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The “Billions to Trillions” Charade

Multilateral development banks and international financial institutions argue that mobilizing private investment is crucial to meeting developing economies’ needs for climate and development finance. But boosting government revenues is far more likely to generate the trillions of dollars needed to close these financing gaps.

NEW DELHI – The international development sector has become fixated on calculating financing gaps. Hardly a day goes by without new estimates of the funds low- and middle-income countries (LMICs) need to meet their climate targets and achieve the United Nations Sustainable Development Goals (SDGs).

The Independent High-Level Expert Group on Climate Finance, for example, estimates that developing and emerging economies (excluding China) need $2.4 trillion annually by 2030 to close the financing gap for investments in mitigation and adaptation. Achieving the SDGs would require an extra $3.5 trillion per year. Similarly, the UN’s 2023 Trade and Development Report suggests that LMICs need roughly $4 trillion per year to meet their climate and development goals.

Such estimates can elicit a range of psychological and policy responses. Ideally, they would encourage greater ambition and urgency in crafting and implementing policies at both the national and international levels. But they can also be distracting and demoralizing, especially given the current shortfalls in climate and development financing. Consequently, a growing number of commentators argue that governments and multilateral lenders alone cannot meet developing countries’ financing needs.