Global Outlook on Financing for Sustainable Development 2025

The global economy shows resilience amid multiple shocks, with inflation receding steadily and various economic indicators pointing towards a soft landing. But high economic uncertainty affects global financial stability and long-term growth prospects, while rising geopolitical tensions threaten to fragment global co-operation and impede development progress. An analysis of convergence against income and Sustainable Development Goal (SDG) indicators shows that developing countries are at risk of further falling behind.

In the first years following the Addis Ababa Action Agenda (AAAA) until the COVID-19 pandemic (2015-19), the global economy grew at a steady pace. However, low-income countries (LICs) were faring less well than most other countries. Many LICs were affected by a decline in prices for commodities such as oil and metals, which was due to a slowdown in growth in the People’s Republic of China (hereafter China) and weakening global demand. This not only reduced export revenues but also led to significant depreciation of LICs’ currencies. As a consequence, these countries experienced low, and even negative, economic growth and high levels of inflation. In the years between the AAAA and the COVID-19 pandemic, LIC economies were stabilising as inflation was decreasing and economic growth picking up again (Figure 1.1).

After being hit by multiple crises since 2020, the global economy has shown resilience overall. The COVID-19 pandemic caused an unprecedented disruption to the global economy, affecting cross-border capital flows and global trade. The global economy contracted sharply by 3.4% in 2020, down from a growth forecast of 2.5% at the beginning of the year (International Monetary Fund, 2020[1]). Supply chain disruptions due to the pandemic were followed by an energy and food crisis triggered by Russia’s full-scale invasion of Ukraine and a surge in global inflation. However, economic activity recovered relatively quickly. Global output grew at an estimated annualised rate of 3.2% in the first half of 2024 and is expected to stabilise at this level over 2024 and 20251 (OECD, 2024[2]). Ongoing adjustments to supply chains and logistics have led to greater efficiency and stability, helping production and distribution. Inflation has continued to fall this year in most countries.2

However, the recovery masks changes in the structural make-up and growth potential of the global economy. The medium-term global growth forecast for 2029 is 3.1%, the lowest in decades.3 Since the global financial crisis, global growth forecasts have consistently been revised downward. Private investment as well as productivity and labour force participation rates remain below pre-pandemic trends (Cho et al., 2024[3]), contributing to a gradual shift towards a low-growth environment that could impede the green transition and global poverty reduction (International Monetary Fund, 2024[4]; OECD, 2024[2]).

Economic conditions in lower-income countries are weaker than in advanced economies. Inflation in these countries remains at elevated levels amid a global easing of price pressures (Figure 1.1, Panel B). In several developing economies, elevated international food, fuel and fertiliser costs have hit particularly hard and resulted in severe cost of living crises. Food price inflation in LICs hit a peak at 32% in April 2023, and while it decreased again to 17% in December 2023, the rates are still higher than pre-pandemic levels (e.g. 12% in December 2019) (Food and Agriculture Organization, 2024[5]). Weak local currencies in developing countries exacerbated the inflationary pressures. These pressures caused emerging economies and developing countries to grow more slowly than expected. Economic growth in LICs was low at 1.0% in 2022 compared with 3.9% in lower middle-income countries (LMICs), 4.1% in upper middle-income countries (UMICs), and 2.4% in high-income countries (HICs) ( Figure 1.1, Panel A).

A phenomenon referred to as geo-economic fragmentation (Aiyar et al., 2023[7]) has been accelerating in recent years due to an increasing number of geopolitical events and conflicts. In 2023, there were 56 active conflicts, the highest number since the end of the Second World War (Institute for Economics & Peace, 2024[8]). Events such as Brexit, trade disputes between the United States and China, trade flow restrictions associated with the COVID-19 pandemic as well as international conflicts and geopolitical tensions reflect rising protectionist sentiments and have collectively fractured the economy into distinct geopolitical blocs (D’Orazio, Ferriani and Gazzani, 2024[9]). Growing support for populist and isolationist parties in many Western countries both reflects and is driving these shifts.

Shifts in trade policy reflect geo-economic fragmentation. Concerns about supply chain resilience and national security have prompted an increasing number of cross-border trade restrictions. About 2 000 new restrictions on trade were reported in 2022, up from about 752 in 2019, according to Global Trade Alert data (Figure 1.12, Panel A). Trade flows between geopolitical blocs dropped by 10% in 2022 (Carluccio et al., 2024[10]). This reduced trade between geopolitical blocs can disrupt the spillover of technology and know-how, leading to projected welfare losses as large as 12% in some regions (Góes and Bekkers, 2022[11]).

In turn, fragmentation also affects cross-border financial flows. Financial sanctions have increased since the global financial crisis (Figure 1.12). Financial institutions restrict ties with jurisdictions considered to be high risk due not only to profitability concerns but also to risks of money laundering and terrorism financing high compliance costs, sanctions, increased geopolitical competition, political instability, and conflicts (OECD DAC Network on Governance, forthcoming[12]). Such a practice of restricting or terminating business relationships may negatively affect capital flows and financial inclusion in developing countries. For example, anti-money laundering and counter-terrorist financing standards can have unintended consequences in countries with weak supervisory and regulatory capabilities (Financial Action Task Force, 2021[13]). Analysis by Kida and Paetzold (2021[14]) of data from 89 emerging and developing countries found that inclusion on a Financial Action Task Force black or grey list imposed significant costs on countries in the form of reduced capital, foreign direct investment (FDI) and portfolio inflows that amounted to an equivalent to 7.6% of their gross domestic product (GDP) on average.

The low-growth environment and multiple crises affected the pace of conversion between advanced and developing economies. While medium-term growth prospects have been consistently and globally revised downwards since the global financial crisis, the trend is more pronounced for developing countries. As shown Figure 1.3, catch-up rates of LICs, measured as the average annual change in their distance to the GDP per capita level in HICs, were at 0.5% in the early 2000s but subsequently reversed to -0.5% between 2008-14 and to -1.1% between 2015-22, meaning that HICs and LICs further diverged rather than converged. Catch-up rates of middle-income countries (MICs) have also decreased in recent years. For LMICs, convergence with HICs accelerated from 0.7% over 2000-07 to 2.1% over 2006-14 before catch-up rates dropped to 0.1% in 2015-22; for UMICS, convergence with HICs remained stable over 2000-06 and 2007-15 at 1.8% and 1.9%, respectively, before declining to zero percent over 2015-22. Based on OECD long-term economic growth forecasts, divergence between LICs and HICs is expected to continue over 2023-30, while convergence between MICs and HICs will be slower than it was over 2000-07 and 2008-15.

Geo-economic fragmentation, the rise of artificial intelligence (AI) and other trends shaping the global economy are likely to further dampen economic convergence. For instance, if trade barriers are applied across all sectors, forcing countries into exclusive trade relations within different geopolitical blocs, it is estimated that worldwide GDP would decrease by 2.3% (Bolhuis, Chen and Kett, 2023[19]). Advanced economies and emerging markets would lose 2.1% and 2.5%, respectively, and LICs would experience output losses of 4.3% (Figure 1.3, Panel B). LICs would lose more because of their high exposure to commodity trade including with China, whose growth has decelerated in recent years (Box 1.1). LICs also tend to be more commodity intensive and often specialise in the exports of key commodities, especially metals and energy. Likewise, advanced economies stand to benefit from AI sooner than emerging market and developing countries because their economies tend to be more knowledge- and technology-intensive4 (Cazzaniga et al., 2024[20]).

Convergence between SDG Index scores in HICs and developing countries advanced at a fast pace immediately after the AAAA in 2015 but has slowed significantly in recent years. Prior to the COVID-19 pandemic, LICs progressed faster on the SDG Index from 2015-19 (+1.6 points) than did HICs (+0.7 points). Since 2020, however, the SDG Index score of HICs has slightly improved (+0.3 points) while that of LICs has stagnated (+0.1 points) (Sachs, Lafortune and Fuller, 2024[25]). As seen in catch-up rates, the trend in recent years has been towards divergence rather than convergence. After 2019, the difference with HICs’ SDG Index scores increased by 2.6% for LICs, indicating there was divergence in SDG performance (Figure 1.4).

Growing macroeconomic vulnerabilities point to escalating financing needs. The widening SDG and climate financing gaps risk derailing progress and leaving vulnerable populations further behind, as discussed above. This section looks beyond these immediate challenges to explore the evolution of total financial flows since the adoption in 2015 of the 2030 Agenda (along with the SDGs and the AAAA) and the Paris Agreement. Over this nearly ten-year period, progress has been mixed, signalling a pressing need for stronger links between macroeconomic policies and financing strategies to tackle both current challenges and the looming risks ahead.

The COVID-19 crisis had an unprecedented impact on financing for sustainable development, leading to sharp declines in financial flows. Available financing for sustainable development in developing countries (excluding China) decreased from USD 4.6 trillion in 2019 to USD 3.9 trillion in 2020, a drop of USD 774 billion or 17% (OECD, 2022[26]). Available government revenue (after debt service payments) experienced the largest absolute decline over the period, falling by USD 689 billion, or 22%, from USD 3.1 trillion to USD 2.4 trillion (OECD, 2022[26]). This decline was greater than during the 2008-09 global financial crisis: specifically, three times bigger in LICs, twice as severe in LMICs and four times greater in UMICs (OECD, 2022[26]). The pandemic also set back external private finance in developing countries by USD 700 billion over 2019-20, a 60% larger decline than seen after the 2008-09 crisis (OECD, 2020[27]).

Since 2020, volumes of all sources of financing called for in the AAAA have increased, a sign of resilience despite the challenges posed by the COVID-19 pandemic. As shown in Figure 1.5, total available financing for sustainable development flows in developing countries (excluding China) reached USD 5.24 trillion in 2022 (in 2015 constant prices), a notable 22% increase from USD 4.31 trillion in 2015 and a 9% increase from pre-pandemic levels (USD 4.79 trillion in 2019). Total financial flows include public and private financing such as available government revenues, debt service, public concessional (official development assistance [ODA]) and non-concessional (loans only) funds, FDI, remittances, and philanthropic flows.

