Before the COVID-19 pandemic triggered the deepest economic recession since World War II, the international community was already struggling to gather the funds needed to achieve the United Nations’ 17 Global Goals.
In 2019, the UN Sustainable Development Solutions Network estimated an annual financing gap of $400 billion to reach the Global Goals by 2030. This gap has only gotten bigger in the past year as the COVID-19 pandemic devastated the world’s most advanced and most vulnerable economies.
Now, besides the challenge of vaccinating the global population and halting the spread of the virus, the key issue is: How can the international community achieve a sustainable, equitable, and efficient recovery from the pandemic and its widespread impacts?
Governments, billionaires, and the private sector will need to work together and introduce new financing strategies to get the world back on track to end the pandemic, stop the hunger crisis, resume learning, protect the planet, and advance equity for all.
What Is Innovative Financing and How Can It Help the COVID-19 Recovery?
Due to the severity of the economic recession that resulted from COVID-19, the “business as usual” approach doesn’t provide enough resources at a fast enough pace for countries to avoid the potentially long-lasting impacts.
“Financing for sustainable development is at risk of collapse when it is needed more than ever,” Angel Gurría, secretary-general of the Organization for Economic Cooperation and Development (OECD), said in November. “With COVID-19 already reversing development advances and many challenges still ahead, it is urgent that we redesign global finance to incentivize sustainable investment and step up our efforts to help developing countries recover from the crisis in an inclusive, resilient, and sustainable manner.”
This is where innovative financing comes in. Through strategies like expanding debt relief initiatives, using additional financing sources like Special Drawing Rights (SDRs), and bolstering philanthropic giving, the international community can help the most vulnerable economies get on the path to recovery.
3 Things You Should Know About Funding the Global COVID-19 Recovery
- Since the start of COVID-19, sub-Saharan African countries have only been able to mobilize 3% of their GDP for stimulus funding to counter the crisis, while G20 countries have invested 22% of their GDP. Innovative financing can help developing nations expand their safety nets and kick start their own recoveries.
- Debt relief and restructuring are key measures to ensuring an equitable recovery, but they aren’t enough. OECD and G20 governments should use their own budgets, as well as additional financing sources like SDRs, social bonds, and solidarity taxes to heal the global economy.
- Working together toward an equitable recovery is not only a moral imperative but also an economic one. Since emerging and developing economies (excluding China) account for nearly 40% of global output, providing these countries with more financing and flexible funding options is crucial for the entire international community to recover better together.
Why Is Innovative Financing Essential to a Global Recovery?
Foreign aid has played a key role in developing countries’ recovery from past crises, but the widespread nature of COVID-19 has put even high-income countries under budgetary constraints. As a result, the OECD estimates that foreign aid could drop by up to $14 billion if donor countries don’t increase the share of their national income allocated to aid.
In reality, however, there isn’t really a lack of money. As millions of people around the world fell into extreme poverty during the pandemic, billionaires reached a cumulative wealth of more than $10 trillion — the highest amount of money ever owned by the world’s wealthiest.
The key, then, to ensuring a global recovery is to more equitably distribute money between the haves and have nots. Innovative financing helps achieve this by making more funds available for developing countries to revive their economies and obtain access to the COVID-19 vaccine.
How Can Governments Advocate for Innovative Financing?
One way wealthy nations can help fuel global growth is to suspend debt service for countries that need it most. Doing so would free up more cash for vulnerable nations to use in social spending and long-term recovery.
Wealthy nations can also write off debts for countries that face a particularly high risk of defaulting. In November, Zambia became the first African nation to default on its debts since the start of the pandemic, leading to worries that more countries could follow as a result of the financial impact of COVID-19.
Other than expanding debt relief initiatives, OECD and G20 governments can also aid recovery by contributing a percentage of their budgets in addition to the regular foreign aid. For instance, by allocating just 1% of any stimulus funding for global use, wealthy countries can accumulate enough money to make a significant difference in kick starting the global economy.
Besides budget allocations, additional financing sources can also be of big assistance to developing nations.
One such source is Special Drawing Rights, a reserve asset that can be traded between countries in exchange for liquidity, or cash. A new allocation of SDRs would give low-income nations more flexibility and power to address immediate as well as long-term needs arising from COVID-19. The G20 nations met in Rome at the end of February to discuss a new allocation of SDR 500 billion, and International Monetary Fund (IMF) Managing Director Kristalina Georgieva confirmed this week that the countries gave the “green light” to work on the new allocation.
“Social bonds” are another way to release cash for immediate use to fund the COVID-19 recovery. Through these bonds, banks and investors can provide money to governments immediately, while countries would have a longer period to reimburse the funds.
The European Union has also been considering a tax on the financial sector, which, when first proposed in 2011, was estimated to leverage up to 57 billion euros a year. The adoption of similar taxes — often called “solidarity taxes” — in wealthy countries could act as not only a financing source for the COVID-19 recovery, but also a sustainable way to fund progress toward the Global Goals.
Who Else Can Take Action?
All of these innovative financing strategies can be supplemented by support from philanthropy and the private sector.
The world’s 2,189 billionaires have a cumulative wealth of more than $10 trillion, which is greater than the GDP of all nations except for the United States and China. Global Citizen’s Give While You Live campaign encourages the world’s billionaires to donate at least 5% of their wealth every year to help reach the Global Goals.
Distributing money to working charities rather than storing it in foundations and funds is especially important. Currently, more than $1 trillion is sitting in private foundations and another $140 billion in donor-advised funds. Creating requirements and reforms that incentivize people to give their money to working charities would help accelerate the financing process for urgent issues.
Besides philanthropists, the private sector is another potential source of financial assistance for the global recovery. Many industries, including hospitality and tourism, will face difficulties conducting business and staying afloat as long as the pandemic continues. Investing in the tools and solutions to achieve a global recovery, then, is not just an act of charity, but also in the private sector’s best interest.
Global Citizen is working with the International Chamber of Commerce to encourage the private sector to release funding that can help address immediate needs brought on by the pandemic and create sustainable solutions toward achieving the Global Goals.
A global recovery from the COVID-19 crisis requires the united efforts of governments, philanthropists, and the private sector. Through the Recovery Plan for the World, Global Citizen is calling on the international community to work together and increase innovative financing for developing nations so that all countries can recover better together.
You can join us by taking action here right now to support the Recovery Plan for the World, to end COVID-19 and kickstart a global recovery.