling just above that threshold. Institutional capital built up over years has been wiped out as small and medium‑sized enterprises close down for lack of customers or government support. Fiscal and debt positions have been stretched by the triple shock of extra health costs, falling tax revenues and shrinking export earnings as well as by efforts to shore up safety nets and support economic activity. Developing countries will spend years recovering lost ground rather than advancing towards the Sustainable Development Goals. Achieving them by 2030, a challenging prospect for many countries before the pandemic, is even more of a challenge. In the meantime, the traditional challenges for development action – poverty, the health and learning crises, conflict and fragility, economic growth – will be no less pressing if not worsened by school closures (Azevedo et al., 2020[2]) and decreased immunisations (Hogan et al., 2020[3]).

Developing countries will spend years recovering lost ground rather than advancing towards the Sustainable Development Goals. Achieving them by 2030, a challenging prospect for many countries before the pandemic, is even more of a challenge

The problems have been exacerbated by an inadequate global response to support the developing world. Initial statements at the start of the pandemic were promising, with the World Bank (2020[4]) committing USD 160 billion, the International Monetary Fund (IMF) committing USD 100 billion (IMF, 2020[5]) in emergency financing and the Group of Twenty (G20) agreeing to suspend 2020 bilateral debt service for the poorest countries through the Debt Service Suspension Initiative (DSSI) (World Bank, 2020[6]); in October 2020, the DSSI was extended for six months through to the middle of 2021 (G20, 2020[7]). The delivery of this financing and the estimated savings from the DSSI have been disappointing so far. Just USD 5.3 billion of bilateral debt payments are due to be suspended this year, less than half the USD 11.5 billion originally hoped for (Wheatley and Fleming, 2020[8]). The private sector has been reluctant to participate in a debt standstill for a variety of commercial, legal and fiduciary reasons. And disbursement of new money from the international financial institutions after the initial commitments has been slow. Given that the IMF expected developing countries to need a USD 2.5 trillion response package and that the stimulus needed for Africa alone was estimated to be USD 100 billion (Reuters, 2020[9]), the response so far has largely been inadequate.

This lack of financing coincides with increased pressure for development assistance to fill the gaps in health financing, management of the global commons, peacekeeping and stabilisation of fragile states, climate finance, and humanitarian response and preparedness. As Ghanaian Finance Minister Ken Ofori‑Atta said, “It’s just an apocalyptic moment, and I don’t think we seem to be taking it as seriously as we should […] We have to change the financial architecture as it is right now.” This powerful sentiment was echoed in conversations with Vera Songwe, United Nations Under Secretary-General and Executive Secretary of the Economic Commission for Africa, and with Lawrence Summers, former United States Treasury Secretary and Chair of the CGD Board. Scaling-up of finances must occur or years of progress will be set back even further, with devastating consequences.

Investing in resilience, including digitalisation and integration of developing countries into global supply chains, can wait no longer

The pandemic has also brought into sharp focus the consequences of years of underinvestment in public goods and protection against high-impact but tail risk events, of which COVID-19 is but one. At the global level and, for many countries, at the national level, funding for pandemic preparation, adaptation or mitigation of climate change, biodiversity, and other public goods has too often been edged out by what are deemed more immediate concerns. Additionally, it has been easier for international financial institutions to lend for bankable projects with outcomes that are more certain. But, as we have learnt so painfully, lack of preparedness for high-impact, tail risk events can lead to devastating outcomes.

The pandemic has shown the need to invest in global public goods and resilience mechanisms such as global health, disaster response, and climate change adaptation and mitigation systems, given that future pandemics will only be exacerbated by climate change.

While our traditional model of development may have neglected these challenges in the past, we must find a better way to integrate them into strategic planning and funding moving forward. The pandemic has shown the need to invest in global public goods and resilience mechanisms such as global health, disaster response, and climate change adaptation and mitigation systems, given that future pandemics will only be exacerbated by climate change. As the Canadian Minister of International Development Karina Gould pointed out in our conversation, “We have our immediate responders who are addressing the issue, but we also need to be thinking and planning for how we build a more inclusive, more sustainable, more resilient planet.”