The next paragraphs analyse the trends in financial resources depicted in Figure 1.5 over 2015-22, adding the 2023 data point when available.

Available government revenue (after debt service payments) has rebounded since the COVID-19 crisis and in some cases even surpassed pre-pandemic levels. At the start of the pandemic, available government revenue in ODA-eligible countries (excluding China) dropped by 11% from USD 3.42 trillion in 2019 to USD 3.04 trillion in 2020, but quickly recovered to reach USD 3.46 trillion in 2021 and USD 3.79 trillion in 2022, a 9% increase over the previous year (Figure 1.5). Between 2015 and 2022, when the volume was USD 3.15 trillion, available government revenue increased by 20%, or 2% annually, and increased in all income groups: +21% in least developed countries (LDCs) and other LICs, +30% in LMICs, and +15% in UMICs (World Bank Group, 2024[28]) (Figure 1.6). At the same time, however, the share of available government revenue in financing for sustainable development has declined. Its ratio went from 2.7 times that of other financing sources in 2015 to 2.1 times in 2022. From 2015 to 2022, tax revenue as a percentage of GDP increased from 16.8% to 17.5% on average in developing countries (UN, 2024[33]). Nevertheless, the tax-to-GDP ratio remained below the effective tax rate of 15% in LICs (11.44% in 2022) and in LDCs (13.2% in 2022)5 (UNU-WIDER, 2023[34]). In comparison, the average total tax revenue as a percentage of GDP in OECD countries increased from 32.9% in 2015 to 34% in 20226 (OECD, 2023[35]).

The drop in available government revenue was driven in part by debt service, which increased substantially as a response to the crisis, particularly in LDCs and other LICs and LMICs. All developing countries’ net interest payments on public debt reached USD 847 billion in 2023, and more than half of developing countries allocate at least 8% of government revenues to interest payments (UNCTAD, 2024[36]). As shown in Figure 1.5, debt service for ODA-eligible countries (except China) increased from USD 217 billion in 2015 to USD 280 billion in 2022, with a peak of USD 329 billion in 2019. This represents a 29% increase over the period or a 4% increase annually. Over 2015-22, the rise in debt service reached alarming levels in LDCs and other LICs (62%) and LMICs (61%), though it increased only by 8% in UMICs. Over 2019-21, during the pandemic, debt service represented 9% to 10% of government revenues compared with 6% in 2015. In 2022, it fell to a 7% share. At the onset of the pandemic, in May 2020, the Group of Twenty (G20) launched the Debt Service Suspension Initiative (DSSI) to help prevent a further rise in debt burdens. The initiative enabled 48 of 73 eligible countries to redirect resources towards addressing the crisis and protecting vulnerable lives. By its conclusion in December 2021, the DSSI had suspended USD 12.9 billion in debt payments for participating developing countries.

Remittances have grown steadily since 2015. They are the second-largest source of financing to developing countries (excluding China) and the largest external source. They amounted to USD 476 billion in 2023, slightly down from USD 486 billion in 2022 but up from USD 370 billion in 2015 – a 31% increase over the period 2015-22 or 4% annually (Figure 1.6). While remittances increased in all income groups, the rise is more pronounced in UMICs (+48%) than in LDCs and other LICs (+24%) and in LMICs (+26%). Since 2015, remittances have been the largest source of external finance flows to LMICs, surpassing the volume of both public concessional flows and FDI. However, in the fourth quarter of 2023, the global average cost to send USD 200 remained elevated at 6.4%, which is 0.2 percentage points higher than in 2022 and more than double the 3% target set in SDG 10.c.1 (Migration Data Portal, 2024[37]).

After substantially declining during the crisis, FDI flows have rebounded, albeit unevenly, across developing countries. The latest available figures for global FDI flows indicate a total of USD 802 billion in the first half of 2024 (OECD, 2024[38]). In 2023, FDI inflows to ODA-eligible countries (excluding China) amounted to USD 286 billion, a 15% decrease from 2022. Nevertheless, FDI inflows to developing countries also have demonstrated resilience over time. FDI reached USD 335 billion in 2022, closely aligning with the 2015 level of USD 338 billion and significantly rebounding from the 2020 volume of USD 238 billion. This represents a marginal 1% decline over the entire period of 2015-22. However, not all income groups experienced this rebound in FDI: flows declined by 42% in LDCs and by 84% in other LICs but decreased by only 2% in LMICs and increased by 8% in UMICs (Figure 1.6). For LDCs, the drop can be explained by an exceptional peak in 2015. In the case of UMICs, they were the most affected during the pandemic due to their stronger integration in global capital markets, but they also recovered faster as a result.

Public concessional (ODA) and non-concessional flows played a countercyclical role, mitigating the effects of the COVID-19 crisis. In 2023, total ODA from all official donors to developing countries reached a record high of USD 233 billion (in 2015 constant prices) as donors increased support for Ukraine and provided more humanitarian assistance to developing countries.7 Of this total, DAC countries’ contribution amounted to USD 194 billion; contributions from non-DAC countries and multilateral organisations amounted to USD 15 billion and USD 23 billion, respectively (OECD, 2024[39]; OECD, 2024[30]). Public concessional (ODA) and non-concessional (loans only) flows significantly increased over 2015-22. Public concessional (ODA) flows from official donors to developing countries excluding China reached USD 224 billion in 2022, an increase from USD 147 billion in 2015 (+52% over the period or 6% annually). ODA flows increased by 21% in LDCs, 29% in other LICs, 85% in LMICs and 5% in UMICs over the same period (Figure 1.6). Public non-concessional flows totalled USD 116 billion in 2022, up from USD 84 billion in 2015 (+38% over the period or 5% annually). The 75% increase in multilateral non-concessional flows, from USD 49 billion in 2015 to 86 billion in 2022, compensated for the 13% decrease in bilateral non-concessional flows from USD 35 billion in 2015 to USD 30 billion in 2022 (Figure 1.6). The countercyclical nature of international public finance helped offset the shortfall in other external financing flows, though it could not fully make up for the losses (OECD, 2022[26]).

Philanthropic flows represent a small share of the total financial flow volume of financing for sustainable development. Philanthropic flows amounted to USD 9.9 billion in 2022 compared with 3.5 billion in 2015 (+185% over the period or 23% annually), though this increase was largely due to improved data coverage (OECD, 2024[40]).

The SDG financing gap has widened significantly since the COVID-19 crisis. In 2014, just prior to the formal adoption of the SDGs, the United Nations (UN) estimated that the annual financing gap for achieving sustainable development in developing countries was USD 2.5 trillion, reflecting the need for enhanced investments in economic infrastructure (power, transportation, telecommunications, water and sanitation, etc.); food security; social infrastructure (education, healthcare, etc.); and environmental sustainability (UNCTAD, 2014[41]; UN, 2023[42]). Financing for implementing the SDGs was already off track but in 2020, after COVID-19 struck, the gap ballooned to USD 3.9 trillion – a 56% increase in just six years. The pandemic further intensified the so-called scissor effect in SDG financing, meaning the combination of rising needs and declining resources (OECD, 2020[27]). Two main factors in developing countries were responsible: the USD 689 billion drop in available government revenue over 2019-20, which represented over 80% of the total decline in sustainable development financing, and the USD 907 billion increase in government spending in response to the COVID-19 emergency. This emergency expenditure accounted for nearly 30% of total government revenues in 2019 and exacerbated the challenges these countries faced in mobilising domestic and external financial resources (OECD, 2022[26]). The widening gap also reflects systemic challenges such as insufficient public and private investments, debt vulnerabilities, and limited fiscal space in many countries (OECD, 2020[27]).

The annual financing gap for achieving the SDGs has reached alarming levels, with the latest estimates ranging from USD 3 trillion to USD 4 trillion. The UN Trade and Development (UNCTAD) estimated that the SDG investment gap in developing countries amounts to USD 4 trillion per year from 2023 to 2030 (UNCTAD, 2023[43]). According to the G20 Independent Expert Group (2023[44]) and Bhattacharya et al. (2023[45]), the estimated annual gap in 2023 was USD 3 trillion in emerging markets and developing countries (EMDCs) excluding China, including USD 2.5 trillion in public spending. According to the ONE Campaign (2024[46]), annual public spending (and planned expenditures) on climate and development rose by approximately USD 700 billion between 2019 and 2022 but represent 29% of the amount needed to close the financing gap, leaving an outstanding gap in official finance of nearly USD 1.75 trillion (Table 1.1).

Needs are expanding at a faster pace than available resources, driving the widening SDG financing gap, including for climate-related goals. While total available resources grew by 22% between 2015 and 2022, the SDG financing gap increased by 60%, or nearly three times faster (Figure 1.7). Based on their 2015-22 growth rate, when volumes increased from USD 4.31 to USD 5.24 trillion, total available resources for financing sustainable development are projected to reach USD 6.37 trillion by 2030, a 48% increase from 2015. However, if the SDG financing gap continues to grow at its 2015-22 rate, when it increased from USD 2.5 to 4.0 trillion, it is expected to reach USD 6.4 trillion by 2030, which would be a 156% increase since 2015. It should be noted that these are conservative estimates given the challenges and uncertainties that lie ahead until 2030.

The response to the climate crisis is a main driver of the growing financing needs. Bhattacharya et al. (2023[45]) estimate that USD 2.4 trillion will be needed annually for climate-related investments in EMDCs other than China by 2030; this represents a more than fourfold increase (+433%) from the 2019 investment baseline (Figure 1.8). At the sector level, USD 1.5 trillion will be required for the energy transition alone, USD 250 billion for adaptation and resilience, USD 300 billion for loss and damage,8 USD 300 billion in natural capital and sustainable agriculture, and USD 75 billion for a just transition9 (Bhattacharya et al., 2023[45]).

