United Nations Secretary-General's SDG Stimulus to Deliver

United Nations

Secretary-General’s

SDG Stimulus

to Deliver

Agenda 2030

FEBRUARY 2023

Introduction ��1

The SDG Stimulus ��3

Implementation and operationalization at the country level �� 13

Call to Action and Recommendations �� 15

Table of Contents

1UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

Introduction

The global economy is facing multiple shocks that are threatening

to further reverse progress on the Sustainable Development Goals

(SDGs). The COVID-19 pandemic, impacts from the war in Ukraine, high

ination and weak economic growth, tightening monetary and nancial

conditions, and unsustainable debt burdens – along with the escalating

climate emergency – are wreaking havoc on economies across the

globe. The impact of these compounding shocks on developing

countries is aggravated by an unfair global nancial system that is

short-term oriented and crisis-prone, and that further exacerbates

inequalities.

1 Abidoye, et al 2022. Understanding Impacts and Accelerating the SDGs in a moment of multiple overlapping crises, UNDP Working Paper.

2 As of 13 January 2023. The 14 low- and middle-income developing countries with Emerging Market Bond Index (EMBI) spreads currently higher than 10 percentage

points are Argentina, Ecuador, El Salvador, Ethiopia, Ghana, Lebanon, Pakistan, Sri Lanka, Suriname, Tajikistan, Tunisia, Ukraine, Venezuela and Zambia.

3 In addition to the 14 countries listed above, this includes Angola, Bolivia, Egypt, Kenya, Mozambique, Nigeria, and Papua New Guinea.

4 Ugo Panizza, 2022. Long-Term Debt Sustainability in Emerging Market Economies: A Counterfactual Analysis, Background for the 2022 Financing for Sustainable

Development Report, UN-DESA Working Paper.

The burden of debt overhang is battering the

economies of many developing countries. As of

November 2022, 37 out of 69 of the world’s poorest

countries were either at high risk or already in debt

distress, while one in four middle-income countries,

which host the majority of the extreme poor, were

at high risk of scal crisis. The number of additional

people falling into extreme poverty in countries in

or at high risk of entering debt distress is estimated

to be 175 million by 2030, including 89 million

women and girls.

A “great nance divide” has sharply curtailed the

ability of many developing countries to invest in

recovery, climate action, and sustainable devel-

opment. Even prior to the recent rise in interest

rates, least developed countries that borrowed from

international capital markets often paid rates of

5 to 8 per cent, compared to 1 per cent for many

developed countries. More recently, rising investor

risk aversion has pushed the cost of borrowing

above what would be warranted by macroeconomic

fundamentals in many countries, with some mid-

dle-income countries with investment grade ratings

paying between 6 and 7 percentage points above

US treasury yields in 2022. Sovereign bond yields

are now over 10 percentage points above US treas-

ury yields for more than 14 countries,

and over 6

percentage points in 21 countries.

The high cost of borrowing not only inhibits in-

vestment in the SDGs; it also raises the risk of debt

crises. Recent analysis has found that most coun-

tries that have had costly debt crises in the past

would have been solvent if they had continuous

access to nancing at low rates (akin to the borrow-

ing costs of rich countries).

High borrowing costs for developing countries are

but one symptom of an inequitable international

nancial and monetary system. Leading economies

are able to issue and borrow in their own currencies

2 UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

– facilitating, for example, quantitative easing

at massive scale. In contrast, most developing

countries are unable to borrow in local currencies,

limiting their macroeconomic policy space and

exposing them to foreign exchange risks.

The SDG Stimulus aims to oset challenging

market conditions faced by developing countries

and accelerate progress towards the SDGs, in-

cluding through investments in renewable energy,

universal social protection, decent job creation,

healthcare, quality education, sustainable food

systems, urban infrastructure, and the digital

transformation. The SDG Stimulus addresses

both short-term urgencies and the need for long-

term sustainable development nance. It calls for

a signicant increase in nancing for sustainable

development, to the tune of at least $500 billion

per year, to be delivered through a combination of

concessional and non-concessional nance in a

mutually reinforcing way.

Reforms to the international nancial architecture

are integral to the SDG Stimulus. As highlighted in

the Addis Ababa Action Agenda,

nancing sustain-

able development is about more than the availabili-

ty of nancial resources. National and global policy

frameworks inuence risks, shape incentives,

impact nancing needs, and help determine the

cost of nancing.

The SDG Stimulus puts forward three areas for

immediate action:

1 Tackle the high cost of debt and rising risks of

debt distress, including by converting short-

term high interest borrowing into long-term

(more than 30 year) debt at lower interest rates.

2 Massively scale up aordable long-term -

nancing for development, especially through

public development banks (PDBs), including

multilateral development banks (MDBs), and by

aligning all nancing ows with the SDGs.

3 Expand contingency nancing to coun-

tries in need.

5 https://www.un.org/development/desa/nancing/sites/www.un.org.development.desa.nancing/les/2021-09/AAAA_Outcome.pdf

6 The 2022 Bridgetown Initiative - Foreign Affairs and Foreign Trade.

The international community must collectively

implement these needed changes, while countries

should put in place national policies to better align

all nancing ows with the SDGs, such as through

Integrated National Financing Frameworks (INFFs).

The SDG Stimulus, while ambitious, is achiev-

able. Investing in the SDGs is both sensible and

feasible: it is a win-win for the world, as the social

and economic rates of return on sustainable devel-

opment in developing countries is very high. All

the items in the SDG Stimulus are already under

discussion at the United Nations, other multilateral

forums including the Group of Twenty (G-20), at the

governing bodies of international nancial institu-

tions, and in calls to action such as the Bridgetown

Agenda

. To make this ambition a reality, urgent

political will to take concerted and coordinated

steps to implement this package of interconnected

proposals in a timely manner is needed.

3UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

The SDG Stimulus

7 United Nations, Liquidity and Debt Solutions to Invest in the SDGs: The Time to Act is Now, March 2021,

https://www.un.org/sites/un2.un.org/les/2021/03/sg_policy_brief_on_liquidity_and_debt_solutions_march_2021.pdf.

Action area 1: Tackle the rising

risks of debt distress and the

high cost of debt

Public debt burdens have worsened since the

publication of UN proposals on liquidity and debt

in 2021.

Sovereign debt has now reached critical

levels, with more than a dozen countries either in

technical default or at the brink of default, and

policy makers in many other countries facing stark

choices between paying creditors and fullling

obligations to their citizens.

The international system does not have the tools to

eectively facilitate debt restructurings that su-

ciently reduce countries’ debt burdens or to address

a systemic debt crisis. The Common Framework

for Debt Treatment (CF) failed to conclude a single

restructuring in the rst one and a half years of

its existence, underlining that in itself it has not

been sucient to close long-standing gaps in the

current debt architecture, and foremost the issue

of creditor coordination amongst and between

ocial and commercial creditors. This bodes ill for

the system’s capacity to address a large number of

defaults eectively should a systemic debt crisis

unfold. Additional steps are needed to speed up

the resolution of unsustainable debt situations and

prevent “too little too late” responses. While the G20

has been discussing the design and implementation

shortcomings, it has not yet found consensus on

a way forward.

The SDG Stimulus calls for immediate actions,

including: a G20 evaluation of the Debt Service

Suspension Initiative (DSSI) and Common

Framework for Debt Treatment beyond the DSSI

(CF); an improved multilateral debt relief initiative

to support debt payment suspensions, debt ex-

changes (for longer maturities and lower coupons)

and/or haircuts, including a clear mechanism to

include private creditors in ocial debt relief

eorts; debt for SDG or climate swaps; the inclusion

of collective action clauses and majority voting

provisions in all sovereign bond contracts and

syndicated loan agreements, and greater use of

risk-sharing debt instruments, such as state contin-

gent debt instruments.

At the same time, the international community must

continue to work towards developing long-term

comprehensive and structural solutions to sov-

ereign debt challenges. This includes an improved

understanding of long-term debt sustainability to

assess debt risks more accurately and long overdue

reforms to the international debt architecture.

Immediate actions

There is an urgent need for the international com-

munity to work together to develop an improved

multilateral debt relief solution, especially before

large debt servicing payments come due in 2023 and

2024. This should go beyond debt service suspen-

sion to include a ready-made mechanism to facil-

itate debt reprolings, exchanges, or write-downs

when necessary.

As a rst step, the G20 should commission an inde-

pendent review and evaluation of the COVID-19 era

debt initiatives. An expert panel, agreed by all G20

members, could provide an ex-post evaluation of

the DSSI and the CF. It could quantify the benets,

impact, and shortcomings of the mechanisms, and

propose improvements to the Common Framework.

For example, an improved multilateral debt relief

initiative should include debt service suspension

during negotiations, and should extend to mid-

dle-income countries that might be under stress.

As the Common Framework already considers debt

treatments on a case-by-case basis, an expansion of

eligibility will not mean automatic debt relief, but

the ability to assess whether vulnerable middle-in-

come countries need debt relief, and possible paths

to access it.

4 UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

Second, the international system needs to develop

concrete tools to incentivize or enforce private

creditors to participate in ocial debt restructur-

ings, such as in debt exchanges for longer maturities

and lower interest rates. Without such a mechanism,

private creditors generally have an incentive to not

participate. For example, debt buybacks, nancial

guarantees, and/or collateralization were part of the

Heavily Indebted Poor Countries (HIPC) initiative in

the 1990s and the resolution of the Latin American

debt crisis of the 1980s. Several countries also

passed laws to limit the ability of non-cooperative

creditors to undermine debt relief achieved under

HIPC. Additionally, the international community

BOX 1: DEBT VULNERABILITIES HAVE INTENSIFIED, BACK TO HIPC-ERA LEVELS OF DEBT SERVICE

Debt vulnerabilities further increased in 2022 across many developing countries. For many countries

debt-burden indicators are back at levels last seen during past periods of debt crises. It is estimated that

in 2022, 25 developing countries paid more than 20 percent of total government revenue in external debt

service – a number of countries not seen since the year 2000 at the beginning of the Highly-Indebted Poor

Countries (HIPC) initiative (Figure A).

Measured based on a combination of credit-ratings, debt-sustainability ratings, and bond spreads, more

than 50 developing countries, including many middle-income countries, are suering from severe debt

problems; 26 of 91 developing countries with credit-ratings are currently rated at either ‘substantial risk,

extremely speculative or default’, up from ten countries at the beginning of 2020.

Figure A: Number of countries paying more than 20 percent of government revenue in external PPG debt service

Source: UNDP based on external PPG debt service data from World Bank IDS database and government revenue data from IMF WEO October 2022

database. Note: Debt service includes interest and principal payments on public and publicly guaranteed (PPG) debt.

i The median country paying more than 20 percent paid 28.6 percent in 2000 and 27 percent in 2022.

ii See Avoiding ‘Too Little Too Late’ on International Debt Relief, UNDP, October 2022.

https://www.undp.org/publications/dfs-avoiding-too-little-too-late-international-debt-relief

NUMBER OF COUNTRIES PERCENTAGE OF COUNTRIES WITH AVAILABLE DATA

25 25

20222020201820162014201220102008200620042002200019981996

10%

15%

20%

25%

30%

35%

5UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

could explore debt issuance that incorporates

most-favoured-creditor clauses.

