The world is suffering from a development crisis. The figures being discussed at the UN meetings on financing development confirm this, and so does the UN’s Financing for Sustainable Development Report.
The latter opens by revealing that only 15 per cent of the UN Sustainable Development Goals (SDGs) are on track to meeting their 2030 targets, while half of them are behind target and 35 per cent of them are in a worse situation than they were when the SDGs were adopted in 2015.
Economic growth indicators offer little hope that the world will be able to make up for how much it has fallen behind during the first half of the road to 2030 in the second half. Already deficient financing, trade, and investment efforts are being hampered by wars and conflicts and by politicised protectionist trade measures that harm trading partners while bringing little economic benefit to the countries initiating them.
This is only one example of the rampant folly of succumbing to the lure of populist measures to attain short-term ends, for they inevitably backfire and sometimes more disastrously for those who conceived them than for their intended targets.
Unfortunately, history is full of bad and outworn ideas that were applied by decision makers who thought they were being very clever.
Today, we are experiencing the folly of powers that are squandering human life in wars and destroying people’s livelihoods and well-being through the destruction of the climate and the failure to implement pledges made to fight climate change since the signing of the Paris Climate Agreement in 2015.
These powers have hampered development prospects by excessive and reckless borrowing, neglected public healthcare allowing for disease and epidemics to reap more lives, and demoted education, culture, and the dissemination of knowledge to the last of their priorities, despite how important investment in these fields is to the advancement of humankind.
Then we hear their expressions of surprise at the world’s worsening development crisis, as if this were not the predictable consequence of obvious causes.
In a previous article, I spoke about how economic growth refused to budge beyond 3.2 per cent last year and the expectation that it will remain low for the rest of this year and the next. This is a bad omen for sustainable development, which requires higher economic growth both in quantity and quality. The developing countries in particular require at least twice as much growth if they are to narrow the gap between them and the developed countries.
The independent Growth Commission Report drafted by a team of experts and policy makers led by Nobel laureate Mike Spence stresses the need for the developing countries to achieve an average growth rate of at least seven per cent for 25 consecutive years in order to catch up with the developed countries.
Unfortunately, the annual growth rate of the developing nations, which include most Arab and African countries, falls below the global average, while the sectoral, regional, and qualitative disparities of this growth mean that it is neither comprehensive nor steady.
Moreover, not only does it lack scope for further development to enhance competitiveness, but it is also weak in productivity and lacks the input of the green economy and digital transformation and the potential for efficiency and expansion offered by artificial intelligence.
It only takes a quick calculation to understand that attaining the SDGs necessitates a high and sustained economic growth rate. This goal requires investment in human capital and infrastructure, building more robust and dynamic economies and societies, and strengthening their resilience to shocks.
A study commissioned by the chairs of the Sharm El-Sheikh and Dubai Climate Change Summits (the COP27 and COP28 meetings) estimates that $5.4 trillion a year will be needed for these purposes in the developing countries and emerging markets excluding China. The study, prepared by an independent high-level expert group on climate finance led by economists Vera Songwe and Nicholas Stern, states that this investment should include $2.4 trillion mobilised from domestic and foreign sources to finance climate mitigation and adaptation and the transition to new and renewable energy.
There have also been lower estimates of the financing gap. The 2024 Financing for Sustainable Development Report puts it at $4 trillion, for example. The difference is due to different methodologies and the lack of accurate and ascertainable figures for the amounts of country-level financing that need to be compiled to calculate the global financing gap.
There are sufficient financial asset savings globally to far exceed the financing needs to attain the SDGs. A report by international consultancy firm PricewaterhouseCoopers (PwC) on asset and wealth management finds that the total worth of portfolios under management worldwide increased from $85 trillion in 2016 to $111 trillion in 2020, which is when the Covid-19 pandemic struck, and that they are likely to climb to $145 trillion in 2025.
Yet, contrary to the hopes epitomised in the “billions to trillions”, which was a title of a report prepared by the World Bank and the rest of the main Multilateral Development Banks in preparation for the 3rd international conference on finance for development in 2015 and used by them to leverage private sector finance to help the developing nations meet the SDGs, the reality has become “millions in, billions out,” as former US Treasury secretary Larry Summers and President of the Institute of Economic Growth N.K. Singh put it in a recent report.
They were referring to the sharp decline in the net flows of money to the developing nations and the exponential increase in the amounts the latter are paying out to repay or service debts. For the limited financial flows that entered the developing countries in various forms of development assistance last year, some $68 billion flowed out to private creditors, while international financial institutions took back another $40 billion.
Why should we be surprised at the present poor state of sustainable development? How can countries develop without the engines of growth? How can these engines work without investment? How can investment function without rapid, sustained, and adequate financial flows channelled into development priorities in ways that produce optimal returns for the domestic economy and society?
If the current approach persists, anyone who claims that a miracle of global growth is around the corner is deceiving themselves and others. Clearly, we need to make a new start, and this should begin with an immediate end to committing and perpetuating folly and taking the precautions to forestall its ills.
Let us heed the caution of the famous Arab poet Al-Mutanabbi, who wrote that “for every ailment there is a cure, apart from stupidity, which stumps all who try to cure it.”
This article also appears in Arabic in Wednesday’s edition of Asharq Al-Awsat.
* A version of this article appears in print in the 2 May, 2024 edition of Al-Ahram Weekly
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