More than half of the annual SDG financing gap relates to climate, predominantly the energy transition. According to UNCTAD (2023[43]), more than half of the SDG financing gap, or USD 2.2 trillion annually, is associated with the energy transition, while the energy investment gap has grown by 100%, or USD 1.1 trillion, since 2015. This latter gap refers to investments in clean energy including renewables, energy efficiency, and all related transition technologies and sources (UNCTAD, 2023[43]). The biodiversity sector requires another USD 300 billion to support nature conservation, sustainable fishing, ocean pollution control and sustainable forestry (Zhan et al., 2023[49]). Van Tilburg et al (2024[50]) highlight that, based on analyses by the G20 Independent Experts Group (2023[44]) and Bhattacharya et al. (2023[45]), the annual climate-related financing gap could amount to USD 1.8 trillion annually by 2030. At the same time, developing countries (excluding China) are falling behind in the energy transition. LICs and LMICs accounted for only 7% of global clean energy spending in 2022, for example, highlighting a significant disparity in investment distribution (Bhattacharya et al., 2023[45]). Global investments in clean energy reached a record high in 2023, driven primarily by rapid growth in solar photovoltaic technologies and electric vehicles. More than 90% of the investment surge since 2021 occurred in developed countries and China.

The adaptation financing gap is growing. As illustrated in Figure 1.8, USD 250 billion will be required annually for adaptation and resilience by 2030 (Bhattacharya et al., 2023[45]). The UN Environment Programme estimates that USD 215 billion per year will be needed for all developing countries, an amount that represented 0.56% of their combined GDP in 2021. While the absolute costs are highest for UMICs and LMICs, adaptation costs as a percentage of GDP are significantly higher for LICs (3.5%) than for LMICs (0.7%) and UMICs (0.5%). Additionally, while they contribute little to the causes of climate change, people living in LDCs and small island developing states (SIDS) are disproportionately more vulnerable to climate hazards and more likely to die from climate-related disasters. For LDCs and SIDS, estimated needs amount to 0.7% and 2.0% of GDP, respectively, or a total of USD 29 billion annually – approximately 12% of the modelled adaptation costs for all developing countries (United Nations Environment Programme, 2023[51]). Adaptation finance provided and mobilised by developed countries amounted to USD 32.4 billion in 2022, and while this was a significant increase from the USD 10.1 billion in such financing in 2016, the current level of investment is still not sufficient to meet growing adaptation needs (OECD, 2024[52]). The highest adaptation costs are associated with river flood protection, infrastructure and coastal protection and are concentrated in East Asia and the Pacific and Latin America and the Caribbean, among others (United Nations Environment Programme, 2023[51]).

The second-largest SDG investment gap is in the water and sanitation sector. According to UNCTAD (2023[43]) estimates, the investment gap for SDG 6 (clean water and sanitation) has grown by 70%, or USD 0.2 trillion from 2015 to 2023. This gap encompasses water sources, including new water treatment plants and desalination facilities, as well as sanitation infrastructure and wastewater management. Combined, the energy transition and water and sanitation sectors account for more than 85% of the USD 1.5 trillion increase in the investment gap and nearly 70% of the total investment gap projected for the remaining years until 2030 (UNCTAD, 2023[43]).

The remainder of the overall SDG investment gap is divided among other sectors. To support SDG 9 (industry, innovation and infrastructure), there is a projected combined annual investment gap of USD 400 billion in infrastructure, particularly in transportation and telecommunications and excluding energy infrastructure. The food and agriculture sector is estimated to need an additional USD 300 billion each year to achieve SDG 1 (no poverty) and SDG 2 (zero hunger), primarily for capital investments in agricultural systems, food processing, research and rural infrastructure. Regarding SDG 3 (good health and well-being) and SDG 4 (quality education), the health and education sectors face a gap of USD 100 to USD 600 billion a year, mainly for operational costs related to running hospitals and schools (Zhan et al., 2023[49]).

Additional needs stemming from the multiple crises of recent years are also contributing to the widening SDG financing gap. The investment needs for the SDGs have grown due to external shocks, particularly the COVID-19 pandemic and crises related to food, fuel and finance. These economic disruptions have disproportionately affected developing countries and LDCs. According to the 2024 UN report on financing for sustainable development, the annual financing gap to meet SDG targets in social protection and essential health care has increased by approximately 30% since the onset of the COVID-19 pandemic (UN, 2024[53]). In 2020, the financing gap for implementing a social protection floor for everyone was estimated at USD 1.2 trillion per year, or 3.8% of global GDP (UN, 2024[53]). The annual financing gap is even greater in LMICs and LICs, where it is 5.1% and 15.9% of GDP, respectively (UN, 2024[53]). Investment strategies and financing plans in support of the SDG targets must account for the significant demographic shifts expected over the next three decades. For example, according to some estimates, the world population is projected to increase by 1.9 billion between 2020 and 2050, with all of that growth taking place in EMDCs (except China) – and in all developing regions but especially Africa and South Asia (Bhattacharya et al., 2022[54]).

While the SDG financing gap continues to widen, monetary and fiscal policy options have been largely exhausted. While the COVID-19 pandemic contributed to the widening SDG financing gap, the international crisis response that comprised exceptional public expenditures and policy measures left little room for manoeuvre for developing country governments to finance SDG-related investments and expenditures.

Monetary policy measures to tackle inflation in advanced economies led to tighter financing conditions for developing countries. Recent monetary tightening by advanced economies to fight soaring inflation has posed a massive challenge for developing countries. As the ten-year US Treasury yield rose from 1.5% in December 2021 to 4.6% at the end of September 2023, borrowing costs increased for all countries but LICs were altogether cut off from the bond market. At the same time, the number of International Development Association countries issuing sovereign bonds in international bond markets decreased from seven in 2021 to zero in 2023 (Properzi, 2023[55]). Between 2021 and 2022, the amount of public sector bonds outstanding decreased across income groups (Figure 1.9, Panel A), dropping by 5.2% in UMICs, 2.7% in LMICs and 0.3% in LICs.

Steep interest rate increases in developing countries threaten to deter investments in sustainable development. Interest rate increases in the United States and other advanced economies are associated with a greater likelihood of financial crises in developing economies (Arteta, Kamin and Ruch, 2022[56]). For example, the potential for higher interest earnings in advanced economies can encourage capital market investors to re-channel flows by withdrawing investments from developing countries. To counter these risks, central banks in developing countries pursued even faster rate increases than those in developed economies (Figure 1.9, Panel B). High interest rates, however, can deter crucial investments in sustainable development including renewable energy and climate-resilient infrastructure, thereby stalling progress towards the 2030 and climate agendas.

On the fiscal policy side, the massive expenditures to fight the COVID-19 pandemic have exhausted public budgets. Fiscal support measures to support health systems and provide lifelines to vulnerable households and firms amounted to USD 13.8 trillion globally by the end of 2020 (International Monetary Fund, 2021[59]). Russia’s war against Ukraine and climate change-related disasters have further exacerbated the situation, increasing the demand for key public expenditures while revenues were declining. In 2019, developing countries’ fiscal deficit reached a peak of 5.3% of GDP before improving to 3.7% in 2021 and 3.1% in 2022 (Figure 1.10, Panel A). Such deficits can strain developing economies, limiting their ability to invest in essential services and infrastructure and making it more difficult to achieve the SDGs (UNCTAD, 2024[60]).

The external debt of developing countries is growing and increasingly costly, crowding out critical investments in sustainable development. Even before the pandemic, many countries were facing rising debt levels and debt service burdens. The pandemic as well as international conflicts and geopolitical tensions worsened these, and debt ratios have consistently exceeded 50% since 2020. The number of countries in debt distress increased from 3 in 2015 to 11 in 2024 while the number at high risk of debt distress rose from 16 to 24 (Figure 1.10, Panel B). In 2023, a record 54 developing countries, 38% of the total, allocated 10% or more of government revenues to interest payments (UNCTAD, 2024[61]). From 2020 to the first quarter of 2024, there were 224 downgrades but only 105 upgrades for EMDCs. There were more upgrades than downgrades in HICs and UMICs in 2023 and the first quarter of 2024, while LICs and LMICs experienced more than twice as many downgrades as upgrades (OECD, forthcoming[62]). In many cases, the fiscal deficit growth also triggered currency devaluations that raised the cost of external debt. Rising interest payments are crowding out critical public expenditures such as for health and education. A total of 3.3 billion people live in countries that spend more on interest payments than on either education or health. Moreover, interest payments outweigh climate investments, thus slowing efforts towards climate change adaptation and mitigation (UNCTAD, 2024[36]).

In light of rising geo-economic tensions and growing financing needs, it is crucial to identify a sustainable balance between ambition and practicality to accelerate progress towards the SDGs. Finding this balance requires that a critical equilibrium is maintained between setting ambitious objectives and ensuring that they remain grounded in practical implementation. This approach is essential to avoid unintended negative consequences, particularly in addressing the inherent risks of decoupling. Decoupling refers to growth that simultaneously produces positive economic and social outcomes while avoiding negative environmental ones, such as by reducing carbon dioxide emissions. One such inherent risk of decoupling is that its benefits are distributed unevenly, disproportionately impacting the poorest and most vulnerable populations.

In light of the widening gap between needs and financing, both developed and developing countries must take action to achieve the goals of the 2030 Agenda and Paris Agreement. Failure to act will have far-reaching and costly economic, social and environmental consequences. However, developing countries cannot bear the costs of the upfront investments that are necessary for the SDGs and climate transition. Ensuring policy coherence for sustainable development across sectors and levels of governance will be essential to harmonise efforts and amplify the impact of investments and avoid contradictory measures that undermine progress. Prompt action to close the financing gaps that countries face will be critical if an escalation of costs is to be avoided going forward.

Failure to close the gap in financing across the SDGs will generate self-reinforcing and momentum-gaining “feedback loops” that will further amplify the gap. For example, insufficient investment in SDG 16 (peace, justice and strong institutions) leads to heightened conflict and instability, deterring both domestic and foreign investment. This perpetuates cycles of poverty, weakens governance and diverts resources away from critical sectors. Macroeconomic costs of conflict are generally very large and persist for years, with GDP per capita about 28% lower ten years after conflict onset (Novta and Pugacheva, 2021[65]). Similarly, neglect of SDG 4 (quality education) erodes human capital, reducing productivity and economic growth while diminishing the capacity of future generations to address emerging challenges. UNESCO (2024[66]) estimates that the annual global cost of inaction on education is USD 10 trillion, a striking finding that underscores the profound economic impact of skills deficits worldwide. Trade restrictions and barriers, counterproductive to SDG 17 (partnerships for the goals), stifle economic diversification, limit market access for developing countries and exacerbate inequalities in the global economic system. The resulting economic pressures further limit countries’ fiscal space to invest in sustainable development, which compounds the negative effects of climate change, conflicts and educational deficits. Investing in key sectors such as electrification, water and sanitation, public transport, and education in developing countries, on the other hand, is a high-return, long-term investment that is crucial for enhancing living standards and yielding economic returns that significantly exceed the cost of capital (Sachs et al., 2023[67]).