Third, debt for climate and SDG swaps, which

have attracted growing interest,

can be helpful for

countries that do not yet have unsustainable debt

burdens but do have limited scal space for SDG

investment. While such swaps do not generally

restore debt sustainability, they allow countries to

redirect debt service payments toward investments

in sustainable development and climate action.

Debt-for-climate swaps could be structured to allow

creditor countries to apply the value of the debt

relief towards their climate commitments. Such

swaps can either be done bilaterally between an

ocial creditor and a debtor (such as those done

by L’Agence française de développement), or by

using ocial or philanthropic funds to buy bonds

at a discount in secondary markets (most debt for

nature swaps). These can be structured so that the

new creditors pass on part or all of the discount to

sovereign debtors. Thus far, although there have

been examples of successful debt for investment

swaps, uptake has been limited, in part due to high

transaction costs. A reference framework (which

could include template term sheets and perfor-

mance indicators) could help standardize contracts

to the extent possible. This could be complemented

by ocial nancial support, such as partial guar-

antees or collateralization such as those used in

Brady bonds.

Fourth, ocial creditors should also systematically

include state-contingent elements into lending.

Some ocial lenders (both bilateral and multilat-

eral, e.g., IADB) already have experience with this

approach, which should now become standard

practice. This would provide automatic debt sus-

pension in the event of pre-dened shocks (such

as natural disasters, declines in GDP, or commodity

price changes, akin to parametric insurance trig-

gers), and can be structured to be NPV-neutral.

State-contingent debt would obviate the need to

negotiate a debt service suspension initiative during

a crisis. If used at sucient scale, such clauses can

8 Chamon, Klok, Thakoor, and Zettelmeyer (2022) Debt-for-Climate Swaps: Analysis, Design, and Implementation, IMF Working Paper WP/22/162.

9 In 2021 the IMF enhanced its framework for market access countries by: i) broadening debt coverage and including a longer projection horizon; ii) including new

tools with different time horizons; iii) enhancing transparency; and iv) providing probabilistic debt sustainability assessments.

also help prevent a liquidity crisis from turning into

a solvency crisis.

Longer-term reforms to the sovereign

debt architecture

IMF debt sustainability assessments (DSAs) provide

a basis for estimating a country’s debt sustainabil-

ity.

Such analyses are based on average expected

interest rates; they thus take into account market

interest rates for the many developing countries

that have borrowed on commercial markets.

Measuring debt sustainability using market interest

rates would tend to indicate an increased risk of

default during a liquidity crisis when borrowing

costs (and developing country credit spreads) rise

sharply, with default expectations at risk of be-

coming ‘self-fullling’. In the context of the SDG

stimulus, a “solvency-focused” analysis could

complement existing DSAs: using renancing sce-

narios based on MDB borrowing terms, which are

below market interest rates, could help distinguish

between liquidity challenges (when long-term af-

fordable nancing can be the solution) and solven-

cy crises (when debt write-downs may be needed).

Comparing the “solvency-focused” outcome to

traditional DSAs would highlight when a country

would be fundamentally solvent if it had access to

improved nancing terms. Further review of debt

sustainability assessments could also aim to better

reect a country’s SDG needs as well as progress on

sustainable development by recognizing the long-

term value of productive investment in sustaina-

bility and resilience. Complementary reforms for

longer term modelling could also be promoted for

credit assessments of sovereigns by private credit

rating agencies.

At the same time, concrete steps must be taken

toward a permanent mechanism to address sover-

eign debt distress including the perennial challenge

of creditor coordination, with a view to create a

fully operational, timely, and eective sovereign

6 UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

debt restructuring mechanism, as called for in the

Addis Ababa Action Agenda.

Action area 2: Massively scale

up aordable and long-term

nancing for development

The SDG Stimulus calls for a massive boost in

investment in crisis response and the SDGs in

developing countries, including nancing climate

action as an indispensable entry point with impact

across the SDGs. Public development banks (PDBs),

including multilateral development banks (MDBs),

are uniquely positioned to play a more important

role in accelerating this investment. PDBs can scale

up long-term nancing that is “non-concessional”

but still signicantly below the market rates cur-

rently paid by developing countries, including to

meet investment needs in middle-income countries.

The increase in lending for investment in the SDGs

needs to be done in conjunction with improved

debt management. When nancing supports

productive investments in the SDGs, it will also

stimulate growth, generate employment, reduce

risks, and ultimately improve debt sustainability –

even while raising debt-to-GDP in the near term.

A high cost of debt servicing (e.g., greater than

economic growth), however, increases the risk of

debt burdens becoming unsustainable. PDB loans

are indispensable because they can lend long-term

at interest rates close to the rates paid by developed

countries. For example, as of October 2022, World

Bank IBRD loans are less than 150 basis points over

US Treasuries for most bank’s clients.

PDBs already have a large footprint — 522 develop-

ment banks and development nance institutions

have total assets of US$23 trillion.

PDBs are esti-

mated to nance around 10-12 per cent of invest-

ment globally. MDBs are much smaller in size with

annual disbursements totalling almost $100 billion

per year collectively (see gure 1). Nonetheless,

10 See United Nations, Liquidity and Debt Solutions to Invest in the SDGs: The Time to Act is Now, March 2021.; and UN policy brief on the international nancial

architecture, forthcoming.

11 8 to 10-year IBRD dollar loans are priced at 1.09 per cent over a variable SOFR for most clients. C. Landers and R. Aboneaaj, Is World Bank Lending a Hot Ticket in a

Global Credit Crunch?, CGD Blog Post, November 2nd, 2022.

