The Essentials

Between 2015 and 2022, global resources dedicated to development increased by 22 percent, but needs grew by 36 percent, according to the OECD. The annual gap reached 4 trillion dollars in 2022 and could exceed 6.4 trillion by 2030, according to the organization’s projections. Global capital is abundant: it is the architecture that distributes it that is lacking. Insufficient guarantees, prohibitive risk premiums, and the weak capacity of multilateral banks to mobilize private funds continue to direct capital away from countries where social utility is strongest. Levers exist—risk enhancement, strengthening development banks, mobilization of domestic savings—but their deployment remains far below the necessary scale.

The world is not short of capital. It is short of architecture to direct it where it matters.

In 2022, global financial markets managed more than 400 trillion dollars in assets. That same year, the gap between available resources to finance sustainable development and actual needs reached 4 trillion dollars annually. These two figures coexist without apparent contradiction, and that is precisely where the structural problem lies that the OECD documents in its Global Outlook on Financing for Sustainable Development 2025.

The development financing deficit stems from capital orientation, the price of risk, and institutional incentives. Understanding why global private capital does not spontaneously flow toward low-income countries requires dismantling the financial mechanics that holds it elsewhere.

Between 2015 and 2022, Needs Grew Faster Than Resources

The OECD’s figures are cold and precise. Between 2015, the year the Sustainable Development Goals were adopted, and 2022, resources available to finance them increased by 22 percent. Needs, meanwhile, grew by 36 percent. The gap widened despite increasing flows of official development assistance and sustained political attention.

This divergence is partly explained by successive shocks: the COVID-19 pandemic, the war in Ukraine, global inflation, and rising interest rates. These events increased the needs of developing countries in health, food, and climate adaptation, while reducing their borrowing capacity. Most low-income countries access international markets at interest rates two to four times higher than those of advanced economies, for infrastructure projects whose economic returns are often solid.

This shift deserves serious attention. If the current trajectory continued, the annual deficit could reach 6.4 trillion dollars by 2030, according to the OECD’s conditional projections. This scenario is not inevitable, but it underscores that marginal adjustments—increasing public aid by a few billion here or there—are off-scale relative to the problem. The mechanics of capital orientation require fundamental rethinking, not simply more funding.

Private Capital Is Not Hostile to Development; It Responds to Incentives

A common misconception presents private capital as fundamentally indifferent, or even hostile, to the needs of poor countries. The data invite a more nuanced reading.

Institutional investors—pension funds, insurers, sovereign wealth funds—manage long-term commitments and theoretically have an interest in diversifying toward assets uncorrelated with advanced markets. The obstacle lies in risk opacity rather than risk aversion itself. In an African or South Asian market, a foreign investor faces real risks: regulatory instability, currency convertibility, political risks. It also faces perceived risks often greater than reality, due to lack of historical data, reliable ratings, and standardized contracts.

Daron Acemoglu and Simon Johnson, in their work on institutions and development, showed that institutional quality massively determines the risk premium demanded by foreign investors, independent of projects’ intrinsic profitability. A country with predictable institutions attracts capital at terms close to those of advanced markets, even at comparable income levels. This observation has a direct implication: improving risk perception through credible public guarantees can unlock private flows without mechanical improvement in local governance in the short term.

This is where multilateral development banks come in—the World Bank, the African, Asian, and Inter-American regional banks. Their function is to reduce the cost of risk for private investors by acting as co-guarantors, beyond simple lending to governments.

Multilateral Banks Underutilize Their Leverage Capacity

The debate on multilateral development banks changed nature after 2022. It now concerns their capacity to mobilize private capital by guaranteeing a portion of projects, beyond the amounts they disburse directly.

In theory, one dollar of public guarantee can mobilize several dollars of private capital. In practice, this ratio remains low. Analyses conducted particularly within the G20 framework showed that multilateral banks use only a fraction of their balance-sheet capacity for risk-sharing instruments. The reasons are institutional: internal prudential rules, the culture of sovereign lending, and the difficulty of structuring products attractive to private funds with their own regulatory constraints.

Several avenues are being explored. Expanding leverage ratios—allowing development banks to lend more relative to their capital—was the subject of a 2022 G20 report (the “independent experts” report known as the Songwe-Stern report). It estimated that a reform of balance-sheet rules could free up several hundred billion dollars additional per year without increasing capital contributions from shareholders. The World Bank has undertaken reforms along these lines since 2023, but the pace remains modest relative to the scale of the challenge.

Another mechanism is gaining credibility: first-loss guarantees. In this scheme, a public financier—a state or development bank—absorbs the initial losses of a project portfolio, reducing residual risk sufficiently for private funds to accept financing the remainder. Pilot experiments have been conducted in sub-Saharan Africa in renewable energy and port infrastructure sectors, with encouraging results in terms of attracting private capital. The challenge is scaling these experiments, which requires standardization of contracts and greater interoperability between national legal systems.

Mobilizing Domestic Resources Remains the Least Exploited Lever

Attention often focuses on North-South flows, on official development assistance and foreign direct investment. It overlooks a potentially more powerful and stable lever: the domestic savings of developing countries themselves.

