Blended Finance in the Least Developed Countries 2020: Supporting a Resilient COVID-19 Recovery

By January 24, 2022 May 4th, 2022 Publications, UNCDF Featured Publications POM

COVID-19 threatens to undo progress achieved towards the 2030 Agenda for Sustainable Development by the Least Developed Countries (LDCs) over the past five years. Even before the current crisis, LDCs were unlikely to achieve the Sustainable Development Goals (SDGs), which will now almost certainly not be realised without far-reaching finance and policy responses. The development responses to the COVID-19 health and socio-economic impacts must therefore be made with a forward-looking perspective to building back better and greener.

Financing the recovery will require a coordinated multilateral response and the use of innovative tools and risk mitigation instruments. Blended finance can help to catalyse much-needed additional resources for SDG-aligned projects that private investors would otherwise overlook. It can be used to, among other purposes, leverage digital technologies, finance SMEs in the ‘missing middle’ gap, and address market failures that prevent LDCs from financing their development needs and reaching the most vulnerable.

Consistent with findings in the previous reports on Blended Finance in LDCs, latest data shows that too little private finance is mobilised for investment in LDCs. Only 6% of private finance mobilised by official development finance is invested in LDCs, a number which has remained constant over the past three years. Positively, we have seen that in the period 2012-2018, the total amount of private sector capital mobilised annually has grown steadily and 45 out of 47 LDCs have received private finance mobilised by official development finance at least once. However, a potential decline in ODA due to the global economic recession and declining public revenues risk jeopardizing any gains and positive trends that have been made in the past few years.

This third instalment of the Blended Finance in LDCs report presents analysis and an Action Agenda for how to effectively use blended finance to mobilise additional and much-needed finance for LDCs, with a specific view toward supporting LDCs to build back better from the COVID-19 pandemic. Through data analysis, a collection of curated guest pieces and consultations, the report aims to shed light on how blended finance can be used and scaled up to address the socio-economic challenges in LDCs.

Achieving the core principle of “leaving no one behind” necessitates innovative solutions to address risk and build resilience to future shocks. This will require blended finance to focus even more sharply on supporting domestic financial ecosystems and market development, designing solutions that target the last mile, improving impact measurement and transparency, and employing systemic and transformational approaches, to catalyse investments in country led priorities and projects in sectors that promote an inclusive, sustainable and resilient recovery.