12 Finance in Common, FICS Progress Report 2022, October 2022.

MDBs provided exceptional support to oset global

crises, such as in 2009, and again in 2020, though

they were constrained in their COVID-19 pandemic

response due to limited nancial capacity. With

greater nancial capacity, MDBs and PDBs have

the potential to play a much larger role in develop-

ment nance.

Strengthening MDBs

With stronger capital bases and better use of exist-

ing capital, MDBs can increase lending from $100

billion per year to at least $500 billion per year.

Shareholders have not increased the size of MDBs

paid-in capital bases in line with the increase in size

of the global economy or the needs for sustainable

development investment (see gure 2). While the

World Bank received a sizeable capital increase

in 2018, it was not on the scale needed to nance

a massive investment push to achieve the SDGs

by 2030. Of the regional banks, only the African

100

2021202020192018201720162015

Non-Concessional

Concessional

Figure 1: Loan disbursements by multilateral

development banks, 2015–2021

(Billions of United States dollars)

Source: World Bank, International Debt Statistics

7UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

Development Bank has received a sizeable capital

increase recently.

To further increase MDB lending capabilities,

shareholders need to increase the size of the banks’

capital bases. At the same time, the banks need

to leverage their capital bases more eciently.

Countries have been calling for MDBs to maximise

the use of their balance sheets since the adoption of

the Addis Ababa Action Agenda, and recapitaliza-

tion discussions have been ongoing for years. India,

as the 2023 president of the G20, has suggested a

strong focus on MDB reforms, and the World Bank

itself has drawn up an “Evolution Roadmap”.

Table 2 presents two scenarios for capital increas-

es, noting that these numbers are indicative and

meant to give a range of possible outcomes. In the

rst scenario, the size of the current capital base of

each bank is doubled. In the second scenario, MDB

capital is set so that paid-in capital as a share of

world gross product is equivalent to its highest level

since 1960 (implying a particularly large increase

for the World Bank). Such capital increases could

13 Standard & Poor’s, Key Considerations for Supranationals’ Lending Capacity and Their Current Capital Endowment, 18 May 2017; Riccardo Settimo, Higher multilateral

development bank lending, unchanged capital resources and triple-a rating: A possible trinity after all?, Occasional Papers n. 488, Bank of Italy, April 2019; Waqas

Munir and Kevin Gallagher, Scaling Up for sustainable development: Benets and costs of expanding and optimizing balance sheet in the multilateral development

banks, Journal of International Development, January 2020, 32(2), 222–243.

be contributed over time, for example over 5 years.

If the resulting lending capacities shown in Table 2

were disbursed over a 6-year time horizon, it would

equate to between $80 and $310 billion of addition-

al lending per year.

More ecient use of existing capital, such as

by adopting more exible criteria could further

expand the lending capacity of MDBs. For example,

MDB shareholders typically pay-in only a small

portion of the banks’ capitalization, with the rest

considered as callable capital (see table 1). Some

MDBs conservatively only use paid-in capital in

their internal capital adequacy calculations, even

though credit rating agency methodologies count

a portion of callable capital when assessing credit

worthiness. The G20 Capital Adequacy Framework

(CAF) Review provides solid rst steps for using the

MDBs’ capital more eciently. Studies by S&P, the

Bank of Italy and other researchers have estimated

that revising MDB capital adequacy policies could

boost MDB lending by $500 billion while preserv-

ing credit ratings, or over $1 trillion with a one

notch fall in ratings.

The CAF Review indicates

that its proposed reforms would result in several

hundred billion dollars in available lending over the

medium term.

Combining an increase in paid-in capital with more

ecient use of their balance sheets, could increase

MDB investments substantially. While each bank

would need to carefully model the scenarios based

on its existing nancing structure, applying CAF

review estimates to the capital increase scenarios

shown in Table 2 implies that a boost to lending

could be between $1 trillion and $3 trillion. While

the numbers shown are just indicative, they reveal

signicant scope to deliver much of the needed

public resources for investment in the SDGs.

Rechannelling special drawing rights (SDRs)

through MDBs, which are already prescribed SDR

holders, can contribute to increased MDB lending.

The MDBs should develop a concrete instrument

to operationalize the use of rechannelled SDRs in

Figure 2: Paid-in capital as a share of world gross

product, select MDBs, 1960-2021

(Ratio)

Source: United Nations calculations

8 UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

a timely manner. While not all countries are legally

able to accomplish such a rechannelling, MDBs

can design these instruments to preserve the SDR

role as a reserve asset, building on experiences at

the IMF.

This could be complemented with the

exploration of changes to allow more countries

to re-channel SDRs through MDBs and other pre-

scribed holders. For instance, developed countries

could lend their SDRs through a hybrid debt instru-

ment which would allow MDBs to count them as

quasi-capital, thus further enhancing MDBs’ capac-

ity for long-term nancing.

Improved terms of lending

Additional leverage and capital infusion would

provide the head room needed to improve the

terms of lending, including: the cost of borrowing,

loan maturities, repayment schedules (including

state-contingent repayments), and exposure to

exchange rate volatility.

14 Such as with the Poverty Reduction and Growth Trust (PRGT) and Resilience and Sustainability Trust (RST).

15 Non-concessional in this case refers to lending without subsidies provide by aid. However, MDB loans are all concessional in the sense that they offer better terms

than market borrowing.

First, MDB lending should be long-term (30 to 50

years), with more signicant grace periods to allow

time for large scale SDG-related investments to

yield results in terms of contributing to economic

growth, realizing improved wellbeing and produc-

tivity from human capital investments, and generat-

ing savings from resilience to shocks.

