Global IssuesMultilateral Financial Institutions Can Catalyze Public Development Banks (PDB) to Deliver SDGs
NEW DELHI, India, Oct 05 (IPS) - There is broad consensus that realizing the Sustainable Development Goals (SDGs) and the Paris Agreement on climate change require a transformative agenda for agriculture and food systems. In this context, the importance of mobilizing more investments and aligning them to sustainable development and inclusive rural transformation objectives, is widely acknowledged.
The gaps in investment
Estimates of investment required for achieving these goals show that the financing needs are considerable although the appraisals of incremental financing requirements differ significantly.
The Food and Agriculture Organization of the United Nations (FAO), International Fund for Agricultural Development (IFAD) and the World Food Program (WFP) estimate that US$265 billion per year is needed to reach “zero hunger” by 2030 (SAFIN, 2021).
In 2019, the United Nations Conference on Trade and Development (UNCTAD) estimated total investment needs for food and agriculture at US$ 480 billion to achieve related SDGs in developing countries, with actual investment at US$220 billion, thus leaving a gap of US$260 billion.
These estimates suggest that transforming food systems to deliver healthy people, a healthy planet, and a healthy economy will require US$300 – US$350 billion extra per year over the next decade.
The swift and massive shock of the coronavirus pandemic has plunged the global economy into a severe contraction. The prospects of economic revival are highly uncertain and downside risks are predominant. Development finance gap is thus likely to worsen.
Towards meeting the financing gaps
To meet these needs, finance will be required from all sources to work in alignment with the 2030 Agenda and the Paris Agreement. The extension of the Debt Service Suspension Initiative (DSSI) through to the end of 2021 led by the World Bank – will help most developing countries to focus on domestic priorities including getting SDG delivery back on track.
A Common Framework for Debt Treatments beyond the DSSI is in the making, while some International Financial Institutions (IFI) are expecting historical highs in their replenishments (IFAD, IDA, AfDB). In addition, there is a call for a new general allocation of USD 650 billion (IMF Special Drawing Rights) to be channelled to benefit vulnerable countries.
A Role for Public Development Banks
Public Development Banks (PDBs) have considerable untapped potential here, as financial institutions with state capital have a mandate to pursue developmental goals, (as opposed to solely commercial objectives in their bank operations. PDBs are distinct from State-owned commercial banks; they also differ in their mandates and instruments (World Bank Group & World Federation of Development Financing Institutions, 2018, IFAD, 2020, SAFIN, 2021). Non-sector specific PDBs have significant portfolios in agriculture or in other activities within food systems (e.g. in financing rural infrastructure, agro- processing, or other).
Yet other PDBs have a primary focus on agriculture but their portfolio includes other sectors. This is based on the notion that supporting sustainable small-scale farming through inclusive agri-food value chain development is between two to three times more effective as a means to eradicate poverty than other sectors.
Some PDBs target small-scale enterprises including producers, while others focus their portfolios on larger agribusinesses or larger investments, for instance, in agricultural infrastructure and markets. This diversity is key to understanding the role of different types of PDBs in advancing the 2030 Agenda.
The overarching goal, however, is to address market failures, with counter-cyclical roles, and greater risk tolerance than what other financial institutions have. Given their public mandate and close proximity to public policy and governance institutions, PDBs can play a catalytic role supporting accessible, affordable and usable financial services for rural poor people socially, environmentally and economically sustainable outcomes across food systems.
PDBs (which are already responsible for over two-thirds of formal financing for agriculture), can facilitate a change of course across the financial ecosystem. This includes mobilizing sustainable and green finance, issuing investment products, structuring blended solutions and public-private financing schemes.
At the same time, adopting digital solutions across their business operations, and delivering a suite of financial services and products to different types of clients in food systems – including women, youth, SMEs and smallholders. It is known that private investment in agriculture and/or in other activities within food systems is often constrained by many risks associated with poor infrastructure and economic returns. PDBs are capable of increasing their capacity to crowd in, de-risk, and help align commercial finance to the SDGs and to climate-related goals such as those set in the Paris agreement.
Mobilizing catalytic investments
Stimulating responsible private investment and financial innovations - such as through blended finance - are required to improve food security and nutrition and inclusive rural transformation, and to address the post pandemic gap in ODA. UNCTAD has estimated that around 75 per cent of the gap could be financed, in principle, by the private sector – with the potential to mobilize US$195 billion annually. PDBs are actively engaged in platforms where private investors, businesses, philanthropists and other entities are investing to fund SDG aligned projects.
In their Communiqué (Matera, June 2021) the G20 Development Ministers have welcomed the establishment of a “Finance in Commons” Working Group on Financing Sustainable Food Systems, led by IFAD, that is meant to bring together PDBs, recognizing the critical role of the private sector to build upon public efforts to improve agri-food systems.
As a concrete action - emerging out of the United Nations Food Systems Summit (UNFSS) is the advent of a Coalition for Action to launch a PDB global Platform, with focus on increasing investments in inclusive and sustainable food systems chains, for accelerated learning, innovation, mobilization and deployment of capital and services.
Going forward, closing the financing gap will require strong international cooperation and political will to enhance the fiscal space to ensure sustainable domestic financing. Multilateral Development Banks can work with PDBs and test/validate sustainability-related financial instruments, encompassing (sustainability/green) bonds, funds and other investment vehicles aimed at advancing sustainable development objectives. This will play an important role in mobilizing much-needed finance to reduce the SDG financing gaps in developing countries and become possible long-term financing instruments of international and national public financial institutions.
Raghav Gaiha is Research Affiliate, Population Aging Research Centre, University of Pennsylvania, USA, & (Hon.) Professorial Research Fellow, Global Development Institute, University of Manchester, UK; Shantanu Mathur is Lead Adviser & Senior Partnership Officer, Global & Multilateral Engagement International Fund for Agricultural Development (IFAD). (The views are personal)
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