What is in the Financing for Development Zero Draft, and What Does It Mean for Global Economic Governance Reform?
In late June, the Fourth International Conference on Financing for Development (FfD4) will take place in Seville, Spain. Despite challenging geopolitical circumstances, the conference – which is the first in 10 years and almost certainly the last FfD before the critical 2030 milestone – will still play a key normative role as the most comprehensive, systemic and inclusive forum for addressing financing for development issues.
In the leadup to this conference, co-facilitators recently published the zero draft of the outcome document as well as a roadmap for negotiations.
The outcome document will encapsulate the international community’s agenda for financing development, and the zero draft shows the direction the conference is heading in, albeit with time for changes—starting with the Third Preparatory Committee meeting from February 10-14. What is in the zero draft, and what’s missing?
What’s in the zero draft?
The zero draft is a huge document at over 15,000 words, and it would be impossible to cover all its contents in a short blog. A recent report from the Boston University Global Development Policy Center outlines key proposals to ensure the international financial architecture is:
- Bigger: providing more finance to development;
- Better: tailoring finance to advance green and socially inclusive structural transformation; and
- More inclusive: providing more voice and representation to developing countries and their citizens.
Below, I identify the notable provisions in the zero draft that align with the reforms needed to achieve these goals. (For zero draft wonks, Section II C, E and F get more attention here than A, B, D and G.)
Bigger: Scaling up financing for development
The zero draft proposes several mechanisms for scaling up financing for development, with the proposals likely shaped by a context in which advanced economies are reticent to devote budgetary resources for international finance. Several provisions of the zero draft aim for more and better use of Special Drawing Rights (SDRs), including quantitative targets for increasing rechanneling of existing SDRs and a proposal for a new “playbook” to guide future SDR issuances. Other provisions seek to expand public resources through taxing high-net-worth-individuals and global solidarity levies. There is also a reiteration of developed countries’ commitment to provide 0.7 percent of gross national income as development assistance and encouragement to countries to set binding timeframes for meeting the goal. And while the draft includes language on advancing multilateral development banks’ (MDBs) capital adequacy reforms and to “support further capital increases in MDBs where needed,” this falls short of specifying the exact reforms needed to maximize MDBs’ potential to expand public development finance in a cost-effective manner. Subsequent drafts should explicitly recognize that MDBs’ financing capacity should be scaled up at the speed and scale needed to meet global goals.
Table 1: Language from FfD4 Zero Draft on scaling up financing for development
| Paragraph | Key language |
| 29(e) | “…as well as promoting and strengthening the taxation of high-net-worth individuals, supported by international cooperation, while respecting national sovereignty.” |
| 30(h) | “We will explore implementing innovative taxes to mobilize resources for sustainable development, including in the form of global solidarity levies, and invite countries to apply them on a voluntary basis.” |
| 38(b) | “We appreciate countries that have set concrete and binding timeframes for achieving existing [official development assistance] targets and encourage others to do the same.” |
| 38(g) | “We will work through MDB Executive Boards to further implementation of the G20 Capital Adequacy Framework Review Recommendations and the G20 Roadmap for Better, Bigger and More Effective MDBs, while ensuring that this does not harden lending terms. We will work through MDB Boards of Governors to support further capital increases in MDBs where needed.” |
| 38(h) | “…encourage at least five such countries to contribute to the SDR-based hybrid capital channeling solutions by the African Development Bank and the Inter-American Development Bank by the end of 2025” |
| 54(a) | “We will work through the IMF Executive Board to create a much larger pool of resources, accessible to all countries, for fast disbursement in response to shocks and crises, for example through an IMF multilateral swap line” |
| 54(d) | “We encourage countries in a position to do so to expeditiously rechannel 50 per cent of current unused SDRs, including through MDBs” |
| 54(e) | “We will work through the IMF Board of Governors to review SDRs to create a new playbook that strengthens their role” including a rules-based approach for recommending new issuances, voluntary ex ante agreements to expeditiously rechannel unused SDRs, and consider approaches targeting SDRs to countries in need” |
Source: Compiled by author.