Failing to act on climate change will entail considerable economic and social costs in the future. A Climate Policy Initiative study estimates that social and economic costs incurred under business-as-usual warming scenarios will lead to at least USD 1.27 trillion in additional losses due to climate change compared with a warming scenario of 1.5ºC (Buchner et al., 2023[48]). Economic losses would result from a reduction in global working hours by 2.2% worldwide by 2030, costing the global economy USD 2.4 trillion (Kjellstrom et al., 2019[68]), as well as climate-related disasters such as hurricanes, floods and wildfires, which have already caused USD 299 billion in economic losses in 2022 alone (Aon, 2023[69]). Climate change impacts will also lead to social costs such as an additional 250 000 deaths per year globally between 2030 and 2050 from malnutrition, malaria, diarrhoea and heat stress alone (WHO, 2024[70]).

The presumed costs of inaction will far exceed the upfront investments necessary for a transition towards a more sustainable development pathway. This makes a compelling case for investment. Climate scenarios from the Network of Central Banks and Supervisors for Greening the Financial System, a group of 127 central banks and financial supervisors working to manage climate risks and boost green investment, suggest that making an orderly transition to net zero by 2050 could result in global GDP being 7% higher than it would be under current policies (Figure 1.11, Panel A) (NGFS, 2024[71]).

Investing in climate transition will not only help avoid losses but also create new local business opportunities in developing countries that promote growth in the long term. Mobilising the investment required to secure clean energy transitions will reshape the entire clean energy supply chain consisting of equipment manufacturers, service providers, developers and engineering, procurement and construction companies. The cumulative market opportunity for manufacturers of wind turbines, solar panels, lithium-ion batteries, electrolysers and fuel cells will amount to USD 27 trillion, if the world gets on track for net zero emissions by 2050, according to the International Energy Agency (2021[72]). Such a shift also offers significant benefits for local industries in developing countries endowed with natural resources needed for the climate transition. However, as highlighted in recent FfD4 discussions it will be crucial that developing countries build local capacities, access technologies and implement industrial standards required to share in the benefits of green industrialisation.

The energy transition could massively boost demand for minerals and metals from developing countries. Renewable technologies such as battery storage systems, low-carbon hydrogen, solar panels and wind turbines, as well as the required expansion of transmission infrastructure, rely on minerals and metals. This growing mineral demand is expected to require an estimated USD 1.7 trillion in global mining investment (World Bank Group, 2022[73]). Many of these resources are held by developing countries. Over two-thirds of the world's known lithium reserves are in the so-called lithium triangle of Argentina, Bolivia and Chile, for example. The Democratic Republic of the Congo holds the world's largest cobalt reserves; bauxite reserves are highly concentrated in Brazil, Guinea, Indonesia and Jamaica (World Bank Group, 2022[73]). Attracting investment in critical minerals could contribute to economic growth, jobs and local development in these countries. At the same time, as highlighted in the FfD4 Zero draft (UN, 2025[74]), global partnerships and regional collaboration; enhanced negotiation and market fairness; and promotion of sustainable commodity practices through innovative financing and technical assistance are essential to ensure critical mineral development that is environmentally and socially responsible and benefits local communities while avoiding harmful impacts (OECD et al., 2024[75]; UN, 2025[74]).

Developing countries are disproportionately affected by climate change and will reap the greatest benefits from an orderly transition. LDCs are particularly vulnerable to the effects of climate change. While they have contributed only about 1% of global emissions, they have seen a fivefold increase in climate-related hazards since the 1970s (UNCTAD, 2022[76]). Thirty-eight LDCs and other LICs – but only six LMICs, five UMICs and no advanced economies – display high climate vulnerability above 0.5 (Figure 1.11, Panel B). The impact of disasters is ten times more costly (as a share of their GDP) for the economies of LDCs than for the economies of the richest countries (UN, 2022[77]). In addition to economic losses, human and social costs are disproportionately high in LDCs. Nearly 70% of deaths caused by climate-related disasters over the last 50 years occurred in LDCs (World Meteorological Organization, 2021[78]).

Other climate impacts, such as biodiversity loss, are more difficult to quantify but make the case for investment in sustainable development more compelling. The World Bank projects up to USD 225 billion in GDP losses by 2030 due to lost ecosystem services such as pollination and the provision of timber and marine stocks (Johnson et al., 2021[79]). The Dasgupta Review of the economics of biodiversity concluded that roughly half the value of global GDP is directly reliant on nature and that damage to nature is costing the global economy roughly USD 2.7 trillion annually (Dasgupta, 2021[80]). Due to their wide variance and the uncertainty around them, these estimates are often excluded from most cost-of-inaction projections. Still, they indicate that failure to make timely investments in biodiversity preservation will add a significant burden to the global economy.

A successful global transition towards sustainability will depend heavily on financing solutions that are tailored to the needs of developing countries. While they have a critical share of the resources and ecosystem services vital to the global economy, developing countries often face severe financial constraints – e.g. high debt levels, limited fiscal space and greater vulnerability to economic shocks – that make the upfront costs of transition unaffordable without external support. Bridging this gap will require mobilising resources including government revenues, official development finance (ODF) and innovative funding mechanisms. The 2025 FfD4 provides an opportunity to develop solutions in support of a truly inclusive transition that leaves no country behind.

In addition to closing negative feedback loops that will amplify the SDG financing gap, there are opportunities to accelerate alignment of financial flows for a more equitable distribution that responds to vulnerabilities and financing needs. Private sector organisations increasingly manage environmental, social and governance issues, recognising them as financial risks (UN, 2025[74]). However, accelerating the alignment of the global financial system with global goals will require shifting incentives along the investment chain. There are opportunities to do so, including by recalibrating a share of global financial assets and flows to support pathways for mobilising resources at the scale and speed required to meet global challenges.

Insights from the OECD monitoring exercise, presented in subsequent chapters, suggest further options to align the different sources of financing for sustainable development. The exercise looked at progress made on more than 70 SDG targets and many additional proxy indicators that are relevant to the AAAA action areas. Its aim was to contribute to the current financing for development monitoring mechanism, including the UN-led Interagency Task Force on Financing for Development (of which the OECD is a member), whose main monitoring output is the annual Financing for Sustainable Development Report.

There are vast financial resources within the global system that, if better aligned and allocated towards addressing vulnerabilities, could substantially close the SDG and climate financing gaps. Global financial assets total USD 461 trillion, a clear indication that the required funds to support sustainable development already exist (Figure 1.12). However, a mismatch in distribution, high debt servicing costs and other financial leakages limit the effectiveness of these resources in addressing the SDG financing needs (OECD, 2022[26]).

Fixing the incentives within the global financial system is essential to accelerate alignment of resources towards sustainable and equitable transition. Current regulatory frameworks and financial incentives are often out of step with the realities of the required transition, favouring short-term gains and in some cases perpetuating harmful practices such as fossil fuel subsidies. There have been repeated calls to reduce fossil fuel subsidies. For example, G7 countries have committed to phase out inefficient fossil fuel subsidies by 2025. SDG 12 and target 12.c.1 aim to increase the effectiveness of policies that rationalise inefficient fossil fuel subsidies. Despite targets like these, however, global explicit subsidies increased to USD 1.53 trillion globally in 2022, a fivefold increase over 2020, thereby reversing progress towards the net zero transition (UN, 2024[82]). At COP29, countries reaffirmed their commitment to phasing out inefficient fossil fuel subsidies but did not establish a concrete timeline or binding agreements, underscoring the persistent difficulties in achieving substantial progress on this issue. Ensuring policy coherence across ministries will be crucial to harmonise efforts, minimise negative transboundary spillovers and amplify the urgency of reforms. The upcoming FfD4 conference presents an opportunity for nations to discuss and implement solutions that can drive efforts to reshape financial incentives, thus enabling a fair and inclusive transition to sustainable development and climate resilience.

Regulatory adjustments are needed that governments have yet to fully enact. Current regulations often lag in aligning incentives with the SDGs, particularly in subsidies, taxonomies and sustainability reporting, among others. For example, the absence of standardised global frameworks for sustainability taxonomies has resulted in fragmented markets, which dampens investor confidence and slows the alignment of investments with SDG priorities. Similarly, limited progress on integrating double materiality into sustainability reporting leaves gaps in the understanding of the broader social and environmental impacts of private sector activities. Some advances have been made, with regulations on corporate responsible conduct, sustainable sourcing and quality investment standards emerging in the European Union, for instance, and through the Blue Dot Network and other initiatives. The FfD4 zero draft emphasises advancing double materiality disclosure frameworks, standardising SDG fund classifications to prevent greenwashing and creating a global finance taxonomy (UN, 2025[74]). These measures could reshape financial and corporate governance to drive impactful, transparent and sustainable investment strategies.

The financial system's stability and sustainability hinge on robust and adaptive financial regulation. While significant progress has been made in banking regulation since the 2009 financial crisis, non-banking financial regulation remains inadequate, leaving gaps in addressing systemic risks. Mispricing of risks in current financial regulatory frameworks, such as those used in international risk weighting (e.g. Basel III) exacerbates borrowing costs for SDG investments, particularly in LDCs (UN, 2025[74]). Furthermore, environmental sustainability is underrepresented in financial regulations, and climate risk disclosure and transition plans are still at an early stage. Credit rating agencies, pivotal in determining borrowing costs, lack sufficient transparency and long-term alignment with sustainability objectives.

