UNCDF-OECD Report Focuses on the Potential of Blended Finance for LDCs’ Response to COVID-19

Under increasing pressure to respond to the Covid-19 pandemic and achieve the SDGs, the world’s least developed countries receive the lowest share of private finance mobilised by blended finance transactions. This is one of the core findings of “Blended Finance in the LDCs, 2020: Supporting a Resilient Covid-19 Recovery,” released today by the United Nations Capital Development Fund (UNCDF) and the Organization for Economic Cooperation and Development (OECD).

The third edition of the Blended Finance in the LDCs report series acknowledges that LDCs are not able to harness the full potential of blended finance, defined in the report as the strategic use of development finance to mobilise commercial finance towards the SDGs, with a focus on unlocking investment that the private sector would not have done on its own. Between 2012 and 2018, LDCs received 6% of the total global share of private finance mobilised by blended finance transactions, a total of USD 13.4 billion. This represented the lowest proportion of mobilised private finance among country categories. By comparison, lower middle-income countries received USD 68 billion, while upper-middle income countries received USD 84 billion.

Against the ever-increasing gap to finance achievement of the SDGs, much of the 13.4 billion received by the world’s 47 LDCs reached just five countries (Bangladesh, Myanmar, Angola, Senegal and Uganda). At the industry sector level, over 60% of the private finance reaching LDCs through blended finance transactions went to only three sectors—energy, banking and financial services, and mining and construction. The least-targeted areas were health, water and sanitation, education, and other social sectors.

Such finance challenges coincided with mounting pressure to respond to the COVID-19 pandemic as it brings distressing health outcomes to LDCs on top of dramatic shocks from the ensuing global economic crisis. In the medium to long term, the report states that blended finance can play a key role in supporting LDCs to mobilise resources for economic recovery. This will require immediate action to start building a pipeline of bankable projects that can attract private capital, as well as coordination among development finance actors around such efforts as capitalizing small businesses, investing in sustainable infrastructure, promoting gender equality, the transition to digital economies, and supporting health systems. In the immediate term, blended finance can play a catalytic role in the growth and strengthening of health systems in LDCs, including —potentially— the dissemination of vaccines.

“UNCDF is proud to continue its work and thought leadership on the effective use of blended finance in LDCs,” said Judith Karl, Executive Secretary of UNCDF. “As Covid-19 threatens achievement of the SDGs in the LDCs, and in the context of the Decade of Action, innovative solutions for mobilizing much-needed finance for LDCs must be brought to scale through systemic and transformational approaches. Now is the time to redouble our commitment to leave no one behind. We hope this report promotes discussion and creates more options for how blended finance can be used to increase mobilisation of financing to LDCs.”

“The evidence in this report sounds an alarm: far too little development finance is reaching those furthest behind, which risks cleaving the world down unequal lines when solidarity is needed more than ever” said Jorge Moreira da Silva, Director of the OECD Development Co-operation Directorate. “With COVID-19 already reversing development gains in LDCs, and many challenges still ahead, it is urgent that we redesign global finance to incentivise sustainable investment. Official development finance can be leveraged better to mobilise and align additional finance for the SDGs in LDCs, and tools to increase transparency and measure impact will go a long way to help scale blended finance in LDCs.”

“Malawi is very pleased to support the third edition of this report, which comes at a crucial moment when the Covid-19 pandemic has increased financing needs in LDCs, and the preparatory process for the Fifth UN Conference on LDCs has commenced,” said H.E. Perks Ligoya, Ambassador and Permanent Representative of the Republic of Malawi to the United Nations and Chair of the Global Coordination Bureau of the Least Developed Countries. “Increasing development financing available for LDCs will be critical for recovery from the Covid-19 pandemic and the achievement of the SDGs.”

In addition to presenting updated data and incisive guest contributions, the “Blended Finance in the LDCs, 2020: Supporting a Resilient Covid-19 Recovery” report includes an Action Agenda to harness the potential of blended finance for the LDCs. The Action Agenda focuses on four critical points:

Support domestic financial ecosystems and market development: Blended finance should be used strategically to develop sustainable market systems and build the capacity of local capital market actors.
Design blended finance solutions to reach the “last mile”: Blended finance actors should design innovative structures that reach the most vulnerable and underserved communities.
Improve impact management and measurement and promote transparency: Lack of transparency and impact measurement of blended finance operations severely hinders further development and improvement of this market.
Bring blended finance to scale through systemic and transformational approaches: By adopting a portfolio approach and by focusing investments in key sectors prioritised in national crisis recovery and sustainable development plans, blended finance can play a strategic and significant role in supporting COVID-19 recovery.
Blended Finance in the Least Developed Countries 2020

The Blended Finance in the Least Developed Countries, 2020 report is the second joint UNCDF-OECD report. It builds on UNCDF research and experience, OECD data and analysis, and a series of guest contributions written by a varied range of blended finance experts.

To access the full report, go to www.uncdf.org/bfldcs