Many policy makers see the COVID-19 pandemic as an accelerant of trends that were already underway. One of these trends that will have an impact on developing countries is the move to reduce dependence on concentrated sources of production of essential items (Espitia, Rocha and Ruta, 2020[10]), such as medical equipment and pharmaceuticals. Numerous countries are starting to rethink international supply chains. This redistribution could take the form of nationalising supply chains and moving production back home, and some of that is likely to happen. However, what would perhaps be more beneficial for the global community would be to diversify supply chains, which would reduce dependence on a few countries but still bring the benefits from specialisation and trade, with concomitant gains for low-income and emerging market countries.

For this shift to be realised, however, developing countries must be equipped to better integrate into global supply chains and development practitioners need to rethink the kind of assistance that will help achieve this. Some of this will be accomplished by persisting with economic reforms that were always important – a sound and stable macroeconomic environment, a business environment that is conducive to greater investment, and improvements in infrastructure and human capital, to name just a few. However, some factors have become more important in the post-COVID-19 world, among them, a heightened focus on digital connectivity.

Digital connectivity will be key – not only in the shifting of production, but also in learning, health and communication. Based on the experience of collaborating with telecommunication companies in the COVID-19 crisis to provide cash transfers all over Africa with success, Songwe argued that by keeping small business open and encouraging innovation, “COVID has now shown the importance and the dire criticality of Internet connectivity, accessibility and affordability for the continent because we can do so much more.” Ofori-Atta agreed that “maybe the most important plan we can do for Africa is to digitise this continent” in order to better manage information, collect taxes and facilitate cash transfers. While Africa has made progress in connectivity until now, there is still plenty of room for growth on the continent (Fukui, Arderne and Kelly, 2019[11]) as well as for developing countries in South Asia (GSM Association, 2019[12]).

Achim Steiner, the United Nations Development Programme Administrator, looked at the broader picture during our discussion. “There is also the whole digital universe, including artificial intelligence,” he noted. “That area will allow us to transact very differently. The linear progression agrarian society, industrialisation, digital economy. That kind of linearity, I think, is increasingly going out of the window. I think we’re going to enter into an era of far greater experimentation.” Indeed, developing countries need to be on the right side of the digital divide, and then we will see innovation and progress on a scale not yet even imagined now.

Development co-operation itself must become more resilient, responsive, collaborative and inclusive

The conversations also highlighted how the business of development co-operation itself will need to change. Just as building resiliency into national economies has assumed greater importance in the wake of the pandemic, so must development agencies also take stock of how to make their own programmes and engagement more resilient in the future. The lack of resilience in this crisis has been evident from the rapid spread of COVID-19, the inadequate response, and the prolonged and damaging crisis.

Agencies will need to be nimble and responsive. Those caught unawares by the changing landscape or too rigid to adapt will likely face problems. COVID-19 has shown us that the future is becoming less known and that predictive capability is falling. Thus, greater use of foresight approaches will be critical for development agencies as they try to build resilience. More resilience mechanisms in the global architecture can prevent the significant damage seen in this crisis and its predecessors. For example, resiliency can take shape through altering supply chains and preparing international financial institutions and multilateral development banks for tail risk and, inevitably, for supply and demand shocks of all scales.

