Plans for economic recovery after the COVID-19 pandemic create an opportunity to transform international development. Initiatives for ‘building back better’ should aim to galvanize investment in the developing world, with benefits for sustainability and societal resilience. This paper explores options for accelerating development and its financing in sectors such as public health, climate and digital infrastructure, in part by ensuring that relationships between donors and developing countries are more equitable and effective. The paper highlights a fundamental dilemma between the need for radical approaches and the recognition – given current geopolitical and economic headwinds – that incremental or technical changes may often be the most realistic way of advancing the development agenda. Accordingly, the contributors to this paper differ widely in their assessments of the prospects for international cooperation, and in the ambition of the principles and proposals for action they advocate. This reflects the reality that no single approach is suited to all contexts. Universal health coverage (UHC) and climate action exemplify this dilemma. At one extreme, the pandemic has strengthened the case for ambitious investments in UHC while confirming a dismaying lack of global solidarity in tackling big public health problems. With wealthy nations highly unlikely to provide enough money in the future, governments in the developing world will largely have to rely on domestic tax revenue to finance UHC or other health system improvements at a time when their budgets are severely strained. Yet the situation is not without hope: if the International Monetary Fund (IMF) amended its economic surveillance to include assessments of countries’ health systems, this could encourage governments to pursue better policies in this area. A technical change of this nature would be particularly effective if accompanied by more flexible IMF definitions of sustainable government spending and debt, which could enable countries to invest more in public health without necessarily imperilling their creditworthiness. Similarly, tailored adjustments in financial market guidance and regulatory interventions could have an outsized impact on funding for climate action. One possibility would involve central banks adjusting their investment holdings to include more low- or zero-carbon assets, and to exclude carbon-intensive assets. This could encourage financial institutions to reweight their portfolios around sustainable investments, and help to accelerate the phase-out of investment in fossil fuels. More favourable collateral rules for such instruments could stimulate lending into the net zero transition. For much of this to work, however, a globally consistent climate investment framework is needed to facilitate portfolio alignment with environmental standards. Other problems require more radical innovation. One is the inability of international financial institutions (IFIs) to raise sufficient climate investment. Reforming the structure of the IFIs to make them more effective (and representative of a diverse membership) is often discussed, but their capacity, ownership and staff culture are obstacles. A better option could be to start from scratch and design a specialized multilateral climate bank or ‘climate finance institution’: a CFI rather than an IFI, so to speak. Such an institution could deploy the partial paid-in capital and guarantee model of the World Bank, borrowing cheaply in the markets and leveraging this to raise higher multiples of capital. Beyond climate finance specifically, the need to find new ways of raising money is central to almost any discussion of development. Mobilizing private capital is paramount, with the G20 a potentially vital player in this area. A priority for the G20 should be to establish a new initiative for scaling up private development finance. This should focus, as in the past, on improving business environments and the bankability of investment projects in recipient countries. However, it needs to absorb the lessons from recent initiatives by engaging private sector expertise more fully and relying less on public institutional capital. The most important piece of the puzzle is the need to establish the culture and incentives for effective development cooperation. Progress on specific policy areas is contingent on closing the trust deficit that all too often inhibits development relationships. Developing countries sometimes resent what they perceive as intrusive ‘conditionality’ on the part of institutional lenders. Geopolitical competition between the US and China is also undermining efforts by these key donors to establish trust with developing countries. Insecurity and competition reduce the prospect for the US and China to align their programming so that developing countries can achieve key development objectives. Rebuilding trust and ‘resetting’ relations between donors and recipient countries will benefit from a strategy that emphasizes co-creation of development initiatives and establishes mechanisms for ensuring accountability.