Second, the MDBs should oer low interest rates,

akin to borrowing costs of developed countries,

especially for vulnerable countries that might not

have sucient access to aordable nance. As

global nancial conditions tighten, it is especially

important that the MDBs have the capacity to act

counter-cyclically. The banks could mix conces-

sional and non-concessional

resources, with the

criteria for the allocation of international public

resources based on all the dimensions of vulnerabil-

ity that aect developing countries, and not solely

on a country’s national income. This should include

using measurements that go beyond GDP or the

Source: S&P Global, MDB annual reports

INSTITUTION

EXISTING

PAID-IN CAPITAL

CALLABLE

CAPITAL

SUBSCRIBED

CAPITAL

EXISTING

ASSETS & LOANS

IBRD

$20 billion $279 billion $298 billion $227 billion

African

Development Bank

$14 billion $194 billion $208 billion $32 billion

Asian

Development Bank

$7.5 billion $141 billion $149 billion $140 billion

Inter-American

Development Bank

$6 billion $171 billion $177 billion $110 billion

TOTAL $47 billion $785 billion $831 billion $509 billion

TABLE 1: CAPITALIZATION OF SELECT MULTILATERAL DEVELOPMENT BANKS, 2021

9UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

multidimensional vulnerability index (MVI) current-

ly being developed at the United Nations.

Third, greater use of state-contingent clauses in

MDB lending can provide breathing room to coun-

tries hit by shocks by automatically suspending

payments in the case of a disaster, economic or

nancial crisis, or other exogenous shocks, as is

already done by some bilateral and multilateral

lenders (see below). These could be structured to

be net-present-value (NPV) neutral debt service

suspensions to have minimal impact on MDB

credit quality.

Fourth, providing a greater share of lending to gov-

ernments in local currencies would contribute to

lowering borrowers’ debt risk proles, particularly

when lending for projects that are unlikely to

generate foreign currency earnings. International

nancial institutions (IFIs) are better placed than

sovereigns to manage currency risk since IFIs can

diversify across currencies while sovereigns face a

concentrated foreign exchange risk. Several MDBs

have increased their local currency oerings; the

World Bank, for example, oers currency conver-

sions for 25 local currencies. The MDBs typically

do not take the currency risk on their balance sheet

and the extra costs of executing mirroring transac-

tions with private market participants are passed

on to the sovereign borrower. Instead, MDBs could

manage the currency risks on their large balance

sheets, which could serve as a diversied portfolio,

as called for in the Addis Ababa Action Agenda.

i The African Development recently received a doubling of paid-in capital, raising the size of the bank to its highest level ever. For AfDB additional

lending represents the mobilisation of resources from the recently paid-in capital on the low end, and another doubling of paid-in capital on

the high end.

Source: UN calculations, S&P Global, MDB annual reports.

Note: Range of paid-in capital increases are derived from: on the low-end doubling paid-in capital, and on the high end returning the MDB to its historic

greatest size compared to the global economy since 1960. The increase in loans assumes the banks leverage new capital in line with the average

leverage they achieved in the 3 years pre-COVID. Figures reflect 2021 and are rounded.

INSTITUTION

EXISTING

PAID-IN CAPITAL

EXISTING ASSETS

AND LOANS

RANGE OF

POTENTIAL

PAID-IN CAPITAL

INCREASES

POTENTIAL

INCREASE IN LOANS

FROM PAID-IN

CAPITAL

IBRD

$20 billion $227 billion

$20 billion $225 billion

$120 billion $1.39 trillion

African

Development Bank

$14 billion $32 billion

- $30 billion

$14 billion $59 billion

Asian

Development Bank

$7.5 billion $140 billion

$7.5 billion $110 billion

$8 billion $123 billion

Inter-American

Development Bank

$6 billion $110 billion

$6 billion $94 billion

$20 billion $314 billion

TOTAL $47 billion $509 billion $47-148 billion $487 billion - 1.86 trillion

TABLE 2: ILLUSTRATIVE IMPACT OF RECAPITALIZING SELECT MULTILATERAL DEVELOPMENT BANKS

10 UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

Strengthening the system of public

development banks

Just as there is scope to increase the capitalization

of MDBs, in many countries there is scope to in-

crease the capital base of national and subnational

development banks, as well as ensure that the PDBs

are putting their balance sheets to optimal use.

This should be combined with eective risk man-

agement and strengthened governance. Regulatory

frameworks applied to NDBs can be tailored to

protect their nancial sustainability while incentiv-

izing the sustainable development eectiveness of

their investment. PDBs operations should be fully

aligned with the SDGs in a holistic way and could

be considered in Integrated National Financing

Frameworks (as discussed below).

Closer cooperation across MDBs and PDBs to

strengthen the entire development bank system

would enable greater impact and potentially higher

lending. This can be achieved, for example, through

greater use of co-nancing and other risk-sharing

mechanisms, which can allocate risk across the

PDB system and reduce risks on individual MDB

balance sheets. MDBs should also strengthen their

nancial cooperation and technical assistance

provided to national development banks. In turn,

regional and global institutions can benet from the

local knowledge of national institutions. In addi-

tion, reinforcing collaboration and strengthening

practices through platforms such as the Finance in

C om m on Initiative, which gathers many PDBs, can

ensure a strong alignment of investments for the

SDGs, particularly climate action, thus multiplying

their impact.