Another dimension of how development co-operation must evolve is to accommodate new actors. In recent years, the People’s Republic of China (hereafter “China”) has become one of the largest development financiers: its total stock of lending is estimated to exceed USD 400 billion and its annual lending could be as high as USD 40 billion (Mitchell and Ritchie, 2020[13]). Other new players have gained considerable ground, among them Brazil, South Africa and Turkey. The OECD’s Development Co-operation Report 2019: A Fairer, Greener, Safer Tomorrow (OECD, 2019[14]) analysed the complexity of these new players and supported the need to accommodate them. At the CGD, our recently revamped Commitment to Development Index (CDI), which includes these new players, evaluated the strengths and weaknesses in 40 different countries involved in development co-operation (CGD, 2020[15]). As the 2020 CDI shows, there are great opportunities for mutual learning between newer development players and more established ones. For example, Germany, an OECD-DAC member, showed strong performance in trade openness but weaker performance in contributing to the technology component of global public goods. South Africa, a non-DAC country, shows the opposite. China performed relatively well in technology, but shows considerable room for growth in terms of quality, quantity and transparency of development finance (CGD, 2020[16]).

While these opportunities for learning and co-operation exist and will inform our new approaches to development, all actors will need to find common approaches on a wide variety of issues, including debt and climate change. We will also have to find common ground on international, non-aid related issues such as international property rights relating to vaccines, international tax havens and fair taxation. Co‑operation will be key, and this must involve new players and collaborators with whom we may disagree on some issues. We will have to set new parameters and norms in collaboration with these new players rather than for them, find the right forum to facilitate these conversations, and ensure these new norms reflect the evolved perspectives and context of the new players as well as the ways the issues themselves have evolved.

Is the international development and finance architecture fit for a post-pandemic reality of fewer resources for converging challenges?

As we create new rules, we also have a chance to re-evaluate our international institutions and structures so they can adapt to achieve our new objectives. We have opportunities to build more holistic systems; connect specific interventions such as in nutrition, food security and immunisations; and take more whole‑of-government approaches to problems. Gould even highlighted opportunities to revisit multilateral systems, saying, “There’s this opportunity to think about how our institutions need to continue to evolve to meet these new challenges that are facing humanity. Whether it is a pandemic or the existential crisis that is climate change, we will not be able to solve either of these if we don’t solve them globally.”

Susanna Moorehead, Chair of the OECD DAC, also discussed the chance to rethink the international financial architecture: “One of the things that I wonder about with all the architecture – whether it’s around environment or development – is that, is it just too complicated? I do wonder whether something would help the resources we have go further, make them easier to access. Could this be some sort of rationalisation of all the pots of money and institutions?” After the COVID-19 crisis, there exist many opportunities to streamline, rethink and improve the architecture. But this would require commitment, focus, prioritisation and more trade-offs.

In this changing environment, solutions to new and existing problems must work for vulnerable groups, especially given constraints and more difficult trade-offs in resource allocation. As Mark Lowcock, UN Under Secretary-General for Humanitarian Affairs and Emergency Relief Coordinator, pointed out in our conversation, “People are going to need to be far-sighted in terms of their own interests, never mind coming from the perspective of generosity and empathy. It’s going to be sensible to invest a little bit of your total effort in more difficult places and that needs to include the places with huge humanitarian challenges.”

Making sure all voices are heard in the coming years, especially of those who are often left out in these conversations or feel they have been left behind in the process of globalisation, is critically important for successful development. Development co-operation is not just a business of official agencies. It must involve all actors: the private sector, philanthropies and civil society. As Moorehead emphasised in our conversation, “If we’re really going to rethink development co-operation and we’re going to be serious about building back better, we need to get rid of some of these assumptions that we make about how countries develop and ask people. Ask younger people, ask governments, ask civil society, ask women – who very rarely get asked these questions even though they have good ideas.” As development becomes a broader agenda, all these voices and perspectives are necessary for shaping its future.

As a result, approaches to development moving forward must be even better informed by evidence and focused on impact. It is imperative that we take advantage of these opportunities and make the necessary trade-offs given our constrained resources, but that we also do not let our own rules and lack of will to co‑operate constrain the progress we must achieve. As we look back in a decade at our response to this crisis, it will be far more significant to be able to say, “Look at all we have been able to do because we pushed our own boundaries,” rather than to recall, “We did the best we could considering our limitations.”

References

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