The Least Developed Countries Report 2019

The present and future of external development finance – old dependence, new challenges

The challenges to financing for development are greatest in the countries with the most to lose from declining trust in multilateralism: the least developed countries.

This year’s The Least Developed Countries Report offers these countries a frank assessment of how to adapt their development strategies accordingly: mobilizing the needed resources, strengthening the relevant institutions and setting the right terms to benefit from global partnership.

Mukhisa Kituyi,
Secretary-General, UNCTAD

The Heavily Indebted Poor Countries Initiative and Multilateral Debt Relief Initiative were supposed to put an end to the debt sustainability problems of low-income countries. Clearly, things did not work as expected, as a substantial number of least developed countries are now classified as being in debt distress or having a high risk of debt distress.

The Least Developed Countries Report 2019: The Present and Future of External Development Finance – Old Dependence, New Challenges of UNCTAD is a key instrument for understanding what didn’t work and, more importantly, what should be done to build an aid architecture that can close these countries’ immense financing gaps, without planting the seeds of costly future debt crises.

Ugo Panizza,
Professor, Graduate Institute for International and Development Studies,

At the European Network on Debt and Development (Eurodad), we have long called for developed countries to meet the 0.7 per cent aid target, but also for enhancing the quality of official development assistance, with a view to making it a more effective instrument for fighting inequalities and promoting sustainable development.

These calls are as relevant as ever at the current juncture, when the multilateral cooperation framework is increasingly under pressure, and aid is subject to growing politicization and to a blurring of the distinction between genuine development cooperation and subsidization of private commercial interests.

The Least Developed Countries Report 2019 of UNCTAD makes an important intellectual contribution to unpack the impact of aid dependence on the world’s neediest countries, articulating a call for donors to step up their game and deliver on an “Aid Effectiveness Agenda 2.0”, up-to-date with the realities of the post-2015 development finance landscape.

Jean Letitia Saldanha,
Director, Eurodad

Persistent shortfalls in domestic savings in the least developed countries make them heavily dependent on external development finance. Among available sources of external development finance, the least developed countries are most dependent on official development assistance.

External finance should facilitate and pay for the structural transformation of least developed country economies. Therefore, official development assistance is essential for the least developed countries to achieve the Sustainable Development Goals and eventually escape aid dependence.

For that to happen, revitalization of the aid effectiveness agenda is needed to improve the quality of aid and its impact on development and take into account a significantly changed aid and development finance landscape.

A new architecture of aid for development has developed, with the (re)emergence of a wider number of actors, including the private sector, philanthropists, non-governmental organizations and Southern sources of development finance. It is also characterized by new financial instruments, all of which leads to increasing complexity, but also opacity.

This wider array of actors and instruments is not translating into meaningful increases in development finance from all sources. Critically, the linkages between external development finance and national development priorities are weakening. All of these developments seriously challenge the institutional capacities of the least developed countries.

Least developed country Governments need to assume the driver’s seat of their development agenda and take a more proactive role in managing the allocation of external development finance in alignment with national development priorities. This should include the adoption of a proposed “Aid Effectiveness Agenda 2.0”. On the other hand, the international community needs to step up its support towards this common goal.