Among the proposals to address these challenges at the upcoming FfD4 are suggestions to review and amend international risk weighting frameworks to ensure accurate risk assessments, including sustainability factors, and to reduce overreliance on credit ratings. A prudential regulation framework tailored for LDCs and less-developed markets is being proposed as well as more transparent, long-term and model-based credit rating systems (UN, 2025[74]). Regular dialogue among regulators, credit rating agencies and stakeholders can ensure appropriate actions during debt swaps and restructurings. Incorporating climate transition plans, stress testing of such plans and exploring global agreements on capital account management and asset management regulation can help create a more resilient and sustainability-aligned financial system.

Global financial assets are concentrated in the private sector, which generally prioritises returns over developmental impact. Non-bank financial institutions account for the largest share (47%), followed by banks (40%) and, with much smaller shares, central banks and public financial institutions (Figure 1.12). There is limited alignment of these sizeable private financial flows with the SDGs as the private sector generally prioritises returns over developmental impact. In this context, public financial institutions, although smaller in asset size, play a critical role by catalysing sustainable investments and supporting public goods. Therefore, enhancing public-private collaboration is essential for creating effective synergies between profitability and positive social impact. Civil society organisations advocate for stronger review of the development impacts of public-private partnerships, blended finance and other private finance instruments to ensure that private finance instruments contribute meaningfully to sustainable development, climate action, gender equality, fiscal stability, labour rights and broader social objectives (Civil Society Financing for Development Mechanism, 2024[83]). The FfD4 can emphasise the importance of aligning blended finance and institutional investments with measurable sustainability impacts by standardising instruments, creating catalytic capital pools, and improving data and impact metrics to drive meaningful development outcomes (UN, 2025[74]).

Although it is a key source of capital for SDG-related projects, global FDI currently totals only USD 0.8 trillion (OECD, 2024[38]). Gross fixed capital formation (GFCF) and FDI are essential pillars for fostering economic growth, particularly in developing countries where the need for infrastructure and productive capacity is high. GFCF, which represents investments in long-term assets such as infrastructure, machinery and buildings, signals how much capital is being directed towards building a country's economic foundation. By strategically channelling FDI into sectors that increase GFCF in SDG-related and green industries, countries can build resilience, support climate action and foster long-term economic growth. GFCF stood at USD 26 trillion in 2022, driven partly by FDI, which contributed USD 0.8 trillion as a key capital flow (Figure 1.12). FDI also plays a critical and complementary role, enhancing GFCF in developing countries by providing the necessary funds to develop sustainable infrastructure, technology and industries that local capital markets alone might not be able to support. LDCs would have received USD 0.28 trillion in FDI inflows from 2015-23 – an additional USD 0.04 trillion in total – had their inflows increased at the same rate (17%) as FDI inflows in other developing countries over the same period. As noted in 1.2, FDI flows to LDCs have not rebounded following COVID-19 to the same degree as FDI flows to other developing countries due to the disproportionate impacts of food, energy and successive other global crises (UNCTAD, 2023[93]). Among the proposals for the upcoming FfD4 is to scale up and enhance the quality of FDI in developing countries through targeted initiatives such as measuring FDI contributions to the SDGs (i.e. the quality of FDI), creating an investment support centre for LDCs and establishing an infrastructure financing facility for landlocked developing countries (UN, 2024[94]).

Addressing financial leakages is another opportunity to unlock greater financial flows for sustainable development. Remittances, valued at USD 0.5 trillion, are an example. These flows play a crucial role in supporting development in lower-income countries, yet persistently high transfer fees erode their potential. Both the 2030 Agenda and the AAAA called for lowering transfer costs to a target of 3 percentage points, but they remain more than twice as expensive and totalled USD 0.03 trillion in 2022. Meeting the target could have mobilised an additional USD 0.02 trillion per year in support of developing country households in 2022 (Chapter 3). The FfD4 could aim to lower transfer costs to 3 percentage points by 2030 through digital technologies, enhanced competition among money transfer operators, increased fee transparency and proportionate regulatory frameworks for private money flows (UN, 2025[74]).

Criminal and illicit economies are another major source of financial leakage in developing countries, and in some countries illicit financial flows (IFFs) may exceed both ODA and FDI inflows (Spanjers and Foss, 2015[95]). While there is no internationally agreed definition of IFFs, they are traditionally considered to include money laundering, bribery and tax evasion by international companies, and trade mispricing (OECD, 2014[96]). IFFs threaten the strategic, political and economic interests of countries and undermine public trust in government and the financial system. Over 2018-22, 22 countries piloted estimates of IFFs. While incomplete data and the risk of double counting make it difficult to sum up these estimates, UNCTAD used feedback from the pilots to release a refined methodological guidance on the tracking of IFFs (Chapter 2) (UNCTAD, 2024[97]). Key challenges in addressing IFFs remain, however, and include insufficient exchange of information, limited capacity to utilise financial data, and weak anti-corruption and anti-money laundering measures. Additionally, the lack of standardised regulations for professional service providers (e.g. lawyers, accountants, real estate agents, etc.) may enable or facilitate IFFs. Proposed solutions for the FfD4 emphasise fostering global financial transparency through strengthened international co-operation, national regulation of professional service providers and implementation of international anti-corruption standards. Enhancing asset recovery practices and reinforcing anti-money laundering measures are also needed to address IFFs and reduce financial leakages that divert resources that could support sustainable development.

A huge portion of financial resources are tied up in public and private debt stocks, which amount to USD 235 trillion, and in debt servicing costs in developing countries, which reached USD .847 trillion in 2023. Successive global shocks, rising debt vulnerabilities and limited fiscal space exacerbate developing countries’ debt challenges, undermining their ability to invest in the SDGs and climate resilience. There is an urgent need to manage debt burdens more effectively to free up capital for developmental priorities. The zero draft outcome document published ahead of the FfD4 conference calls for the creation of a more equitable debt architecture to address these systemic barriers, including a recommendation to establish globally endorsed principles for responsible borrowing and lending alongside tools to monitor and implement these principles across all stages of the debt cycle. The zero draft also centres on the need for greater transparency, with a call to create a global central debt data registry to harmonise reporting, improve creditor-borrower trust and enhance decision making (UN, 2025[74]).

If effectively mobilised, global government revenues, estimated at USD 31 trillion, are an essential resource to support SDG financing. Strengthening tax collection mechanisms, particularly in developing countries, could significantly boost domestic public resources. According to International Monetary Fund (IMF) estimates, low-income developing countries could increase their tax-to-GDP ratio by 9 percentage points on average through a combination of tax and institutional reforms (International Monetary Fund, 2024[98]). LICs could mobilise an additional USD 0.28 trillion per year in tax revenues by raising the ratio to a level equivalent to that of other developing countries (Chapter 2). This would require increased revenues from a range of taxes, with taxes on goods and services and personal income taxes having the most potential. While there is scope for some increase in revenues from corporate income tax, this is limited in light of the scale of resources needed. FfD4 proposals support the implementation of the OECD/G20 BEPS Two Pillar framework, emphasising the importance of ensuring that its outcomes benefit developing countries. Recommendations include increasing the second pillar on the global minimum corporate tax rate and providing capacity-building support to help developing countries analyse and implement the framework effectively (UN, 2024[94]). Strengthening country-by-country reporting and improving ownership transparency through global registries are also critical steps to ensure tax compliance. These measures aim to establish a fairer international tax system, thus empowering developing countries to safeguard their tax bases and mobilise sufficient revenues for sustainable development investments.

Aligning trade policies with sustainability targets would give developing countries an important opportunity to enhance their economic resilience and capture more value from global trade flows. Global trade in goods and services, valued at USD 25 trillion in 2022, is a key component of public financial resources that can be leveraged to support sustainable development (Figure 1.12). By incorporating sustainable practices into trade agreements and national policies, countries can foster inclusive growth and long-term economic stability. For example, LDCs account for 14% of the world’s population but only 1% of global trade. Doubling their share of global trade to 2% could add USD 0.23 trillion per year to their economies, contributing to poverty reduction and economic diversification (Chapter 5). The zero draft in the FfD4 context calls for stepping up aid for trade infrastructure and facilitation with the objective of doubling aid for trade to LDCs by 2031 and with at least 50% of such aid dedicated to building productive capacities (UN, 2025[74]). The African Continental Free Trade Area, for instance, is expected to boost African countries' trade income by USD 450 billion by 2035, with a projected 81% increase in intra-African trade. These examples underscore the potential of well-aligned trade policies to drive sustainable growth, particularly when targeted towards regions and countries with greatest needs.

While ODF from bilateral and multilateral providers accounts for just USD 0.3 trillion of total SDG financing, it is a critical resource, especially in countries most in need. Although ODF alone cannot close the financing gap, it plays an essential role in areas where private investment is limited such as fragile or high-risk regions. Redoubling ODA commitments and improving ODA effectiveness in catalysing other financial flows will be essential in ensuring that development financing reaches the most vulnerable. DAC members would have mobilised an additional USD 0.2 trillion in 2023 had they agreed to and met the spending target of 0.7% of gross national income (GNI) to ODA. Over 2015-22, however, ODA from DAC members to the most vulnerable countries did not keep pace with the total increase, growing by only 28%, while total ODA increased by 48% (Chapter 4). Proposals to address these challenges include achieving more ambitious time frames for ODA targets; increasing the commitment to LDCs from the current 0.15-0.20% to 0.20% of GNI to ODA; increasing the share of ODA in support of strengthening core capacities and institutions in developing countries (e.g. country programmable aid, budget support); and enhancing transparency and accountability of all development co-operation providers, including South-South and triangular co-operation providers (UN, 2025[74]).

Encouraging private sector involvement through blended finance, coupled with robust monitoring, could facilitate substantial investment flows into sectors critical to sustainable development. Tools such as blended finance, impact investing and green bonds can also attract private investors by reducing risk through partial public guarantees. Innovative financial mechanisms and increasing the catalytic effects of ODA will also play a role in unlocking resources for critical SDG investments, enabling a more equitable distribution of global wealth in support of inclusive and sustainable growth. However, for innovative finance to make a meaningful impact, a supportive regulatory framework and clear metrics are needed to ensure that these mechanisms genuinely contribute to SDG outcomes.

