The United Nations’ plans for a sustainable future are running short of US$2.5 trillion every year. To bridge the gap, the World Bank is using development aid to entice private-sector investment towards achieving the ambitions of the Sustainable Development Goals.
But does the Bank’s current approach to encouraging greater private sector involvement increase the integrity risks in the very projects that seek to promote a fairer and more just world for all?
The World Bank is one of the biggest players when it comes to using so-called ‘blended finance’ to mobilise the additional commercial capital needed to pay for the Sustainable Development Goals (SDGs). Official development assistance provided by donor governments is used to lower the investment risk for private sector firms looking to invest in revenue-generating projects in low- and middle-income countries.
The World Bank’s International Finance Corporation (IFC), for instance, has committed over US$2.4 billion of its own funds to leverage private investment with the stated ambition of becoming “not just a provider but a facilitator of capital.”
In total, conservative estimates put the aggregate value of blended finance deals at well over US$100 billion.
As the World Bank holds its annual meetings together with the International Monetary Fund in Washington D.C this week, Transparency International is calling for greater transparency, accountability and participation in the World Bank’s contribution to financing the 2030 Agenda.
Integrity across sustainable development
Poor governance has a devastating impact on sustainable development, and corruption steals funds desperately needed to lift people out of poverty, tackle the climate crisis, supply clean water and provide access to essential services like healthcare and education.
SDG 16: ‘Peace Justice and Strong Institutions’ deals specifically with anti-corruption. But there is a clear need to embed the spirit of SDG 16 across all of the Goals, including SDG 17, which deals with financing the SDGs.
Transparency, accountability and participation must be at the heart not only of the implementation of the 2030 Agenda, but also of efforts to mobilise the funds required. In the area of blended finance, there are legitimate concerns that this isn’t currently the case.
Blended finance uses official development assistance funds to subsidise private investments. That is, taxpayer money supports the operations of for-profit businesses that are expected to have a positive impact on development. In the 2017 principles issued by the IFC-led Working Group on Blended Finance, earlier language on the need to ensure transparency in the use of such subsidies has been walked back.
Whereas the 2012 principles made a clear commitment to “ensuring that subsidies are transparent” and “avoiding the introduction of rent-seeking opportunities”, the most recent guidance allows commercial confidentiality and other internal considerations to take precedence.
Lack of data
A related problem is the lack of publicly available data. Studies have found that blended finance projects are considerably less transparent than projects funded using other forms of official development assistance. For instance, the IFC publishes much less information about its projects’ financing structures than its sister organisation at the World Bank, the International Development Association.
The result, according to observers, is that World Bank blended finance facilities “take (comparatively) transparent aid money and turn it into (almost completely) opaque private finance.”
Information on blended projects should be publicly available, both in terms of the financial flows involved as well as the developmental impact of these resources. This will ensure that public money is being used fairly and efficiently, not for private gain at the public expense.
More data would represent a win-win for all involved. Evidence of the commercial performance of blended finance development projects would encourage more investment in emerging markets. At the same time, more information about the developmental outcomes would empower affected communities to hold projects to account.
Transparency International is not alone in calling for more accountability in blended finance; the UN Task Force on Financing for Development has repeatedly stressed the need for transparency and local ownership in blended finance deals and outcomes.
International organisations like the World Bank have a key role to play in embedding transparency, accountability and participation into efforts to mobilise development finance as part of SDG 17.
Ultimately, blended finance provides an innovative set of tools that could bring in billions of dollars from the private sector to help achieve the SDGs. Establishing greater transparency and accountability can encourage more, and better, private investment in low- and middle-income countries, and instil greater confidence in donors, beneficiaries and private investors.
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