Sub-Saharan Africa, to take a region representative of the financing deficit, has pension systems, savings funds, and nascent sovereign wealth funds whose total assets reach several hundred billion dollars. A significant portion of these assets is invested outside the continent, in American sovereign bonds and European assets, for lack of local products that are liquid, safe, and well-rated into which local institutional managers can legally invest.

The problem is therefore also regulatory. Nigerian, Ethiopian, and Kenyan pension funds are subject to prudential rules that limit their investments in local unlisted or poorly-rated assets. Developing deep local capital markets—infrastructure bond exchanges, securitization of energy projects, regional investment funds—would allow capture of this domestic savings without exposing it to currency risks. This requires local regulatory reforms and technical support that financiers still struggle to provide in a coordinated manner.

Philippe Aghion, in his work on Schumpeterian growth, emphasizes the necessity that financial markets be oriented toward sectors with high potential productivity. In developing countries, basic infrastructure—water, energy, transport—has among the world’s highest rates of economic and social return. That these projects cannot find financing when local savings exist and global capital abounds testifies to an allocation inefficiency that market mechanisms alone will not correct.

Financial Architecture Is a Political Choice, Not a Technical Inevitability

The OECD report raises a central question: who decides the rules that determine where global capital flows, when 4 trillion dollars are at stake.

Rating standards from agencies (Moody’s, S&P, Fitch) remain built on models that structurally penalize developing countries beyond their actual fundamentals. Basel III rules on bank capital make loans to low-income sovereign borrowers more costly in regulatory capital. Bilateral tax conventions, negotiated predominantly within an OECD framework designed for rich countries, create distortions that reduce the net profitability of investments in certain countries.

These rules are not natural laws. They are the result of negotiations between governments, central banks, and international institutions. They can be modified, as shown by debates on the G20’s common framework for debt restructuring, or ongoing discussions on reform of international financial architecture driven by several Global South countries.

Anne de Guigné, in her analyses of the state’s role in financial markets, raises a pertinent tension: wanting to orient capital markets toward development objectives requires fine institutional engineering, at risk either of being too weak to change behavior or too directive to distort price signals. This tension is real. It does not argue for inaction, but for precision: the most effective interventions—targeted guarantees, regulatory reforms, development of local markets—act on the rules of the game rather than direct results, making them more robust over time.

The challenge for the coming decade is that decisions made today about global financial architecture will determine the map of available investment capacity for the 2030s. If the deficit widens to the levels projected by the OECD, an increasing portion of countries will lack the means to finance their own climate adaptation, health infrastructure, or energy transition, even if their political will is real and their domestic resources exist. The margin for correction narrows with each year lost. As Diane Coyle’s analysis of progress measurement tools shows indirectly, the instruments we use to evaluate and direct financial flows partly determine the realities they are supposed to describe.

The open question is one of governance: who has the legitimacy and technical capacity to reform these rules, and at what pace? Negotiations within the G20, the IMF, and multilateral banks are advancing, but at a speed out of step with the deficit’s trajectory. The gap between the speed of institutional reform and that of accumulating needs may be the true subject of the coming decade.

Sources

  1. OECD, Global Outlook on Financing for Sustainable Development 2025, https://www.oecd.org/en/publications/global-outlook-on-financing-for-sustainable-development-2025_753d5368-en.html
  2. OECD, Global Outlook on Financing for Sustainable Development 2025 (official report), https://www.oecd.org/en/publications/2025/02/global-outlook-on-financing-for-sustainable-development-2025_6748f647.html
  3. OECD, official press release, February 7, 2025, https://www.oecd.org/en/about/news/press-releases/2025/02/development-finance-needs-major-overhaul-to-achieve-global-goals.html
  4. UNCTAD, A World of Debt 2025, https://unctad.org/publication/world-of-debt
  5. G20, Report of Independent Experts on Strengthening Multilateral Development Banks (Songwe-Stern report, 2022), available on the G20 presidency website
  6. AllAfrica, Songwe-Stern-Bhattacharya 2022 report (Finance for Climate Action), https://allafrica.com/stories/202211080001.html
  7. ODI, Reform of CAF of MDBs (G20 panel members, 2022), https://odi.org/en/insights/proposals-to-reform-capital-adequacy-at-mdbs-how-to-prudently-unlock-more-financial-resources-to-face-the-worlds-development-challenges/
  8. Acemoglu, D. & Johnson, S., Power and Progress, Basic Books, 2023
  9. Aghion, P. & Howitt, P., work on Schumpeterian growth and the role of financial markets, see in particular the publications of Philippe Aghion at the Collège de France
  10. World Bank, press release on balance-sheet reforms, October 2024, https://www.worldbank.org/en/news/press-release/2024/10/15/world-bank-group-announces-new-financing-adjusts-pricing-terms
  11. Cleary Gottlieb, Sovereign Wealth Funds in Sub-Saharan Africa, https://content.clearygottlieb.com/regions/africa-outlook/sovereign-wealth-funds-in-africa-unlocking-growth-driving-development-and-attracting-foreign-capital/index.html