Better: Improving the quality of financing for development
Many provisions in the zero draft aim to improve the quality of the financing for development ecosystem. The debt section is particularly substantive. It includes provisions encouraging the Group of 20 (G20) to expand eligibility for the Common Framework and to standardize debt service standstills during negotiations, requesting a working group to develop principles on responsible lending and borrowing, and urging reforms to debt sustainability assessments.
Some provisions explore potential new initiatives and institutions, including a liquidity and liability management support service, a central global debt registry and a process to explore gaps in the sovereign debt architecture. The trade section also includes promising provisions, including recognition of the need to reform investor-state dispute settlement (ISDS) and phase out obsolete trade agreements. Other notable recommendations include increasing cooperation between MDBs and national development banks, removing the Resilience and Sustainability Trust’s requirement for a concurrent IMF program, implementing additional reforms to IMF surcharges and expanding the use of metrics beyond gross domestic product (GDP) per capita for allocating concessional finance.
Table 2: Language from FfD4 Zero Draft on improving quality of financing for development
| Paragraph | Key language |
| 32(a) | “We encourage countries with development banks to reinforce their capacities to effectively contribute to sustainable development, including by leveraging resources from multilateral development banks (MDBs)” |
| 38(j) | “We decide to consider using complementary measures of progress that go beyond gross domestic product (GDP), including the multidimensional vulnerability index, as a complement to existing policies and practices, to inform development cooperation policies, including access to concessional financing.” |
| 43(h) | “We resolve to undertake reform to the mechanisms for investor-state dispute settlements in trade and investment agreements through a multilateral approach and establish an advisory support service for developing countries for international investment dispute settlements.” |
| 43(i) | “We resolve to accelerate the replacement and termination of obsolete investment agreements, building on existing efforts by all stakeholders, including by United Nations Conference on Trade and Development” |
| 48(a) | “We request the United Nations Secretary-General to create a working group to develop a set of principles on responsible sovereign lending and borrowing” |
| 48(c) | “Urge the creation of a single global central debt data registry” |
| 48(d) | “We call on all creditors to include standardized state-contingent clauses in loan and debt contracts to ensure debt service standstills during times of crises that are not covered by standard force majeure clauses” |
| 49 | “We call for the operationalization of [Debt Sustainability Support Service] and the expansion of its eligibility to cover other developing countries, especially [Least Developed Countries], and encourage official creditors to provide coordinated and enhanced liquidity and liability management support to developing countries committed to their ambitious development objectives through the use of financing tools such as guarantees, credit enhancements, debt swaps and buybacks, and legal instruments such as seniority clauses during buybacks to incentivize private creditor participation.” |
| 50(a) | “…we encourage the G20 to further strengthen the Common Framework by: expanding coordinated debt treatments to highly indebted countries which are currently ineligible; standardizing debt service suspension during negotiations; developing a user manual for debtors with clear timelines; and developing an accessible guideline for assessing comparability of treatment (CoT) and refining tools for enforcing CoT” |
| 50(b) | “We support the setting up of a working group to develop a model law on debt restructuring for Member States to consider adopting as part of their domestic legislation” |
| 50(e) | “…we will initiate an intergovernmental process at the United Nations, with a view to closing gaps in the debt architecture and exploring options to address debt sustainability, including but not limited to a multilateral sovereign debt mechanism” |
| 51(a) | “Building on the ongoing [Debt Sustainability Framework for Low-Income Countries] review, we urge the [International Monetary Fund] and World Bank to continue to refine debt sustainability assessments to better account for [UN 2030 Sustainable Development Goals] spending needs, better capture climate and nature risks, account for investments (e.g. in resilience, nature protection, and productive capacity) and their impact on long-term growth and sustainable development, which requires a longer-term perspective, and to more accurately distinguish between solvency and liquidity” |
| 54(b) | “We welcome recent action on IMF surcharges and will work through the IMF Executive Board to consider suspending surcharges during disasters and exogenous shocks” |
| 54(c) | “Consider ways to ease access to the Resilience and Sustainability Trust, including by removing the requirement of an upper credit tranche programme” |
Source: Compiled by author.