Meeting ODA commitments, providing

grants where needed

The most vulnerable countries will still need grants

to nance their investments in the SDGs, including

countries that are facing enormous humanitarian

nancing gaps. While ocial development assis-

tance (ODA) increased to its highest level in 2021

and is expected to increase further in 2022, it failed

to keep pace with rising needs and demands from

the COVID-19 crisis and the impacts of the war in

Ukraine. In addition, much of the increase in ODA

has nanced in-donor refugee costs and humani-

tarian spending to address the food crisis and other

emergencies. Ensuring that ODA remains additional

to other sources of international support, and is not

diverted from traditional development priorities,

remains essential to help support humanitarian

aid appeals around the world, including but not

limited to addressing the impacts of the War in

Ukraine. Moreover, ODA remains at less than half

the agreed target of 0.7 per cent of donor country

gross national income. Meeting ODA commitments

would provide over $150 billion per year in stimulus

for the SDGs.

As noted above, the allocation of concessional

nance, as well as debt relief, should be based on

all dimensions of vulnerability and not solely on a

country’s national income. The multidimensional

vulnerability index can give the international

community a new yardstick to guide allocations and

help address a longstanding concern of Small Island

Developing States as well as many other countries

in special situations. Criteria for the allocation of

ODA used for debt relief can also be prioritised

based on vulnerability and need.

Combining public and private nance

towards public aims

The private sector plays an important role in nanc-

ing sustainable development and lling nancing

gaps – particularly for projects where there is an

expected cash ow to repay the private partner.

Public funds can be used to crowd in private

nance and unlock investment in the SDGs where

the private sector would not have invested on its

own, often due to high perceived risks. MDBs,

PDBs, and development cooperation agencies can

work more closely with private partners to leverage

resources, such as through guarantees and rst loss

tranches. However, blended nance eorts to date

have not had a large impact and have in some cases

overcompensated private partners.

A new approach to blended nance is needed,

including a focus on development impact rather

than bankability, use of non-concessional loans,

and structures where the public sector can share

both risks and rewards fairly, as called for in the

11UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

Addis Ababa Action Agenda. Blended nance

inherently lowers risks. In no case should ocial

guarantees overcompensate the private partner. It

is also important to engage the appropriate private

partner for a given transaction. For example, private

partners with short to medium investment hori-

zons, who require an exit strategy, should only be

engaged in deals where this is likely to be feasible

(e.g. where countries have liquid domestic capital

markets). A strong emphasis on country ownership

is also necessary to ensure that blended nance

projects are aligned with national strategies.

Action area 3: Expand

contingency nancing to

countries in need

The current international monetary and nancial

system exposes developing countries to sudden

changes in nancial market sentiment and high

volatility of capital ows. Many developing coun-

tries – especially those that are facing intermittent

access to markets amid high nancial market

volatility – will need greater nancial assistance

in the near term. Urgent eorts are also needed to

change the global nancial architecture from one

that is short-term oriented and crisis-prone, to one

that is resilient and better able to absorb shocks.

The SDG Stimulus includes steps to strengthen

the global nancial safety net and address immedi-

ate liquidity needs to help countries improve their

crisis response.

Special drawing rights (SDRs)

The allocation of SDRs in August 2021 provided

countries with liquidity without creating additional

debt. Amid the multiple external shocks, developing

countries have lost an estimated $379 billion of

reserves in 2022, almost double the amount of SDRs

they received in the allocation. The SDG Stimulus

calls for a new issuance of SDRs.

The SDG Stimulus calls for countries with unused

SDRs to urgently re-channel them to countries in

16 Hugh Bredenkamp and Catherine Pattillo, Financing the Response to Climate Change, IMF Staff Position Note SPN10/06, March 25, 2010.

need, including through rapid disbursing instru-

ments at concessional terms and with minimal

conditionalities. Promises to do so have already

been made through the G-20, but the results need

to be achieved more quickly. As noted above,

MDBs should also develop a concrete instru-

ment to allow countries to channel unused SDRs

through the banks.

Unused or newly allocated SDRs could also back

a new trust to nance climate mitigation projects

in developing countries. A Green Fund based on

SDRs contributed as capital was rst proposed in

2009,

and this idea has been revived under the

Bridgetown Agenda. The IMF has already operation-

alized a Resilience and Sustainability Trust (RST),

but the scale and ambition is not commensurate

with the challenges faced by the world and the

growing demand for resources.

Other innovative mechanisms to increase

global liquidity and leverage resources

for sustainable development

The international community should also continue

to explore or accelerate the implementation of other

mechanisms that can increase liquidity and boost

available resources for sustainable development.

The recent operationalization of the IMF Resilience

and Sustainability Trust (RST) is a welcome de-

velopment. It is expected to support countries

in building resilience to external shocks such as

climate change and pandemics, while contributing

to sustainable growth and long-term balance of

payments stability. Nevertheless, tying the RST to

other IMF programmes with strict conditionality

is a concern, and while RST arrangements have a

20-year maturity for repayment, the resources are

disbursed alongside a short-term IMF programme.

Growing risks from more frequent and intercon-

nected shocks will require new nancing instru-

ments. The IMF’s new Food Shock Window can

help to ease urgent balance of payment pressures

in some of the hardest-hit countries. The Loss and

Damage Fund agreed to in COP27 is a welcome

12 UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

development. New instruments should be quick

disbursing, with low interest rates, and parsimo-

nious conditionality. Access limits to emergency

lending windows at the IMF and the World Bank

should also be increased.

Countries can explore the creation of regional

mechanisms to increase liquidity, including through

enhancing regional nancing arrangements. The

presence of central bank swap lines, typically

extended from reserve currency central banks to

the central banks of other developed countries, has

already proven eective at calming markets during

periods of volatility. Extending the availability of

swap lines to more developing countries would

contribute to reassuring cross-border investors. To

increase access to swap lines for all, the IMF could

facilitate a multilateral currency swap facility, with

the participation of global reserve currency issuing

central banks, to provide access to emergency

liquidity for a broader set of developing countries.

