Financing development at a crossroads: What's at stake and what reforms are needed?

Finance may not be a sufficient ingredient for development, but it is a necessary one. The need for finance to address crises and the consequences of these for development is mounting. The COVID-19 pandemic slowed or even reversed development trajectories in many low- and middle-income countries. Global and national development goals are now further away, and to make progress require more finance than was initially estimated. The impact of cross-border challenges, notably climate change, has become more tangible and widespread. We not only have more crises, but also longer-lasting ones, blurring even further the line between humanitarian and development assistance. Urgent action is needed to turn the tide.

But finance is either insufficient or doesn't reach the countries most in need. Traditional foreign aid might have gone up in absolute terms, but the main drivers of this increase have been growing assistance to Ukraine and more spending to support refugees in donor countries (counted as foreign aid despite being spent domestically). In early 2025, many development partners—including Belgium, the Netherlands, and the UK—announced significant cuts to their development budgets. As we write, the largest development partner by volume of assistance and reach, the United States—has slashed its foreign aid programmes at a single stroke.

At the same time, the donor architecture has become more and more complex, with a proliferation of bilateral and multilateral donors and facilities. A highly fragmented system of donor providers translates into greater pressure on the public systems of the Global South, higher transaction costs, and fewer economies of scale.

Changes to the operations and business models of multilateral development banks (MDBs) have dominated the debate about the reform of the international financial architecture. Despite MDBs being among the few financiers providing relatively cheap loans, their financial contributions remain a drop in the ocean. Private investors find it too risky to invest in frontier markets. The highly touted shift from “billions to trillions,” which anticipated that government funding and efforts would attract significant private investments for sustainable development, has failed to materialize.

A debt crisis is looming. It might not be as widespread as in the 1990s and early 2000s, but it can have profound consequences in countries where servicing debt obligations consumes a larger slice of the budget than health and education spending. Ten years ago, borrowing from capital markets became attractive for many frontier markets when conditions were favourable. Rolling over or refinancing those obligations is now, however, proving expensive or impossible, as market interest rates have increased.

Tense geopolitical relations between global powers are also restricting progress in reforming the governance of the international financial architecture, making multilateral forums less and less effective. Many donor countries make commitments without following through on them, exacerbating a crisis of trust with the Global South. The voices of leaders of the Global South are often little heard, let alone acted on, in the major international financial institutions.

Against this backdrop, it has been nearly 10 years since the third UN Financing for Development Conference in Addis Ababa. It preceded the agreement of a new set of Sustainable Development Goals in 2015, with the latter being now midway through its initial horizon.

World leaders, UN members, UN agencies, civil society organizations, and academics will gather in Spain in late June 2025 to push proposals to reform the international global financial architecture. Most do not hold the purse strings to make these reforms happen, and many ideas run up against stark political realities that slow or block reform.

Despite these realities, the fourth UN Financing for Development Conference is bringing together the best thinkers and their ideas for change. The conference can put pressure on decision-makers to reform the international financial architecture.

As leaders gather in Spain in late June what are the challenges for financing development that the Conference must bring to the fore? What should development partners and other financiers realistically do differently to address challenges, or at least mitigate their consequences? How should the international financial architecture be changed to scale up resources to countries and causes most in need? In sum, how can international finance be made more effective?

In this year's Development Policy Review written symposium, we asked prominent scholars from the Global South to share their answers to these questions, covering a number of dimensions of the negotiations for the Fourth Financing for Development Conference and the reform of the international financial architecture.

In alphabetical order, the contributors are: Joseph Matola, Programme Head: Economic Resilience and Inclusion Programme, and Elizabeth Sidiropoulos, Chief Executive, South African Institute of International Affairs (SAIIA); Hanan Morsy, Deputy Executive Secretary (Programme) and Chief Economist, United Nations Economic Commission for Africa (UNECA); José Antonio Ocampo, Professor, School of International and Public Affairs, Columbia University; Mavis Owusu-Gyamfi, President & CEO, African Centre for Economic Transformation (ACET); Liliana Rojas-Suarez, Director, Latin American Initiative and Senior Fellow, Center for Global Development; and Daouda Sembene, CEO, AfriCatalyst.

It should be stressed that the authors completed their first drafts well before the sudden changes to US development cooperation policies and the announcement of significant cuts to aid budgets in European countries. Yet the main recommendations emerging from the authors on the future of international financial architecture remain valid and even more important, as bilateral aid is likely to shrink.