Ending poverty will cost trillions - how do we pay?

LONDON - World leaders have just five years left to make good on their pledge to end poverty and tackle a host of global injustices before a 2030 deadline.

But in these challenging times, how on earth do they - or we - pay for it?

Ten years ago, the United Nations unveiled 17 ambitious targets known as the Sustainable Development Goals (SDGs), but only 17% are on track and there is an widening multi-trillion dollar financing gap.

Next week, government leaders and ministers will gather in the Spanish city of Seville to approve a plan to close the gap at the Fourth International Conference on Financing for Development (FFD4).

The aim is to drive a massive investment push and reform the international financial system to help developing countries pay for everything from health care to climate action.

The U.N. conference comes as the United States and other big donors slash their aid budgets.

Although a broad agreement has been finalised, the conference will plant seeds for future initiatives.

Delegates from governments, financial institutions, development organisations and the private sector will discuss how to:

• raise taxes to pay for development
• tackle countries' high debt burdens
• triple lending by multilateral development banks
• address barriers to private investment
• harness trade as a driver for development
• fund climate action

However, the United States has withdrawn from the talks, citing multiple objections.

How big is the funding problem?

The annual financing gap for sustainable development is $4 trillion - up from $2.5 trillion pre-pandemic - and projected to reach $6.4 trillion by 2030, according to the Organisation for Economic Co-operation and Development (OECD).

About 3.5 billion people live in poverty, and almost 700 million people (8.5% of the global population) survive on less than $2.15 per day.

After the SDGs were agreed upon, the World Bank promoted the idea of turning "billions into trillions" - using aid and multilateral finance to leverage large amounts of private investment.

But this has not happened. International aid is falling off a cliff, and crippling debt prevents many countries from investing in development.

Here are four key issues coming up at Seville

Debt: In 2023, developing countries spent a record $1.4 trillion servicing external debt.

Nearly 50 countries spend more on interest payments than on education or health care. The problem has been exacerbated by rising interest rates and global shocks like the COVID pandemic.

Developing countries have higher borrowing costs. For example, African countries borrow at rates two to four times higher than does the United States.

Development experts have criticised wealthy countries for  blocking calls by developing countries for a new debt restructuring and cancellation mechanism overseen by the U.N.

They also accuse private creditors of refusing to negotiate and of imposing punitive terms. More than 43% of African external debt is owed to western private creditors. 

Global tax rules: Effective taxation is crucial for development, yet many countries lose vast sums through unfair tax arrangements with multinationals.

Upcoming negotiations for a U.N. global tax convention aim to increase transparency and close tax loopholes, which could generate hundreds of billions in tax revenues for developing countries.

The Seville agreement says multinationals should be taxed where they operate and that the super-rich must pay more.

The world's billionaires - estimated to number 3,000 - have gained $6.5 trillion in wealth in the last decade, according to aid agency Oxfam - the equivalent of 14.6% of global gross domestic product and enough to end world poverty four times over.

Yet, Oxfam says, billionaires pay effective tax rates close to 0.3% of their wealth.

The financial system: Developing countries want a bigger voice in key decision-making bodies.

There is a consensus that the current system is outdated, with powerful institutions dominated by wealthy countries that critics say perpetuate colonial models.

Global South governments want fairer governance rules at the International Monetary Fund and the World Bank, which provides loans and grants to developing countries.

At the World Bank, the U.S. holds 16.5% of the vote share and the UK 4.03%, while the whole of Africa has only 4.7%.

Development aid: Aid from traditional donor countries - which amounted to $212.1 billion last year - could plunge by nearly 20% this year, according to the OECD.

The United States, which accounts for just over a quarter of global aid, has announced massive cuts, while Germany, Britain, France and the Netherlands are also slashing aid budgets.

The Seville pact calls on donors to fulfil a long-standing but rarely met goal of spending 0.7% of their gross national income on Oversees Development Assistance (ODA). The average last year was 0.33%.

(Reporting by Emma Batha; Editing by Ellen Wulfhorst.)