Closing the SDG Gap: Why Financing for Development Must Scale Now

With only five years left, bold domestic reforms and global finance fixes are critical to deliver on 2030 sustainable development goals

The world is severely lagging behind in its pursuit of the 2030 Agenda for Sustainable Development. Since their adoption in 2015, progress on most of the 17 Sustainable Development Goals (SDGs) and their associated targets are way off track and have fallen short of the trajectory needed. Inadequate Financing for Development has emerged as the primary impediment to achieving the SDGs.

The Third Finance for Development (FFD) provided a new global framework for financing sustainable development to align financing policies and flows to economic, social and environmental priorities through the Addis Ababa Action Agenda. A decade later, the UN Inter-Agency Task Force Report on Financing for Sustainable Development stated that financing for SDGs is at a crossroads and lack of financing is the core of the sustainable development crisis, with developing countries requiring additional investments of ~$4 trillion annually to meet SDG targets.

Therefore, there is a compelling need to increase finance flows in developing countries, drawing from both domestic and international public and private finance sources. The path forward requires multiple interventions: increasing domestic public finance, optimising public expenditure towards SDGs, leveraging public finance and enabling private finance, and reforming international financial architecture to create a bigger and better global impact on SDGs aligning with UN’s fundamental principle of “leaving no one behind.”

Increasing public resources and improving the quality of public expenditure 

To increase public revenues from domestic sources, both in absolute terms and relative to GDP, developing countries need to implement comprehensive tax reforms. These include cross-cutting reforms in taxation such as value-added taxation, international agreements for fair tax sharing from e-commerce, transnational companies and Global Value Chains (GVCs) with minimal market distortion. Digitisation of tax administration would help in increasing public finance in developing countries.

It may be useful to consider a small ad valorem tax on global wealth and speculative financial transactions tax along with exploring land and asset monetisation avenues. Developing countries need to align public spending with outcomes directed to SDG indicators — prioritising public health, primary education, water and sanitation, and initiatives to reduce air pollution, while increasing allocation to social protection programmes.  

Increasing contribution from private business and finance towards meeting SDGs

For decades, governments have focused on industrial competitiveness and economic growth. While economic growth has possibly been achieved and extricated billions of people out of poverty, it has led to unsustainable depletion of natural resources — a pattern that remains inextricably linked to economic growth and development. Therefore, a de-linking of economic activity and resource depletion is crucial.

The scale of investment required for meeting SDGs exceeds public financing capabilities of governments. Therefore, private sector development approaches need to go beyond the usual improvement in a business-enabling environment.  It must also recognise that meeting many important SDGs are cases of natural monopoly or classic market failures.

Therefore, it needs both state intervention and regulatory action to shift markets through multiple mechanisms such as policy rents, leveraging public finance through public-private partnerships (for climate resilient infrastructure), and increasing the impact of public expenditure on development outcomes through risk-sharing arrangements and government guarantees. 

Reforming International Financial Architecture

The last round of $650 billion allocations for IMF Special Drawing Rights (SDRs) was done during the pandemic in 2021/22 where a disproportionate share of the allocation went to developed countries and large G20 developing economies. While the G20 agreed to re-channel $100 billion of the SDRs to developing countries, which led to the setting up of IMF’s Resilience and Sustainability Trust (RST) and Poverty Reduction and Growth Trust (PRGT), the impact has been limited.

Similar mechanisms for rechanneling ‘excess’ SDRs directed to specific SDGs and developing countries could help in meeting targets such as Energy Transition, Primary Healthcare etc. In addition to scaling up RST and PRGT, more such mechanisms are required to allow for zero-interest and concessional financing to Least Developed Countries (LDCs) as provided by PRGT.

While Official Development Assistance (ODA) has progressively increased, reaching a peak of ~$200 billion in 2022, it is still far short of the UN target of 0.7% of the Gross National Income (GNI) of Annex 1 countries. To effectively channel ODA, including Multilateral Development Bank (MDB) financing, there is a need to expand MDB lending by enhancing their capital bases, using callable capital optimally, increasing private capital mobilisation by MDBs and reducing the cost of finance for developing countries.

Greening global economic growth 

Finally, SDGs could also present an economic opportunity for greening economic growth in developing countries. The United Nations (UN) says that achieving the Sustainable Development Goals (SDGs) could create 380 million new jobs and open up $12 trillion in market opportunities by 2030, which could be in four economic systems: food and agriculture, cities, energy and materials, and health and well-being, which makes up 60% of the global real economy. 

To realise this potential, a fundamental paradigm shift from “shareholder capitalism” to a “stakeholder-driven market economy” is essential. This transformation requires bringing the private sector to the forefront of sustainable development efforts through innovative partnerships, aligned incentives, and integrated reporting frameworks that measure both financial and social returns. By recalibrating corporate objectives to balance profit motives with environmental stewardship and social progress, businesses can evolve from passive observers to active architects of sustainable solutions.

This shift is not merely idealistic—it represents a strategic imperative for businesses to capture emerging market opportunities, mitigate risks, and secure long-term viability in a resource-constrained world increasingly defined by transparency and accountability to multiple stakeholders.

Dhruba Purkayastha is a consultant with the World Bank and a visiting faculty member at IIM Calcutta, where he teaches Sustainable Finance. Previously, he served as the India Director at the Climate Policy Initiative, an international non-profit organisation focused on sustainable finance. He was also Director of Growth and Institutional Advancement at the Council on Energy, Environment and Water (CEEW), a public policy think tank specialising in research and analysis in India.

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Dhruba Purkayastha

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