Build back better with risk-informed development cooperation

Covid-19 is endangering lives and livelihoods, with devastating effects on the poorest and most vulnerable people. The full effects of this global pandemic are still unfolding and uncertainty remains high. Yet the impacts on our societies, economies and ecosystems will surely be felt for years to come. Now is not the time to turn away from international development cooperation. In fact, Covid-19 has graphically reinforced the need for global cooperation and collaboration, both for immediate response and for longer-term recovery. Advancing development cooperation that is both risk-informed and climate-smart will be a vital plank in the efforts to build back better.

The world was already falling behind in efforts to eradicate poverty, reduce inequalities and take climate action. Based on pre-crisis data, the 2020 Financing for Sustainable Development Report of the Inter-Agency Task Force on Financing for Development estimated that one in five countries – representing billions of people – were likely to see average income per person stagnate or decline in 2020. Many more will likely struggle as the socioeconomic impacts of the pandemic hit and test countries’ resilience.

Facing the unimaginable human toll of the pandemic, developing countries now must reckon with a dual challenge: address the new risks posed by Covid-19 and advance the fight against existing vulnerabilities exacerbated by the pandemic, all with limited resources – public, private, domestic, international. The Secretary-General of the United Nations has called for a large-scale, coordinated and comprehensive multilateral response amounting to at least 10% of global GDP and launched a USD$2 billion global humanitarian response plan for the most vulnerable countries. The G20 has suspended debt service payments on loans (from G20 countries) to countries that are eligible for loans from the World Bank’s International Development Association (IDA). The IDA is the part of the World Bank that gives loans with the highest level of concessionality, and it is only allowed to give those loans to countries that fall below a certain poverty threshold. And the World Bank and International Monetary Fund have made a number of commitments to facilities and tools to support countries through recovery.

Official development assistance (ODA) remains insufficient, especially given the additional financing needed for Covid-19 response and recovery. Newly released data from the OECD DAC indicate that ODA increased in 2019, totalling USD$152.8 billion, or 0.3% of GNI according to the new grant-equivalent measure; however, based on the previous cash-flow methodology, 2019 net ODA remained flat compared to 2018 and below the peak of 2016. In both measures, nominal ODA fell: this implies that the increase in ODA in real terms may be due to base price effects rather than a solid reversal. The G20 bilateral debt moratorium should not, in theory, impact ODA numbers, as it is just a six-month (net present value neutral) suspension of payments. But amid the growing need for Covid-19 debt relief packages, the methodology for including debt relief in ODA will be important to resolve.

Moving forward, development cooperation in all its forms – ODA, South–South and triangular cooperation, and action by private sector and philanthropic actors – should be adapted to ensure that it reduces risk, enables recovery and builds resilience. This perspective informs the work of the United Nations’ Financing for Sustainable Development Office, through the following key principles and policy approaches, including those outlined in the 2020 Financing for Sustainable Development Report:

• Find the fit: the scale and nature of development cooperation commitments and actions must match the complexity of the challenges. A globally coordinated stimulus package should create the conditions in developing countries to tackle the disease and its human impacts, including by reversing stagnating bilateral aid and increasing access to concessional finance. Development cooperation should also work to build resilience over the longer term. This should enable developing countries to prepare for anticipated and unanticipated risks, including those of health, climate and conflict, and lock-in sustainable development gains.
• Focus on the furthest behind first and enhance flexibility. As the pandemic exacerbates inequalities within and among countries, development cooperation must be allocated and used in ways that effectively reach and support the furthest behind, such as by strengthening social protection and health systems. Flexibility will need to be shown to countries that have graduated or are soon to graduate out of concessional assistance, including the use of reverse graduation processes and/or allowances of access to ODA on an exceptional/temporary basis.
• Invest in preparedness, driven by country needs and priorities. Covid-19 underscores the importance of preparedness, especially investing in crisis prevention, risk reduction and planning. Ex ante financing instruments that are efficient, predictable and quick-dispensing should play a major role.
• Building back better will require agile and responsive institutions to address risk and reduce vulnerabilities. Development cooperation should support countries to build institutional capacities to both prevent and manage crisis. Respondents of the forthcoming 2020 Development Cooperation Forum Survey study have underscored the importance of institutional capacities in achieving national sustainable development priorities. Integrated national financing frameworks can help by linking plans, strategies and resources, and aligning them with country priorities.

Our collective pursuits to achieve sustainable development face an unprecedented threat. Yet history has demonstrated how global challenges can inspire collective action. We should embrace those lessons as together we forge ahead and write a new story of effective and enduring global cooperation. Our shared commitment to the global sustainable development agenda demands this of us, and offers a way forward.

This blog is the sixth in a series on Global Public Investment and the future of foreign aid that aims to stimulate and contribute to the debate on new approaches to international cooperation and financing of global public goods, as we look to the decade ahead. The COVID-19 crisis is showing us that international cooperation is absolutely vital. What lessons can be drawn from the response to major global challenges such as pandemics and the climate emergency? How can international cooperation systems and public funding evolve to support sustainable development and global public goods? What should the priority objectives of a renewed international cooperation effort be? Which actors should be involved? Featuring voices from a diverse range of actors, providing their personal insights from across the globe, this blog series, co-hosted by Development Initiatives, United Nations University International Institute for Global Health and OECD Development Centre complements discussions hosted by Wilton Park on its series about the Future of Aid, with partners Joep Lange Institute and Coalition for Global Prosperity.