Multilateral development banks (MDBs) face challenges in scaling their financial capacity, aligning incentives with development impact and expanding access to concessional finance. At the same time, they must navigate a landscape of fragmented co-ordination and rising demands for sustainable and inclusive investments. Ongoing reforms of MDBs aim to triple total lending volumes by 2030 to reach USD 400 billion per year. Yet, even under the most optimistic scenario, additional MDB lending would amount to USD 40 billion per year – substantially less than the target set by the G20 Independent Expert Group of an additional USD 260 billion a year (OECD, 2024[99]). The FfD4 zero draft proposals to address these challenges include implementing capital adequacy reforms, increasing concessional financing, aligning incentives with sustainable development impact, enhancing local currency lending, and fostering collaboration to streamline operations and maximise resource mobilisation (UN, 2025[74]).

Transitioning to a sustainable and inclusive global economy requires co-ordinated and differentiated efforts to implement policy levers that integrate the interlinked goals of poverty eradication, economic growth and climate action. Such efforts must be tailored to the varying needs and capacities of countries at different stages of development. LICs, which have low emissions and low GDP per capita, should focus on poverty eradication through investments in human, physical and financial capital. MICs, especially LMICs, should prioritise income growth while reducing vulnerability and leveraging synergies, such as by cutting air pollution. HICs, which are responsible for the majority of global emissions, must lead in climate mitigation while managing the costs of transition (World Bank Group, 2024[100]).

New policy levers can promote long-term benefits for social equity, financial stability and sustainability. The traditional monetary and fiscal policy levers deployed following the COVID-19 crisis have largely been exhausted. To avoid unintended negative consequences, particularly in addressing the inherent risks of decoupling, a range of public economic levers including new regulatory frameworks, just transition policies and financial instruments are needed to unlock fresh opportunities to boost finance and revenues and achieve global climate and sustainable development goals. Figure 1.13 provides an overview of these opportunities and the variety of benefits they can promote, including tax and subsidy reform, market creation (e.g. carbon), strengthened regulatory frameworks, valorisation of natural assets (e.g. ocean and bioeconomy), and just transition policies. These benefits have varying potential to be scaled up in different country contexts.

While challenging, repurposing fossil fuel subsidies is critical for all countries, though its priority level differs for countries at different income levels. Balancing fiscal and environmental goals with social equity is a challenge for all countries regardless of income level. At COP28, a coalition of nations from varying income groups pledged to end fossil fuel subsidies by promoting transparency, addressing international barriers and fostering national strategies to phase out subsidies while also minimising carbon leakage and maintaining a level playing field (International Institute for Sustainable Development, 2024[101]). Redirecting subsidies from carbon-intensive activities to renewable energy projects can significantly reduce emissions and create pathways for green innovation. In lower-income countries, priorities often centre on minimising social and economic disruptions by using these resources to expand energy access, support social safety nets and foster inclusive development. These resources can be redirected to address pressing development needs such as access to clean energy, infrastructure and poverty alleviation. A notable example is Indonesia, which has gradually restructured fossil fuel subsidies while investing in renewable energy and direct cash transfers to support vulnerable populations (Laan and Sharma, 2024[102]). Effective policy levers require robust social safety nets, clear communication and stakeholder engagement to ensure political and social acceptability (Alers and Jones, 2021[103]).

Carbon markets hold potential as supplementary policy levers but require significant reform to benefit lower-income countries. The COP29 outcome on carbon markets highlighted the lack of robust safeguards to ensure equitable access for developing countries and insufficient measures to prevent greenwashing. Developing countries will require support for carbon trading that aligns with their national development goals, clarifies revenue-sharing rules and integrates carbon market projects with broader economic policies. Development partners can strengthen the institutional and technical capacity of these countries to ensure effective participation in carbon markets while differentiating carbon finance from climate finance to avoid duplicative or misallocated resources (UNCTAD, 2024[104]).

The ocean or blue economy offers significant opportunities to drive sustainable development, particularly in LICs and SIDS where ocean-based industries are vital economic pillars (OECD, 2024[105]). LICs rely on ocean-based industries, which contribute over 11% of their GDP, much more than OECD countries, where such activities account for 2% of GDP. For example, tourism, including marine and coastal tourism, plays a central role in livelihoods and economic resilience in Cabo Verde, Seychelles and Maldives, where it accounts for more than 50% of GDP. ODA for the ocean economy totalled USD 3.5 billion in 2022, a 45% increase over 2021, but it still represented only 1% of total ODA (OECD, 2024[105]). Of this total, USD 2.4 billion (69%) was directed towards enhancing the sustainability of ocean economy sectors or conserving ocean resources. These investments underscore the potential of the blue economy to foster inclusive growth and address environmental challenges, provided that policies and financial mechanisms continue to align with sustainability and resilience goals.

With the right policy levers in place, the bioeconomy presents opportunities for all countries but offers particularly transformative potential for LICs and MICs. The term bioeconomy refers to the leveraging of renewable biological resources to reduce fossil fuel dependency, cut greenhouse gas emissions and maximise resource efficiency (OECD, 2018[106]). Regardless of their income level, all countries must collaborate to ensure biomass is used sustainably and in a way that balances environmental, economic and social goals. Policy levers such as eliminating fossil fuel subsidies and implementing financial incentives such as carbon taxes can act as enablers to increase the competitivity of bio-based products (OECD, 2018[106]). Small-scale biogas projects in LICs, for example those in Kenya, demonstrate how agricultural and household waste can generate renewable energy, improve waste management and reduce deforestation (World Economic Forum, 2024[107]). MICs, among them Brazil, have converted sugarcane to ethanol, creating jobs, reducing emissions and generating carbon credits (World Economic Forum, 2024[107]).

Ensuring a sustainable and inclusive global response at all income levels can also include solidarity levies aimed at raising significant new resources for climate and development goals. The Global Solidarity Levies Task Force (2024[108]), for instance, highlights a range of opportunities to introduce levies on high-emission and resource-intensive sectors in a progress report released at COP29. Among the options presented are solidarity levies targeting fossil fuels, aviation, maritime fuel, carbon pricing and financial transactions as well as proposals for a fossil fuel extraction levy and a financial transaction tax that could raise between EUR 156 and EUR 260 billion per year, with significant portions allocated to developing countries. HICs are encouraged to lead by implementing demand-side incentives such as public procurement mandates. In 2022, 92% of the surveyed OECD countries (35 out of 38) reported they had adopted a national green public policy or policy framework and 29 reported that they refer to such a policy or to public procurement in their national environmental commitments as a tool in pursuit of sustainability goals (OECD, 2024[109]). At the same time, MICs can focus on industrial collaboration and LICs can integrate renewable carbon projects into national strategies with support from concessional finance and technology transfers.

Debt can be a powerful policy lever for development when aligned with SDG objectives, ensuring effective use of and high returns on investment. In advance of the FfD4, a range of proposals have already been made to tackle the debt crisis while also fostering sustainable and inclusive growth (UN, 2024[94]). For example, scaling up and simplifying debt swaps for climate and nature could channel resources into sustainable development and also reduce transaction costs. Innovative solutions including debt-for-climate and debt-for-nature swaps could help redirect an estimated USD 100 billion of debt towards nature restoration and climate adaptation in developing nations. Climate-resilient debt clauses, which allow for temporary suspension or restructuring of payments during climate-related disasters, are increasingly integrated into financial instruments, providing much-needed fiscal space for vulnerable nations. Additionally, up to USD 80 billion could be unlocked through the rechannelling of special drawing rights via MDBs to enable greater investments in climate resilience and sustainable development. Chapter 6 on debt and debt sustainability notes drawbacks and other considerations relating to such arrangements. Complementary proposals call for a new mechanism to co-ordinate liquidity support, technical assistance and legal advice to debtor nations that would enable them to manage debt sustainably without triggering defaults. Reforms to the G20 Common Framework aim to ensure fairer and more effective resolutions by expanding eligibility, standardising debt service suspension during negotiations and accelerating timelines for debt treatments. National governments and advocacy groups are also pushing for domestic legislative reforms to prevent disruptions from holdout creditors and to refine debt contracts. In addition, there are calls for updated debt sustainability assessments to account for SDG spending needs, climate risks and the long-term growth impacts of sustainable investments that would provide a foundation for debt strategies that align with development and resilience goals.

Finally, strengthening nationally owned financing for development strategies in lower-income countries is essential to align international co-operation and global financial flows with a just transition. Country-owned SDG and climate financing strategies such as Integrated national financing frameworks (INFFs), nationally determined contributions (NDCs) and Just Energy Transition Partnerships (JETPs) play a critical role in embedding SDGs within national budgets and economic planning. For example, NDCs are a policy lever that countries put into place and detail how they will contribute to the global temperature goals outlined under the Paris Agreement. Supporting these strategies requires concessional funding, technical assistance and capacity building to strengthen public financial management systems, enhance alignment with SDG targets and integrate climate resilience into national development frameworks. Climate finance must complement, not replace, development finance, ensuring that progress on climate action aligns with poverty eradication and inclusive growth. The FfD4 can seize opportunities to align development efforts with NDCs, utilising integrated frameworks to guide planning and decision making, and fostering stable, multi-year co-operation agreements (UN, 2024[94]). Enhanced international dialogue is also proposed as a means of ensuring coherence in financing development, climate and humanitarian needs while rationalising national-level architectures to place developing countries at the centre of their own co-ordination and decision making. International co-operation should also prioritise the harmonisation of donor strategies with these country-led plans to promote ownership, coherence and long-term impact.

Looking ahead, the FfD4 will offer a critical opportunity to develop a framework to advance collective and individual efforts to align financing flows, policies and strategies in favour of a sustainable transition. To promote adoption of new policy levers aligned to countries’ unique circumstances and income levels, the global community can foster convergence on global financing priorities, addressing systemic barriers and enabling policy coherence. The FfD4 can provide the necessary impetus for scaling up investments in sustainable development, aligning financial flows with the SDGs, and ensuring no country is left behind in the transition to a resilient and inclusive future.

