2020 OECD – The Impact of COVID19 on Development Finance

 

7 The COVID-19 crisis is hitting developing  economies  at  a  critical  moment. Prior to the crisis, financing had already fallen short of the spending needs to achieve the SDGs by 2030, and fiscal space was limited by rising public debt levels and servicing costs. The   COVID-19   crisis   risks   creating   major   setbacks   in   financing   for   sustainable development. Domestic resource mobilisation will suffer as economic activity is reduced. Inflows of external private finance are projected to drop by USD 700 billion compared to 2019 levels, exceeding the impact of the 2008 Global Financial Crisis by 60%. Fiscal space is likely to narrow further with rising domestic spending and exchange rate movements against the USD.

In the short term, official development finance should be leveraged to contain the drop in other sources of financing. Already scarce resources coupled with the economic impact of the crisis imply that developing economies might struggle to finance adequate public health and social and economic responses. 

 

No single source of financing will be enough to close the COVID-19 financing gap. In the medium-term, actors in development finance and beyond need  to  collaborate closely to “build back better” for a more equitable, sustainable and thus resilient world. In  development  finance,  while  domestic  resource  mobilisation  will  remain  the  only long-term viable source of financing for many public goods and services, building back better will require action from all financing sources with the common goal to aid national sustainable development strategies. Beyond development finance, there is, for instance, a need to revitalise trade and, in the case of small island developing states, promote a sustainable ocean economy.