More inclusive: Increasing voice and representation for developing countries and their citizens
The zero draft is relatively thin on provisions to make the international financial architecture more inclusive and representative, despite the prevalence of ideas in documents like the UN Secretary-General’s Our Common Agenda. The most specific provision considers restoring IMF basic votes—votes evenly distributed to all IMF members—to 1/9th of total votes, the level at the time of the IMF’s founding. The draft also calls for consideration of increasing the size of international financial institutions’ boards, which would expand voice but not affect voting power. It also encourages constructive negotiations on a UN tax convention.
Table 3: Language from FfD4 Zero Draft on increasing voice and representation
| Paragraph | Key language |
| 30(c) | “We will continue to engage constructively in the negotiations on a United Nations Framework Convention on International Tax Cooperation.” |
| 53(a) | “We will work through the Governors of the IMF to consider restoring basic votes back to 1/9 the total voting rights in the IMF, among other measures” |
| 53(b) | “We will work through the World Bank Board of Governors to conduct a comprehensive and successful World Bank shareholding review in 2025 that delivers a more equitable balance of voting power at the institution, to speedily implement the review outcomes, and to ensure future reviews achieve a balance of voting power between country groups.” |
| 53(c) | “We will work through the Executive Boards of the international financial institutions to consider increasing the sizes of the boards of directors to create balanced geographic representation of the members. We will work through the IMF Executive Board to enhance geographical representation in IMF senior management positions, particularly for Africa, including the creation of an additional IMF Deputy Managing Director.” |
Source: Compiled by author.
What’s missing from the draft?
The asymmetric nature of global crisis response is not adequately addressed in the zero draft, despite language hinting at the recognition of these problems in paragraph 54. While developed countries have access to a deep financial safety net, many developing countries—which already feel the brunt of procyclical trends—have few or no options other than the IMF. The zero draft calls for scaling up the Global Financial Safety Net, but it should more clearly call for improving the quality of options available to developing countries and, in particular, reforming IMF programs that are excessively reliant on austerity measures. In addition, while the draft covers climate finance and resilience to climate impacts, it devotes insufficient attention to the economic impacts of the energy transition. The draft would benefit from a paragraph urging coordinated international efforts to protect populations left vulnerable by the energy transition and to support economic diversification.
The draft could also go further to promote measurable, timebound and specific provisions—or at the least, subsequent negotiations should prioritize protecting such provisions from being watered down. As the UN has relatively little implementation power on the issues covered in the outcome document, it is important that it gives clear direction to the Bretton Woods institutions and the G20, and progress towards the outcome document’s recommendations can be clearly assessed in future years. In determining the timeframe for implementation, the year 2030 provides an evident benchmark. The UN has recognized that progress towards the SDGs is far behind schedule, and FfD4 should put them back on track.
Last, in a document as massive as this one, there needs to be an overarching narrative tying it together, ensuring that FfD4 can send a clear, galvanizing message. The opening paragraphs of the outcome document go some way to this end, but they could do more to emphasize that the international community needs to address the external conditions that undermine developing countries’ ability to finance development. With major focuses including domestic resource mobilization and private capital mobilization, FfD3 did not clearly prioritize these external conditions, but recent shocks like the COVID-19 pandemic, climate change and interest rate increases have underlined their importance.
A commitment to urgently addressing the systemic factors that have hindered progress towards the SDGs should come through clearly from FfD4. In other words, the system needs to be bigger, better and more inclusive—and fast.
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