The renewal of the AAAA, which has served as the framework for financing sustainable development, is an opportunity to support a more sustainable and equitable financing architecture in 2025. Since its adoption in 2015, the AAAA has catalysed a range of initiatives that strengthen international tax co-operation, integrate financing frameworks and establish innovative financial mechanisms, among others. However, the COVID-19 pandemic, climate change, shrinking fiscal space and other challenges have shifted financing needs and priorities. The aim of the FfD4 in Seville, Spain, in 2025 is to evaluate progress on previous commitments, address emerging challenges to accelerate progress towards the 2030 Agenda and advocate for reforms in the international financial architecture to better support sustainable development (UN, 2024[110]).

Recent major international agreements underscore the magnitude of the financing challenge, while raising the stakes for the FfD4. Key initiatives such as the Bridgetown Initiative; the UN SDG Stimulus; the High-level Working Group of African ministers of finance, planning and economic development; the Vulnerable Twenty Group, or the V20; and the Paris Pact for People and Planet, among others, collectively aim to address global financial inequalities and support sustainable development. Reform has never been more essential or more challenging to achieve. Expectations are high and demand a comprehensive and cohesive strategy to foster both just and sustainable growth. The SDG Stimulus call for USD 500 billion annually remains unfulfilled, highlighting the gap between ambition and implementation (UN, 2023[111]). Recent major agreements led by the UN such as the Pact for the Future, COP29 and the Biodiversity COP have not delivered the necessary breakthroughs on financing, deferring critical decisions to the FfD4 and raising the stakes for the conference.

How can negotiators make the most of the opportunity afforded by the FfD4? Three considerations should guide them. First, aim for a meaningful and politically feasible outcome while building trust. Second, ensure that the FfD4 framework is fit for purpose in the post-2025 era. And third, reinforce the FfD4 monitoring mechanism to ensure its implementation. New challenges and a new context have emerged in the ten years since the AAAA was agreed, requiring that it be updated to remain relevant in the post-2025 period. The FfD4 could help the international community walk the crest line between the need for ambition and the risks of geo-economic fragmentation.10

In light of geo-economic tensions and the risks of economic decoupling outlined in this chapter, the priority should be to restore trust between actors. The erosion of trust between nations makes it challenging to agree the renewal of the existing financing framework. This was apparent during the COVID-19 pandemic, when disparities in vaccine distribution revealed deep cracks in global solidarity, reinforcing perceptions of inequity and undermining trust. More equitable governance structures can help prevent the fragmentation of global trade, investment and financial systems (UN, 2024[94]). Further modernising of governance structures in institutions like the IMF and World Bank and in debt negotiation processes (e.g. those carried out by the Paris Club) could increase the voice and influence of developing countries in decision making. Developing countries hold 37% of the voting rights at the IMF and 39% at the World Bank though they constitute 75% of the membership in these institutions11 (UN, 2023[112]) (see also Chapter 7 on systemic issues).

Restoring trust should start with greater policy coherence for sustainable development (PCSD).12 In a 2023 survey by the OECD, 73% of responding countries identified lack of data and analysis on the transboundary impacts of policies as a key barrier to progress on PCSD (OECD, 2024[113]). Addressing contradictions and promoting integrated efforts will prevent negative feedback loops such as conflicts, underinvestment in education and climate change, among others, that exacerbate global inequalities (see section 1.3). Aligning global financial flows with the SDG and Paris Agreement targets requires significant reforms in OECD countries, including adjustments to fiscal policies, tax systems, subsidies and institutional governance. By prioritising PCSD, the FfD4 can promote more integrated and transparent policy approaches, fostering mutual trust among nations.

At the FfD4 conference, embedding inclusive practices and calling on existing platforms to work together will be pivotal to crafting actionable and equitable outcomes that resonate and build trust among all partners. The OECD DAC has undergone adjustments to incorporate broader perspectives from non-members, civil society organisations and emerging South-South and triangular co-operation providers. Likewise, the transition of the Total official support for sustainable development (TOSSD) project to an independent international forum in 2024 reflects the evolution of the TOSSD measure towards becoming a global standard for tracking sustainable development finance in ways that ensure transparency, accountability and local ownership. Initially developed under the DAC and the AAAA, TOSSD has expanded to include South-South co-operation, triangular partnerships and financing for global public goods, an evolution that required a governance structure beyond the OECD (Chapter 4). These efforts reflect the growing recognition that inclusive governance that ensures a voice for all developed and developing countries, MDBs, private sector actors and grassroots organisations is essential to align development finance with diverse needs and priorities. Strengthening consultations with all relevant stakeholders not only enhances the legitimacy of international frameworks but also ensures that financing solutions are grounded in local realities.

The reform of the financial architecture at the FfD4 should not dismantle nor duplicate existing structures, it should accelerate the transformation of established platforms. Calls to centralise decision making within the UN to achieve global consensus could lead to duplicating efforts and polarising debates through bloc voting, which may hinder progress and dilute existing agreements (e.g. the definition of and commitment to ODA). Instead, leveraging the value-added contributions of existing regional and like-minded platforms can enhance effectiveness by promoting data-driven, evidence-based approaches; setting global standards; and fostering peer reviews and benchmarking to guide best practices. Efforts should prioritise refining the definition and ringfencing of ODA to maintain its integrity. Collaboration among institutions remains essential to ensuring a balanced and effective governance framework. A harmonised approach that capitalises on these complementary strengths can bolster global governance and promote greater coherence towards sustainable development objectives.

The focus on quantitative targets has its virtues but comes at a price, as missed targets risk further contributing to the trust deficit. New commitments to finance sustainable development must avoid overpromising, and address gaps in capital needs for a just and green transition. Some areas of the AAAA, such as domestic and international private business and finance, are dense with commitments targeting specific outcomes – among them, mobilisation of USD 100 billion annually in climate finance by 2020, full and equal access to financial services by 2030, and a reduction of the transfer cost of remittances to 3% – though only one of the commitments was met and then only past the deadline. Other AAAA areas also include long-standing targets that continue to fuel the trust deficit. For instance, through UN General Assembly Resolution 2626 (XXV) adopted in 1970, developed countries committed to devote 0.7% of their GNI in ODA to developing countries. However, there is no international agreement that specifies which developed countries the target applies to, nor the time frame they have for reaching the target (Chapter 4). More recently, ambiguous pledges such as the USD 1.3 trillion commitment made at COP29 continue to highlight challenges in enforcement of financing targets and the risk of fragmenting resources (COP29, 2024[114]). Aligned priorities and clearer frameworks with timelines and transparency for stronger accountability are crucial to bridge these gaps effectively.

Beyond the volume of financing mobilised, the quality of resources and their alignment with effectiveness principles are critical to achieving sustainable development outcomes. These require the reaffirmation of core principles such as country ownership, better co-ordination among stakeholders, a focus on measurable results and mutual accountability. The updated Global Partnership for Effective Development Co-operation (GPEDC) monitoring framework provides a valuable tool for measuring and advancing these principles by emphasising inclusivity, transparency and alignment with country systems. Empowering recipient countries to take the lead in designing and implementing development strategies ensures that financing is responsive to their specific needs and priorities. Enhanced co-ordination among donors, governments and other partners can reduce fragmentation and improve the efficiency of resource allocation. Such approaches can place countries in the driver’s seat while ensuring a cohesive, results-oriented framework for financing.

National strategies should be placed at the core of the system and all other financial levers designed to support and enhance these strategies. INFFs offer a practical tool for aligning financial flows with national development priorities, enabling governments to leverage public, private, domestic and international resources more effectively. Similarly, country-specific platforms such as the JETPs demonstrate how international collaboration can be tailored to specific national needs and ensure alignment with global goals. Dual approaches such as these – anchored in the development strategies of LICs and MICs and complemented by the SDG financing strategies of the OECD and HICs – reflect a shared responsibility. For example, financing mechanisms such as blended finance initiatives can de-risk private investments in renewable energy projects in Africa while directly contributing to the host countries' climate strategies. Progress on the SDGs requires that a substantial portion of financing efforts by OECD members and other HICs directly supports sustainable development in developing regions, which will foster a more equitable and results-oriented approach to global development.

Incorporating broader measures of well-being and environmental sustainability into decision-making processes –following the so-called beyond GDP guidelines-- supports transitions towards more inclusive and sustainable development. While GNI per capita remains the key metric for determining the ODA eligibility of countries (including low- and middle-income countries as defined by the World Bank), GNI per capita is not the only measure of how concessional finance is allocated. Applying multidimensional vulnerability indices and other tailored financial tools that consider the unique vulnerabilities of debt-distressed and climate-affected countries can help allocate scarce ODA more equitably. These tools, alongside country-specific INFFs and smooth transition strategies, can also help vulnerable countries attract more external public and private resources while ensuring that financing strategies are country owned and responsive to individual countries’ challenges and capacities.

The AAAA remains a foundational reference for financing sustainable development, but its framework must be updated to tackle new challenges and promote innovative solutions. Addressing gaps in areas such as climate and biodiversity, health systems, and other systemic issues is essential to help the global community walk the crest line towards the SDGs. This requires closing negative financing loops, aligning financial flows with SDGs and deploying innovative mechanisms that mobilise resources more effectively. By fostering a just climate transition, for instance, an updated framework for financing sustainable development can help reduce vulnerabilities across regions and income levels while driving equitable progress.

Several of the updates under discussion, including the differentiation of climate and development finance, will be challenging to achieve and may not be resolved. The Pact for the Future, adopted at the 2024 UN Summit of the Future, reinforces commitments to mobilise more climate finance, particularly for adaptation and renewable energy projects. The issue of clarifying the additionality of climate finance to existing development finance commitments was left unresolved. This ambiguity is critical given that climate is a cross-cutting theme. Ensuring sufficient financing is important to help mitigate risks of negative impacts and unlock greater resource mobilisation across sectors. While climate is recognised as a cross-cutting theme in the AAAA, there can be further emphasis across the action areas on the risks of negative impacts and the potential to scale up resources. For example, trade is a driver of the triple transition (digital, environmental and social) and has an important role to play in sustainable development (Chapter 5). Environmentally related taxation can advance sustainable development by simultaneously addressing environmental challenges and supporting economic growth (Chapter 2). Renewable energy and climate technologies can help developing countries transition towards more circular and greener economies (Chapter 8).

