The recession brought on by the COVID-19 pandemic is the worst human and financial crisis of the 21st century. Unlike previous financial crises, this recession impacts trade and investment chains in developed and developing countries alike. Global economic GDP could contract by up to 4.5% in 2020. Nearly two years of progress to eradicate poverty have been erased while hundreds of millions of jobs have been lost across the world.

The biennial Global Outlook on Financing for Sustainable Development presents new data, analysis and recommendations for members of the OECD and the international community to advance a more holistic approach to finance the 2030 Agenda for Sustainable Development and Sustainable Development Goals (SDGs) as called for in the Addis Ababa Action Agenda.

Some have called the COVID-19 the great equaliser, because its impacts transcend borders. But this assumes an equal playing field, which doesn’t exist. Even before the onset of the pandemic, progress to achieve the United Nations Sustainable Development Goals (SDGs) was starkly uneven across the targets and countries. The onset of the COVID-19 pandemic further eroded progress and is driving up costs to achieve the universal goals by 2030. One hundred million people have been pushed into extreme poverty and job losses have occurred across all sectors. Developing countries are still bracing for the worst, with growth prospects at their lowest level since World War II. While OECD countries are deploying trillions of dollars for recovery, fiscal space in developing countries is limited. The Global Outlook on Financing for Sustainable Development 2021 finds that recovery spending in developing countries was USD 1 trillion less than the magnitude of spending carried out in OECD countries. Sub-Saharan Africa, as a whole, would need to increase its spending packages by about 6% of its GDP. In addition, there is a risk of external private finance collapsing; already we are facing a USD 700 billion drop, 60% greater than during the global financial crisis.

The Decade of Action for the Sustainable Development Goals (SDGs) is mired by uncertainty. As COVID‑19 unfolds, financing for sustainable development is at risk of collapse, with all resources available to developing countries under stress. The ‘scissor effect’ of SDG financing – increasing needs and declining resources already observed in previous years - has been magnified. Poverty levels are on the rise and livelihoods are at stake. The increased risk of climate-related disasters, future pandemics, and other shocks provides a stark reminder that one country’s progress to achieve the SDGs will impact our collective efforts.

The Decade of Action for the Sustainable Development Goals (SDGs) starts with a crisis: as the COVID‑19 pandemic unfolds, progress toward the goals is in danger of slowing – and even reversing with poverty expected to rise for the first time in more than twenty years. The crisis has increased inequalities, and not all countries can raise the funds necessary on domestic or international markets to effectively respond and recover. Financing for the sustainable development of developing countries risks collapsing, with all resources available under stress, domestic and external, public and private. Even before COVID-19, financing for the SDGs was not enough. Now, external financing to developing countries could drop by an estimated USD 700 billion in 2020. Revenues will fall further than gross domestic product (GDP) (OECD, 2020[1]). The scissor effect of SDG financing – increasing needs and declining resources – has been magnified (). The USD 2.5 trillion annual SDG financing gap in developing countries is predicted to increase due to global economic uncertainty and an estimated USD 1 trillion gap in COVID-19 emergency and response spending in developing countries compared to OECD countries. As a result, the annual SDG financing gap in developing countries could increase by USD 1.7 trillion, i.e. about +70% in 2020. It is estimated that in addition to the USD 2.5 trillion annual SDG financing gap, developing countries as a whole would require an additional USD 1 trillion in recovery spending to match recovery spending carried out by OECD countries over the same period. Compounding the gap in both recovery spending and SDG financing, the report further estimates a potential drop of USD 700 billion in external private finance in 2020. These figures provide an order of magnitude of the growing financing needs and limitations to access financing in developing countries The estimation of additional recovery spending in developing countries to reach a similar magnitude of recovery spending in OECD countries, calculated on the basis of the recession as forecast at the time of this report’s publication.

This chapter evaluates the magnitude of the shock caused by the COVID-19 recession for the Sustainable Development Goals (SDGs). The direct shock is unprecedented, and by implication, the financing needs for developing countries to meet the SDGs have risen significantly. The first section describes the economic aspects of the crisis, given its speed, breadth and depth, and the major challenges remaining after the initial response from policy makers. The second section shows that the SDGs are unlikely to be attained by 2030 given that resources have collapsed and needs have increased. This gap will persist, not only in the short run, but also far into the future.

The financing for sustainable development landscape faces new pressures and challenges. The outlook presented in this chapter is worrying. Financing levels were insufficient prior to coronavirus (COVID-19). With the onset of lockdowns and the economic recession, the pre-pandemic financing gaps are widening and the decline in resources is markedly faster and more sizeable than during the global financial crisis 12 years ago. The chapter reviews trends and projections in domestic, international, public and private finance and highlights the negative impacts of the 2020 crisis on collective prospects to mobilise resources for the global goals. Better measures to assess the quantity and quality of scarce resources, i.e. their alignment and impact, are needed to make sure every dollar contributes to achieving sustainable and inclusive development.

Despite the global financial crisis and coronavirus (COVID-19) pandemic, the value of financial assets held by new actors in global capital markets continues to increase. The financing gap to achieve the 2030 Agenda represents only 1% of the hundreds of trillions of dollars held in the global financial system. However, financing is not aligned in support of the global goals, as demonstrated by rising equalities and the lack of accountability for measures of sustainability. That the root cause of the crisis is not financial makes it all the more urgent to better understand environmental, social and governance factors that impact the long-term risk-adjusted returns on investments. This chapter explores how government leaders are taking action to advance alignment of the global financial system in favour of more resilient, inclusive and sustainable development.

This chapter calls for concrete actions to align financing in support of the Sustainable Development Goals (SDGs). It examines how OECD countries, development finance providers and other relevant actors can contribute. It explores how to unleash more of the potential of the Addis Ababa Action Agenda (AAAA) for SDG alignment across two sets of policy actions. Building Block 1 details how to increase the quantity and quality of resources to mobilise more financing and ensure resources achieve greater sustainable development impact. Building Block 2 is a series of actions to strengthen the integrity and efficiency of markets and to engage a broader set of financial actors beyond the traditional financing for sustainable development landscape to complement the AAAA and support SDG alignment. These building blocks provide analytical support for the SDG Alignment Framework that the OECD will launch with UNDP under the mandate of the French G7 Presidency later this year.