Reimagining development aid in an age of risk

The challenges facing global development today are not only more complex but also more urgent. And yet, the resources available to address them are insufficient . The world's poorest countries must grapple with a financing gap of between $246 billion and $285 billion annually to achieve the Sustainable Development Goals (SDGs). In 2024, global development aid was down approximately 7% in real terms compared to 2023, standing at $212.1 billion. The numbers simply don't add up. And they never will if we continue to view public finance as the ultimate answer rather than the starting point.

That makes it imperative to answer this question: Are we running out of options? The answer is no.

The global financial system holds more than $482 trillion in assets. Yet only about 4% of that amount reaches low- and middle-income countries. And less than 1% of private finance for climate-related and SDG-related investments has been mobilized through official development assistance. This is not a capital crisis, but a lack of connection of that capital to the people and places that need it most.

Often the underlying problem is risk. Investors face obstacles such as currency volatility, uncertain regulations, underdeveloped markets, or limited flows. These are real challenges, but they have solutions. They require a different approach, in which public financing plays a catalytic role.

In Tanzania , $1 million in public funding enabled the launch of a $21 million green bond, which will provide clean water to nearly half a million people, and connect more than 26,000 people to the water supply for the first time.

The global financial system holds more than $482 trillion in assets. However, only about 4% of that amount reaches low- and middle-income countries.

In Kenya , a blended finance initiative supports smallholder farmers with solar-powered cold storage. In this initiative, the United Nations Capital Development Fund (UNCFD) is implementing catalytic blended finance with concessional loans, guarantees, and performance-based grants to reduce investment risk. In turn, the United Nations Development Programme (UNDP) is leading the way with technical support, training, and policymaking participation. The program has attracted more than double its initial target in private capital, benefiting 60,000 farmers and creating more than 1,200 jobs.

In Papua New Guinea , a $1 million guarantee with a local bank is facilitating access to credit for small businesses run by women who protect coral reefs in coastal economies, sectors long ignored by traditional finance. While the United Nations Capital Development Fund (UNCDF) reduces lending risks through a blended finance facility, the United Nations Development Programme (UNDP) is providing technical support to build capacity and strengthen the bank's ability to serve micro, small, and medium-sized enterprises in the marine sector.

These examples are not isolated successes. They are signs of a broader shift: the strategic use of public funding can deliver much more than its nominal value. It can build trust, create markets, and ultimately increase resilience.

Let's be clear: this is not about replacing traditional aid, but rather evolving it , maintaining its core purpose while mobilizing national capital and attracting private financing , thereby dramatically increasing its impact to achieve lasting change.

When public resources are used only to finance the implementation of aid, it lacks sufficient impact: its impact ends when the funding does. However, when these resources are used to unlock investments, the results are multiplied and long-lasting.

To increase the scope of this transformation, three elements are needed. First, for development institutions to strengthen their role as market facilitators, they must invest in knowledge about risk management, transaction structuring, and financial innovation.

Second, donors must consider other metrics of success—not just the amount disbursed, but the multiplier effect of mobilizing additional capital for each dollar invested.

Third, developing countries must be supported in creating stronger domestic financial ecosystems so that investment can flow more easily into sectors such as clean energy, sustainable agriculture, and small businesses.

The time to act is now, and the upcoming International Conference on Financing for Development, in Seville , represents a crucial opportunity to accelerate this transition.

Climate finance needs are rising sharply. Debt repayment difficulties are increasing. And too many countries still lack access to global capital markets. The poorest and most fragile nations are also those with the fewest options. They cannot wait for capital to trickle in. It must be guided, supported, and de-risked.

The future lies in using development finance as a catalyst to make every public dollar go exponentially further. In a world of limited resources and urgent challenges, we cannot afford anything else.