The scope of systemic risks now includes complex financial and non-financial challenges that require a better global financial safety net, among them the challenges of climate change and biodiversity loss, health and pandemics, AI, and cybersecurity vulnerabilities. The FfD4 conference can support an expansion of IMF resources and facilities, for instance by creating a multilateral swap line, ensuring emergency financing is based on need, and scaling up concessional lending through mechanisms such as the Resilience and Sustainability Trust. Issuing new special drawing rights with streamlined rechannelling to vulnerable countries and supporting regional arrangements, particularly in Africa and other underrepresented regions, would enhance the coverage, reliability and responsiveness of the safety net (Chapter 7). Expanding the scope and accessibility of these mechanisms to address climate, health and other systemic shocks will also enhance global preparedness, protect vulnerable economies and ensure a more resilient response to future crises.

While the AAAA emphasises the need for clear guidelines on the responsibilities of creditors and debtors, progress to co-ordinate actors in support of debt sustainability remains fragmented and debt transparency remains low. Sovereign debt restructuring has grown significantly more complex, driven by an increase in defaulted debt and a more diverse creditor base that includes the private sector, China and Gulf states (Chapter 6). To prevent debtors from selectively favouring certain creditors over others, the FfD4 should encourage the participation of a broader range of creditors through the co-ordinated use of tools such as guarantees, credit enhancements and debt swaps alongside strengthened contractual provisions such as most-favoured creditor clauses. Engagement with credit rating agencies can further help increase the transparency of risk assessments. The conference should also promote loss reinstatement features that protect creditors against risks associated with the potential reversal of debt restructuring agreements, and support the work of the G20 Common Framework to track debt treatment and fiscal space for sustainable development spending. Strengthening debt transparency, including full disclosure of debt terms and obligations, is critical to ensuring accountability and fostering trust among all stakeholders, and thus to enabling more effective debt restructuring and sustainable development outcomes.

Efforts must prioritise those that have benefited the least from resource mobilisation since the adoption of the AAAA, such as LDCs and underfunded social sectors. As discussed, LDCs and other LICs face challenges in attracting private investment. A cohesive and comprehensive strategy is thus essential to foster both just and sustainable growth, address long-standing inequities, and ensure no one is left behind. In addition, the FfD4 should encourage the removal of bottlenecks hindering the expansion of private business and finance in these countries. For example, the FfD4 should promote innovative financial instruments, enhance risk mitigation strategies and improve data transparency to attract private investment to LDCs and other LICs. Global efforts to strengthen financing for health and education in developing countries are also crucial as these sectors remain significantly underfunded. As discussed in section 1.2, external debt service diverting public resources away from essential services like healthcare and education is another negative feedback loop. This financial strain exacerbates existing challenges such as shortages of healthcare professionals and limited access to quality education in developing countries. To achieve sustainable progress, the FfD4 must focus more on investment from both domestic governments and international donors in equitable access to these critical services.

To support the development of a robust global FfD monitoring framework in 2025, the OECD monitoring exercise of the AAAA identifies at least 70 relevant SDG targets and many additional proxy indicators. The aim of that exercise is to contribute to the current mechanism that monitors financing for development, including the UN-led Interagency Task Force on Financing for Development (of which the OECD is a member), whose main monitoring output is the annual Financing for Sustainable Development Report. As part of this process, Chapters 2 through 8 of the 2025 Global Outlook on Financing for Sustainable Development were submitted in draft form as inputs to the FfD4 Elements paper (OECD, 2024[115]) and updated following comments and consultations for this report to provide an in-depth review of ten years of implementation of the AAAA. The insights across the seven action areas are covered in the following chapters: domestic public resources (Chapter 2); domestic and international private business and finance (Chapter 3); international development co-operation (Chapter 4); international trade as an engine for development (Chapter 5); debt and debt sustainability (Chapter 6); addressing systemic issues (Chapter 7); and science, technology, innovation and capacity building (Chapter 8). For each AAAA action area, the respective chapters take stock of where progress has been made, where progress has lagged, and where new challenges or solutions have emerged that require adjustments to the AAAA. The chapters are accompanied by statistical annexes that, together with the stocktake, provide the basis of a reinforced monitoring framework that measures progress against quantifiable or qualitative targets in line with the SDGs.

The FfD4 agreement should define clear and actionable deliverables, complemented by well-defined targets for broader commitments and rigorous impact assessment mechanisms to evaluate progress against social, economic and environmental indicators. Focusing on measurable outcomes aligned with the SDGs can maximise the impact of all sources of financing for development. For example, SDG 17.3.1, which tracks FDI, remittances and other financial flows to developing countries, is critical to ensuring sufficient resources are mobilised to meet development needs and fill financing gaps. But many other SDG targets, indicators and additional proxies are important to ensure a comprehensive monitoring framework across action areas. The OECD monitoring exercise demonstrates the potential of new metrics and safeguards to ensure equitable resource allocation, enhance accountability and effectively track contributions towards achieving SDGs:

• International development co-operation: A consolidation of efforts, based on the strengths of existing mechanisms within and beyond the UN, is needed to shift to a new era. The FfD4 should strengthen the quality, impact and effectiveness of all types of development co-operation while the GPEDC continues generating data – for instance regarding SDG indicator 17.15.1 (extent of use of country-owned results frameworks and planning tools by providers of development co-operation) – supporting policy dialogue and learning, and promoting accountability and progress on development effectiveness (GPEDC, 2024[116]).

• Debt and debt sustainability: Monitoring frameworks need to incorporate additional indicators, such as those from the G20 Common Framework, to track debt treatment and fiscal space for sustainable development spending. Only SDG indicator 17.4 (assist developing countries in attaining long-term debt sustainability through co-ordinated policies aimed at fostering debt financing) directly addresses debt sustainability by measuring debt service as a share of exports. Expanding these metrics could ensure a unified approach to monitoring progress of international debt management arrangements, enabling more effective debt management aligned with sustainable development objectives.

• Addressing systemic issues: Establishing clear, quantifiable targets for addressing systemic risks would enhance the ability to mitigate interconnected impacts on sustainable financing. Statistical proxies, such as financing for global health or indicators for climate risk disclosure, could expand monitoring efforts and better align with the needs of a more interdependent global system.

Key actors could make tailored commitments to support FfD4 monitoring, aligned with their capacities and roles. The FfD4 monitoring framework could be accompanied by a roadmap or package of supporting actions pledged by different actors such as the OECD DAC, the Finance in Common Summit, the GPEDC, the UN-led Global Investors for Sustainable Development Alliance and philanthropies, among others. Implementation of the actions could be continuously monitored and progress reported to the UN on a regular basis, with the possibility to adjust the roadmap as actors fulfil their reform pledges. Multilateral organisations could provide systematic data on concessional finance, debt sustainability measures and innovative financial instruments, while regional organisations could focus on region-specific financing gaps and solutions. Networks of DFIs could offer insights on private sector mobilisation and blended finance projects. Civil society organisations could play a critical role in tracking transparency, inclusivity and the social impact of financing commitments, ensuring accountability for underserved communities. Bilateral providers might align their reporting to the SDG targets by offering sector-specific financing data, and providers of South-South and triangular co-operation could share their experiences in financing as well as capacity building, technology transfer and regional partnerships. To facilitate coherence, the DAC should reinforce commitments to FfD monitoring by establishing reporting standards and encouraging participation, including building on the methodology developed by the DAC peer review monitoring of financing for sustainable development. The collective efforts of these actors would ensure that voluntary FfD reporting is robust, inclusive, and capable of driving progress on financing SDGs.

While impact measurement has inherent limitations, the FfD4 should nevertheless leverage existing platforms to monitor development impacts across the action areas. Many of these platforms were identified and proposed ahead of the FfD4 negotiations. One is a proposal to review how prudential regulations impact access to financing for small and medium-sized enterprises in developing countries, to ensure that blended finance initiatives are aligned with national priorities. Several other proposals call on diverse actors to step up impact monitoring. For example, development banks could better integrate methodologies that value externalities into financial models and transactions. MDBs can align their impact frameworks with the SDGs, capturing both positive and negative effects. Finally, promoting leadership by developing countries and fostering coherence and accountability among development partners can help embed sustainable development impacts into decisions on funding allocation and co-operation modalities.

By linking commitments to concrete outcomes, the new FfD framework can be a dynamic tool for adaptive learning, driving continuous improvements in how financing contributes to the SDGs. Reporting should draw from existing processes such as the SDG voluntary national reviews (VNRs), NDCs and INFFs reporting. Some countries have already made strides in this area. For instance, Mexico integrates financing for development reporting into its national budget planning processes, linking financing flows to specific SDG outcomes (Government of Mexico, 2024[117]). Costa Rica conducts detailed assessments of climate finance impacts on biodiversity conservation and carbon reduction targets (UN, 2023[118]). Rwanda uses its sustainable finance framework to align financing strategies with measurable development outcomes, providing detailed reporting on resource allocations and their impacts (Rwanda Ministry of Finance and Economic Planning, 2024[119]). Since the initiation of VNRs in 2016, the number of countries participating has increased from the initial 22 to 39 by 2023 (UNDP, 2023[120]). These assessments should be further encouraged so that stakeholders are able to measure the real-world effects of initiatives, which can foster accountability and refine strategies to maximise impact. Under the Paris Agreement, countries must submit new NDCs every five years, progressively strengthening their commitments to reflect their "highest possible ambition" and the latest climate science (UN, 2015[121]). By June 2024, most countries had submitted updated NDCs with 2030 targets; the next round, covering 2035 targets, is due by early 2025. The FfD4 conference can encourage countries to improve both their reporting systems and their support to developing countries to enhance their capacity for data-driven decision making. Technical assistance for statistical systems and capacity building for tracking progress against SDG-aligned targets will further strengthen global monitoring efforts.

The next chapters provide a detailed evaluation of the AAAA commitments as well as progress made to date, ongoing challenges and gaps, and areas emerging since 2015. They also highlight critical areas for updates of the financing framework.

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