In the long-term, the international nancial archi-

tecture could also be made more shock-absorbent

and resilient by ensuring that nancial resources

can automatically be provided to countries during

times of shock. This is needed because in times of

crises there is a ight to safety among international

investors, whereby there is a rush to hold assets

denominated in hard currencies. This ultimately

leads to currency depreciation in developing coun-

tries. This could include integration of state-con-

tingent and disaster clauses, as well as mechanisms

to enable countercyclical issuance of SDRs in a

more automatic or timely manner in times of crisis,

which would avoid protracted political negotiations

during crises and provide SDRs for immediate use

when most needed.

To ensure that societies are better prepared for

future shocks and can benet from just transitions

as digital, demographic, and green transformations

accelerate, a whole-scale eort is also needed to

re-prioritize where, and how, investments are made.

As will be elaborated below, this calls for aligning

all forms of nance with the SDGs including by

using tools such as Integrated National Financing

Frameworks (INFFs) to help determine the nance

mix in countries and identify how resources can be

mobilized and re-directed.

13UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

Implementation and

operationalization at the

country level

In addition to the implementation of the SDG Stimulus at the global

level, the UN, IMF, and MDBs should work closely together in supporting

countries in 2023 and beyond to implement the SDG Stimulus on a

case-by-case basis.

17 Financing for Sustainable Development Outcome Document, G20 Development Working Group, 2021.

https://dwgg20.org/app/uploads/2021/10/DWG-outcome-document-on-Financing-for-Sustainable-Development.pdf

18 See INFF Guidance Material laid out by building block at https://inff.org/ Building Blocks.

19 See also the 2019 Financing for Sustainable Development Report https://developmentnance.un.org/fsdr2019.

20 Financing for Sustainable Development Outcome Document, G20 Development Working Group, 2021.

https://dwgg20.org/app/uploads/2021/10/DWG-outcome-document-on-Financing-for-Sustainable-Development.pdf

Several countries are exploring implementing

the SDG Stimulus at the country level through

INFFs, which were rst introduced in the 2015

Addis Ababa Action Agenda. In October 2021, G20

Leaders endorsed the G20 Framework of voluntary

support to INFFs.

INFFs help governments chart long-term SDG in-

vestment plans and scal frameworks based on na-

tional priorities, consistent with a sustainable debt

trajectory. The INFF methodology puts forward

discrete steps countries can take to incorporate

nancing for the SDGs into national planning.

INFFs provide tools for Governments to assess

nancing needs (laying out alternative need as-

sessment methodologies); map out nancing ows

and link them to needs; evaluate investment policy

options, including trade-os across the SDGs; and

prioritize new nancing policy actions through a

holistic approach (see Box 2).

Well-designed INFFs can contribute to improved

clarity about how international resources can best

be used. All ocial creditors — including bilateral

donors, the IMF, multilateral development banks,

and others — need to coordinate their actions with

country-led and country-owned INFFs. The recent-

ly launched INFF Facility

brings together interna-

tional eorts to support countries as they develop

and operationalise INFFs.

At the country-level, INFFs can also help ensure

that all investments are aligned with national

priorities and ensure that investments that provide

buers to populations during crises and yield long-

term returns — such as universal social protection,

decent job creation, and re-skilling and lifelong

learning programmes — are prioritized. Several

UN-led initiatives, including the Global Accelerator

on Jobs and Social Protection for Just Transitions,

are aiming to support governments in prioritizing

and enhancing investments in these areas.

14 UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

BOX 2: IMPLEMENTATION OF COUNTRY-LED INTEGRATED NATIONAL FINANCING FRAMEWORKS

As of year-end 2022, 85 countries are developing INFFs to nance national SDG priorities.

INFFs are coun-

try-owned processes, generally led by Ministries of Finance and Planning, built on dialogue with national

stakeholders from across the public sector, private sector, and civil society.

A 2019 study found that while most countries were incorporating the SDGs into national developing strat-

egies, the majority of plans were not costed.

INFFs help countries ll this gap. They lay out mechanisms

for countries to estimate the cost of achieving the SDGs and help countries design nancing strategies to

mobilise and align public and private capital using the full range of public policies, nancing instruments

and partnerships. As of year-end 2022, 39 countries are articulating INFF nancing strategies for the rst

time, with another 25 broadening the scope of existing nancing strategies to consider private as well as

public nance for the SDGs.

The rst two INFF nancing strategies were launched during 2022.

A survey in early 2022 found that countries implementing INFFs identied more than 250 nancing policy

reforms for immediate action (Figure 3). These reforms include integrating the SDGs into national budget

processes; mobilising and aligning tax policy with the SDGs; deploying innovative debt instruments within

sustainable debt frameworks; unlocking public-private investments; and steering incentives in nancial

markets and commercial investments toward the SDGs. Many countries are systematically identifying and

promoting SDG-aligned investment opportunity areas through their INFFs, with more than 450 SDG-aligned

investment opportunities identied to date.

Financing policy reforms being prioritised through country-led INFFs, 2022

(Number of reforms)

Source: State of INFFs in 2022, INFF Facility

21 Including 16 low-income countries, 37 lower-middle income countries, 29 upper-middle income countries, 33 least developed countries, 18 small island developing

states and 32 in fragile settings.

22 A review of 107 national development plans in 2019 found that the majority (79) had no specic costing associated with plan implementation and only a minority (29) explained

how they would be nanced. Chimhowu, A., Hulme, D., Munro, L., 2019, The ‘New’ national development planning and global development goals: Processes and partnerships.

