in the Least Developed Countries
in the Least Developed Countries
COVID-19 threatens to undo progress achieved towards the 2030 Agenda for Sustainable Development by the Least Developed Countries (LDCs) over the past five years. Even before the current crisis, LDCs were unlikely to achieve the Sustainable Development Goals (SDGs), which will now almost certainly not be realised without far-reaching finance and policy responses. The development responses to the COVID-19 health and socio-economic impacts must therefore be made with a forward-looking perspective to building back better and greener.
Financing the recovery will require a coordinated multilateral response and the use of innovative tools and risk mitigation instruments. Blended finance can help to catalyse much needed additional resources for SDG-aligned projects that private investors would otherwise overlook. It can be used to, among other purposes, leverage digital technologies, finance SMEs in the ‘missing middle’ gap, and address market failures that prevent LDCs from financing their development needs and reaching the most vulnerable.
Consistent with findings in the previous reports on Blended Finance in LDCs, latest data shows that too little private finance is mobilised for investment in LDCs. Only 6% of private finance mobilised by official development finance is invested in LDCs, a number which has remained constant over the past three years. Positively, we have seen that in the period 2012-2018, the total amount of private sector capital mobilised annually has grown steadily and 45 out of 47 LDCs have received private finance mobilised by official development finance at least once. However, a potential decline in ODA due to the global economic recession and declining public revenues risk jeopardizing any gains and positive trends that have been made in the past few years.
This third instalment of the Blended Finance in LDCs report presents analysis and an Action Agenda for how to effectively use blended finance to mobilise additional and much needed finance for LDCs, with a specific view toward supporting LDCs to build back better from the COVID-19 pandemic. Through data analysis, a collection of curated guest pieces and consultations, the report aims to shed light on how blended finance can be used and scaled up to address the socio-economic challenges in LDCs.
Achieving the core principle of “leaving no one behind” necessitates innovative solutions to address risk and build resilience to future shocks. This will require blended finance to focus even more sharply on supporting domestic financial ecosystems and market development, designing solutions that target the last mile, improving impact measurement and transparency, and employing systemic and transformational approaches, to catalyse investments in country led priorities and projects in sectors that promote an inclusive, sustainable and resilient recovery.
UN Capital Development Fund
LDCs are facing mounting pressure to respond to the COVID-19 pandemic, with widening financing gaps to achieve the SDGs. While health impacts are unfolding in LDCs at an uncertain yet alarming pace and with great variety across countries, all LDCs face severe socio-economic impacts from the global economic crisis, due to domestic and global demand shocks, significant drops in FDI and remittances, supply chain disruptions, collapse in oil and commodity crisis, tourism shocks, and others.
With development finance accounting for a prominent share of the financing for sustainable development mix in LDCs, ODA continues to be a critically important source of finance for these countries. Donor governments are falling short of their commitment on ODA to LDCs and they should strive to achieve their targets in the future in light of the unprecedented impact of the COVID-19 pandemic and ensuing economic crisis on LDCs.
LDCs continue to receive the lowest, although increasing in volume, share of only 6% of private finance mobilised by official development finance interventions. Multilateral institutions mobilise the largest share of private finance in LDCs, although bilateral donors are also increasingly engaging in blended finance in LDCs through their DFIs.
Guarantees continue to be the instrument that mobilised the highest amounts of private finance in LDCs in 2017-2018, although to a lesser extent than previous years. High risk premia continue to be a critical barrier to attracting commercial investment in LDCs. Guarantees are effective risk mitigation instruments that should be further scaled up in the future in LDCs.
Private finance mobilised in LDCs is concentrated in a handful of revenue-generating sectors, such as energy and banking and financial services. While sectors such as agriculture and water and sanitation are to date infrequently targeted, despite their crucial role in LDCs’ economies, a track record of blended finance transactions in such sectors in LDCs is developing, which could spur the replication and scalability of such projects through demonstration effects.
While in the immediate and short-term response to the COVID-19 crisis, grant support is and remains critical, blended finance can play a key role to support LDCs in mobilising resources for the medium-to-long term recovery. This will require immediate action to start building a pipeline of bankable projects aligned with LDCs’ national development strategies and their emerging Integrated National Financing Frameworks, that can attract investors’ appetite. For blended finance to be effective for the COVID-19 recovery, the wide range of actors involved (donors, DFIs, MDBs, impact and commercial investors, local financial institutions, etc) should coordinate on how to address underserved actors and sectors, e.g. target MSMEs, provide decent and sustainable jobs, invest in sustainable infrastructure, promote gender equality and support health systems as well as the transition towards digital economies.
Jorge Moreira da Silva
OECD Development Co-operation Directorate
mobilised in LDCs
received private finance mobilized
received more than $10M
of all private finance mobilised
H.E. Mr. Perks Ligoya
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