The Case for a G20 Development Bank to Achieve the SDGs
Context:
The Sustainable Development Goals (SDGs) are the first global effort to set shared development goals for all countries and promote economic transformation. However, halfway to the 2030 target, progress has stalled due to COVID-19 and other crises, creating a major financing gap that blocks progress. A possible solution is for the G20 to establish a development bank focused on funding sustainable projects in developing countries to help achieve the SDGs.
The Global Importance of the SDGs:
- The Sustainable Development Goals (SDGs), launched in 2015, are the first universal set of targets aimed at addressing global challenges, from poverty to climate change.
- Unlike the Millennium Development Goals (MDGs), which focused on poorer nations, the SDGs apply to all countries.
- However, progress has stalled due to issues like the COVID-19 pandemic and global conflicts, especially in developing countries that lack financial resources.
Setbacks for the SDGs:
- Since 2019, the SDG index has been declining, and COVID-19 alone has pushed 93 million more people into extreme poverty.
- About 10% of the world’s population is facing hunger, with one in three people lacking regular food access.
- Developing countries, without the financial capacity of wealthier nations, have struggled to make up for these setbacks.
The Need for a G20 Development Bank:
- Halfway to the 2030 target, a huge financing gap—estimated at $4 trillion for developing nations—is the main barrier to SDG progress.
- Thus G20 should create a development bank focused on funding sustainable projects in developing nations, as the G20 has the global influence and financial strength to support the SDGs.
Financing Challenges in Developing Nations:
Developing countries face barriers in funding the SDGs due to limited domestic resources. Additionally:
- Debt burden: External debt is at a 50-year high, with an average of $375 billion needed yearly between 2020-2025 for debt payments alone.
- Insufficient official aid: Official Development Assistance (ODA), while helpful, remains below target levels.
In 2023, a G20 advisory group on global financial governance recommended reforms to make these institutions more inclusive and effective in supporting global goals like the SDGs.
- Minimal private investment: Developing nations receive only 4% of global private investments, leaving public development banks to cover just a small portion of SDG financing needs.
Current Financial System Limitations:
Global financial bodies like the IMF and World Bank have been criticised for:
- Failing to bridge the SDG financing gap, as they prioritise traditional growth-focused solutions.
- Concentrating power in wealthier nations, which limits the influence of poorer countries.
- Not adequately addressing climate and environmental challenges.
Why the G20 Should Lead in Creating an SDG-Focused Bank:
- Since the G20 represents both wealthy and emerging economies, it is in a unique position to lead the creation of a development bank for SDG funding.
- By including the African Union, the G20 now has broader representation, allowing it to address the interests of both the Global North and South.
- The G20 has also recently shown a renewed focus on development, especially under India’s 2023 presidency, and is well-suited to lead this effort.
Why the World Needs a New Development Bank for the SDGs:
Existing financial institutions like the World Bank and IMF are rooted in post-WWII structures that do not fully support the SDGs:
- They often prioritise immediate economic growth over environmental sustainability.
- Developing nations have limited influence within these bodies, meaning their priorities are often overlooked.
- High borrowing costs make it difficult for poorer countries to finance necessary projects.
The G20 Development Bank would be designed to address these issues, providing a fairer and more effective way to support sustainable development in developing nations.
