Unlocking private finance for SDG and climate action in last-mile markets

The Pact of the Future expresses deep concern about the growing SDG and climate financing gap facing developing countries and calls for closing this gap to prevent a lasting sustainable development divide.

The SDGs are farthest off track in the least developed and other vulnerable countries, where deep-rooted challenges limit availability of public and private SDG financing.

While ODA and public finance will continue to play a fundamental role in these frontier markets, this will not be sufficient and there is an urgent need to significantly step-up efforts to catalyze more private sector investment towards sustainable development.

The FFD4 Elements Paper also recognizes the specific challenges of LDCs and the most vulnerable countries in attracting relevant SDG and climate financing, including concessional catalytic financing geared towards unlocking private SDG finance. In particular, the Elements Paper emphasizes that:

• Small and medium-sized enterprises (SMEs) face significant barriers in accessing affordable finance, particularly in countries in special situations, and that SMEs’ access to affordable credit must be strengthened, including through the banking system, mobile network operators, development banks etc.
  
  
• Blended finance efforts have not yet catalyzed private capital at scale with only a small fraction going to LDCs, and that larger pools of catalytic capital should be established and made accessible to leverage private finance, including enabling greater use of concessional guarantees.
• Trade in LDCs and integrating LDCs in global value chains will require to significantly increase investment in private sector development and capacities for value addition, including in manufacturing, agroprocessing, digital, financial and service sectors, trade related infrastructure etc.
• Vulnerable countries such as LDCs, LLDCs and SIDS, must receive sufficient climate finance to support mitigation, adaptation and resilience-building.

Scaling up private financing for SDG achievement in the LDCs, SIDS, and other vulnerable countries will require an increased focus on innovative and blended finance solutions in combination with policy reforms and capacity development to grow markets and address failures that hold back private investments.