23 The State of INFFs in 2022, INFF Facility. https://inff.org/resource/the-state-of-integrated-national-nancing-frameworks-in-2022-or-report

24 The President of Nigeria launched the Nigerian nancing strategy in September 2022. The Mongolian National Committee for Sustainable Development, which is

chaired by the Prime Minister, endorsed Mongolia’s nancing strategy in August 2022.

25 2022 INFF Sustainable Investment Stocktake for the G20 Development Working Group, 2022, INFF Facility. https://inff.org/resource/2022-inff-sustainable-investment-stocktake.

Prioritised for immediate action Planned reforms

Other

Remittances, philanthropy and

faith-based financing

SDG-aligned investment

and business environment

Financial markets and insurance

Blended and public-private finance

Climate finance

Development cooperation

Debt for SDGs

Budgeting and expenditure

Taxes and revenue

15UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

Call to Action and

Recommendations

The SDGs are issuing an SOS. The SDGs include the indispensable

transitions needed for sustainability, peace, and prosperity – for

example combatting climate change and nancing the digital

transition. Yet, the cascading crises have pushed the SDGs out of

reach. The Human Development Index has fallen globally for two years

in a row, for the rst time in over three decades. The impact of these

compounding shocks on developing countries is further exacerbated by

an unfair global nancial system that relies on short-term cost-benet

analyses, is crisis-prone, and favours the rich over the poor. An SDG

nancing boost is sorely needed.

The SDG Stimulus aims to oset deteriorating

conditions faced by developing countries and

accelerate progress towards the SDGs. It calls for

a substantial increase in nancing for sustainable

development, on the order of at least 500 billion per

year - at the bare minimum. Such investments need

to be nanced by long-term aordable nancing –

requiring a major expansion of lending by the MDBs

and better terms on borrowing.

In his opening address to the UN General Assembly

on 20 September 2022, the UN Secretary-General

called on the G20 to support the SDG Stimulus.

He followed up with letters to the G20 Finance

Ministers and Central Bank Governors and the

G20 summit leaders, urging the G20 to endorse the

Stimulus, including:

Tackle the high cost of debt and rising

risks of debt distress

● The G20 should commission an independent

review and evaluation of past, existing and

prospective debt initiatives. An expert panel,

agreed by all G20 members, could provide an

evaluation of the CF and alternative proposals.

● Develop an improved multilateral debt relief

initiative, to support debt payment suspensions,

debt exchanges (for longer maturities and lower

coupons) and/or haircuts, with an expansion of

eligibility to all vulnerable countries in need.

● In conjunction with the improved debt relief

initative, develop a concrete tool to incentivize,

encourage, or enforce private creditors par-

ticipation in ocial debt restructurings.

● Develop a program for debt for SDG or climate

swaps, which allow countries to use debt

service payments for investments in sustaina-

ble development and climate action, freeing up

scal space.

● Systematically include state-contingent ele-

ments into lending by all ocial creditors.

● Develop “solvency focussed” debt sustain-

ability assessments (DSAs) for market access

countries and include the SDGs and non-eco-

nomic factors.

16 UN SECRETARY-GENERAL’S SDG STIMULUS TO DELIVER AGENDA 2030

● Take concrete steps toward a perma-

nent mechanism to address sovereign

debt distress.

Massively scale up aordable long-term

nancing for development

● Strengthen the MDBs by increasing their

capital bases, better leveraging their balance

sheets, and re-channelling SDRs through them.

● Improve the terms of lending by MDBs, in-

cluding longer-terms, lower interest rates, use

of state-contingent clauses, and more lending in

local currencies.

● Strengthen the system of public develop-

ment banks (PDBs), with increased capacity

and more cooperation between national and

multilateral banks.

● Meet ODA commitments with alloca-

tions of grants based on vulnerabilities,

not only income.

● Combine public and private nance towards

public aims with a focus on development

impact and country ownership.

Expand contingency nancing to

countries in need

● A new issuance of SDRs; re-channel unused

SDRs to those in need more quickly; set up con-

crete mechanism to re-channel unused SDRs

through MDBs.

● Create a work programme to explore how SDRs

can nance climate mitigation and be auto-

matically issued in times of crisis.

● Explore other innovative mechanisms to

increase global liquidity, by increasing access

limits to existing emergency lending windows

at the IMF and World Bank, and through new

instruments that are quick disbursing, with low

interest rates, and parsimonious conditionality.

● Create regional mechanisms to increase

liquidity, including through enhancing region-

al nancing arrangements and making central

bank swap lines more widely available.

Implementation and operationalization at

the country level

In addition to the implementation of the SDG

Stimulus at the global level, the UN, IMF, and

MDBs should work closely together in supporting

countries in 2023 and beyond to implement the

SDG Stimulus on a case-by-case basis. Integrated

National Financing Frameworks (INFFs) can help

operationalize the SDG Stimulus at the national

level including by re-prioritizing investments in

sectors vital to boosting resilience and providing

buers during shocks such as universal social

protection, decent job creation, re-skilling, and

life-long learning programmes. They are an ideal

tool for countries to set out their priorities and key

nancing policies.

Most of the elements in the SDG Stimulus –

strengthening the system of MDBs and PDBs,

addressing debt risks, ensuring contingency nance

when needed, and national actions – are already on

the international agenda. They need a political push

to make the ambition a reality.

The United Nations, with its ability to convene

governments and relevant stakeholders across

multiple domains, is uniquely placed to move

reforms forward. 2023 will be a critical year as we

mark the half-way point to the 2030 Agenda and

host the High-Level Dialogue on Financing for

Development, a Climate Ambition Summit, and an

SDG Summit in September. Agreement on this SDG

Stimulus by Heads of State and Government will

lock in a chance to rescue the SDGs and deliver on

our collective promises to citizens of the world.