The ‘Billions to Trillions’ charade

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By Jayati Ghosh, 27 May 2024, published first in Social Europe and then in IDEAs.

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 demoralising, especially given the 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.

At first glance, this argument is difficult to dispute. The vast majority of the world’s financial assets, currently valued at roughly $470 trillion, are privately held. Redirecting just 1 per cent of these resources toward climate and development initiatives would be enough to meet even the highest annual estimates. This mathematics has helped popularise the ‘billions to trillions’ slogan, which calls for governments and development banks to incentivise and mobilise private-sector investment.

Leading Proponent

The World Bank has been a leading proponent of this approach, especially under the leadership of its president, Ajay Banga, who has spent most of his career in the private sector. The bank’s newfound, private-sector-oriented strategy focuses on four priorities: ensuring regulatory certainty, providing insurance against political risks, mitigating foreign-exchange risks and implementing an ‘originate to distribute’ model, which typically involves securitising loans and selling them to investors.

Some of these priorities are not new. The World Bank has long championed regulatory certainty, which often translates into advocating deregulation. Managing political risks has also always been a priority, though success remains notoriously difficult to measure. It is unclear whether the bank’s solution—providing data on sovereign defaults and recovery rates across countries dating back to 1985—actually leads to effective risk mitigation.

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