Diverse finance key to development of poorest countries, says UNDP chief

31 May 16

The world’s least developed countries (LDCs) will need to ensure a good mix of finance instruments in order to achieve development goals, the United Nations Development Programme administrator Helen Clark has said.

Launching a joint-report from UNDP and French development agency Agence Française de Développment (AFD) at a conference in Turkey over the weekend, Clark explained that making use of the variety of innovative financial tools available would be essential to the development of some of the poorest countries in the world.

She noted that it can be difficult for LDCs to mobilise domestic resources for development and to attract sustained private investment because they are seen as a “riskier bet”.

At the same time, they remain very vulnerable to shocks, from extreme weather events and commodity price fluctuations, to disease outbreaks such as Ebola, which can cause significant development setbacks, she continued.

“The challenge for LDCs is how to harness the opportunities presented by a more diverse and sophisticated development financing landscape, and to do so in ways that maximise sustainable development benefits, build capacity, and minimise the risk of debt distress,” Clark said.

While many LDCs rely heavily on official aid flows from donor governments, the UNDP chief said this will not be enough to achieve the Sustainable Development Goals, agreed by world leaders at the United Nations last year, even when combined with domestic resources.

The report stresses that there is no “silver bullet solution”, and that different sources of finance and different financing instruments will be needed to complement one another.

“As well, different country contexts calls for different composition of financing,” Clark added.

She said the report identifies “considerable opportunities to build on and scale up” recent innovations in financing including blended finance – a combination of grant and non-grant financing – green bond financing, guarantee mechanisms and local currency financing.

Because LDC’s economies remain vulnerable to shocks, she added that they can benefit from lending instruments that allow debt service payments to fall – including to zero – when a major shock strikes.

“The research also shows that financial instruments like countercyclical loans and GDP-linked lending by bilateral and multilateral development agencies are not only a complement to more traditional financing, but an absolute necessity,” she continued.

While stressing the importance of a diverse financing landscape, Clark stressed this does not diminish the importance of LDC government efforts to strengthen domestic revenue generation and using these resources more effectively.

Clark was speaking at an event marking the mid-term review of the implementation of the Istanbul Programme of Action for the world’s LDCs.

Adopted in 2011, the IPoA charts the international community’s vision and strategy for the sustainable development of the LDCs over the next decade. 

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