06-05-2025
Rethinking Development Finance in a Geoeconomic World Order
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The recent annual IMF-World Bank Spring Meetings convened the world's leading economists and policymakers in Washington, D.C. What was once regarded as a vital forum to discuss global economic projections and future planning, was overcome by a profound sense of trepidation this year.
As of 2025, the annual financing gap for achieving the sustainable development goals (SDGs) stands at $4.2 trillion. But amid escalating trade wars, adversarial geoeconomics, and market uncertainty, one crucial argument remains overlooked: the path forward demands confronting the root causes of a broken system.
Under the theme "Jobs, the path to prosperity," the gathering in Washington appeared to revert back to outdated macroeconomic models rather than addressing the structural challenges facing low-to-middle income countries (LMICs).
In Africa alone, external debt levels increased by a staggering 240 percent between 2008-2022. By 2023, the debt burdens of LMICs reached an unprecedented $8.8 trillion, forcing more than 12 states to default on payments while plunging 30 of the world's poorest countries into "debt distress."
The International Monetary Fund (IMF) building sign is viewed in Washington, D.C.
The International Monetary Fund (IMF) building sign is viewed in Washington, D.C.
KAREN BLEIER/AFP via Getty Images
Recommendations from leading international financial institutions (IFIs) must go beyond the fiscal levers of austerity and deregulation if we are to pursue the "path to prosperity." Especially when considering that over 3.3 billion people (approximately 40 percent of the global population) live in countries where more is spent on interest payments than on basic services like education or health care.
Over the past three months, the global economic order has faced a moment of reckoning. With a new series of market shocks and tariffs, LMICs have yet again, and through no fault of their own, been left to foot the bill.
From a deepening debt crisis to building economic resilience, the existing financial architecture has failed developing economies.
Development Finance in a Geoeconomic World Order
As the world continues to grapple with the impact of slashed overseas development budgets, the simple truth is that aid alone will not suffice. Even if wealthier states commit to the 0.7 percent of gross national income (GNI) target toward official development assistance (ODA), we will still need to break the vicious debt-cycle and create breathing room for longer-term investments that tackle development challenges. By lowering the cost of borrowing, emerging economies can confront core issues like reducing inequality while enhancing the quality of basic services like education, energy, and health care.
Multilateral development banks (MDBs) will also need to dramatically scale up their financial capacity. By implementing an improved G20 Capital Adequacy Framework, deploying blended capital instruments, and reallocating $100 billion from G20 countries' IMF Special Drawing Rights (SDRs)—MDBs could mobilize at least $300 billion annually in affordable financing by 2030.
The entire global financial ecosystem must also deliver on the landmark $100 billion pledge to provide the poorest countries with concessional loans under The International Development Association (IDA).
The list goes on when it comes to possible solutions, from debt swaps to emergency pause clauses and concessional loans. There is need to adapt metrics and analytical tools to better reflect the structural hurdles of developing countries but also their potential.
Ultimately, the challenge lies in overcoming institutional rigidity to mobilize the vast potential of the multilateral system to bridge crucial financing gaps. As evidenced by the outcomes of the recent ECOSOC Forum on Financing for Development in April, systemic reform will be the defining factor.
The Path Forward: Translating Commitments to Action
This year, the IMF's latest World Economic Outlook delivered a sobering assessment, where global growth projections dropped by 0.5 percentage points. As world leaders contend with a new geoeconomic order, countries will need to compete not only for territory or political influence but for market access and financial stability. And so, the world simply can no longer afford to lose sight of development finance, especially at a time when it could not be more vital.
In June, world leaders and financial institutions will have an opportunity to translate commitments into decisive action at the landmark 4th International Conference on Financing for Development in Sevilla, Spain. Preparatory Committee Sessions in New York are already laying the groundwork for what could be a renewed financing framework for sustainable development.
This conference is not about politicizing aid and development, but rather about recognizing what is at stake for everyone. History has repeatedly shown us how extreme poverty and deepening inequalities in lower-income countries can escalate into full blown security crises.
While leaders navigate a changing world order, confronting the development crisis must go beyond rhetoric and address the structural drivers of global inequality. Innovative solutions go far beyond principles of effective multilateralism, they are a necessity for its evolution and more importantly—its survival.
María Fernanda Espinosa, former president of the 73rd U.N. General Assembly and Ecuador's minister of foreign affairs and national defense, now leads GWL Voices as executive director. With over 30 years in academia and international diplomacy, Espinosa is a recognized authority on global governance.
The views expressed in this article are the writer's own.
