The Fourth International Conference on Financing for Development

1. The Seville Compromise

On 17 June, two weeks ahead of the 4th International Conference on Financing for Development (FfD4), to be held from June 30 to July 3, 2025, in Seville, Spain, the conference’s Outcome Document was adopted by all participating countries—except the United States. This document will influence international cooperation and national policy agendas on sustainable development for years to come. 

The endorsement of the “Compromiso de Sevilla” represents a notable achievement for multilateral diplomacy, particularly in light of the United States’ decision to withdraw from the process. While the absence of the U.S. is concerning, reaching consensus despite its opposition can be viewed as a pragmatic success. Given that the U.S. was following an increasingly obstructionist stance throughout the negotiation process and renounced its commitment to the Sustainable Development Goals (SDGs), moving forward without its participation was likely the only path to an agreement.

However, the implications of U.S. non-participation cannot be overstated. Without U.S. engagement, advancing key reforms in development finance will be challenging—especially in areas where the U.S. holds considerable influence, such as the International Monetary Fund (IMF) and the World Bank, where it retains veto power. Similarly, efforts to achieve progress in international tax cooperation are likely to face major obstacles. Hence, while the adoption of the Outcome Document is a diplomatic success, its implementation will depend heavily on navigating these geopolitical realities.

In the following sections, we review the key contentious issues that arose during the year-long negotiation process and examine how they were addressed—or compromised—in the final outcome document.

2. Key areas of contention and outcomes

Declining Official Development Assistance

Against the backdrop of stagnating and now sharply declining Official Development Assistance (ODA), with major donors such as the US, the UK, the Netherlands and potentially Germany cutting back on their development budgets, it was important to reaffirm the commitment of developed countries to the 0.7% ODA/GNI target for developing countries in the FfD4 document. Similarly, this document calls countries that have not yet set timelines for meeting the 0.7% target to do so. However, there are not any interim targets up to 2030/35 in the document. In addition, the document includes the call for providing at least 0.15 to 0.2% of Gross National Income to Least Developed Countries (LDCs).

Although the document requires precise measurement of ODA, a more accurate definition of ODA that excludes non-developmental costs should have been included, as required by the G77.  For example, ODA flows to Ukraine have led to a notable decrease in ODA to countries in Sub-Saharan Africa. While the Outcome Document supports and welcomes South-South and triangular cooperation, it contains no financial or non-financial commitments from richer developing countries to poorer ones. The FfD4 Outcome Document should have called for an increase in ODA from richer developing countries, and set interim targets up to 2030/2035. Additionally, the Outcome Document does not make a distinct commitment to prevent the double counting of ODA and climate finance, thereby implicitly reiterating the principle that climate finance is additional.

Reform of Multilateral Development Banks and Special Drawing Rights

MDBs have been key players in financing sustainable development for over 80 years. Their increasing importance is reflected in the final draft of the FfD4 Outcome Document, which refers to them more than 40 times — four times as often as in the Addis Ababa Action Agenda from FfD3 a decade ago. Despite this frequent mention, the draft mostly reaffirms the value of MDBs without offering many new or bold proposals. Most of the action points — such as encouraging support for national development banks, expanding local currency lending, and better alignment with national development strategies — are widely supported and involve little direct cost to donor countries.

However, more controversial yet potentially transformative issues are addressed only in a limited and non-committal manner. For instance, the Outcome Document merely asks MDBs to “consider options” for increasing the voice and representation of developing countries in their governance — a weak and non-binding suggestion. Similarly, the ambitious idea of tripling MDB lending lacks a specific time limit and is not backed by concrete measures to achieve it. The topic of capital increase is addressed only in cautious terms (“when needed”), falling short of a strong commitment.

One area where the first draft of the Outcome Document was more concrete is the channeling of SDRs to MDBs. The International Monetary Fund (IMF) introduced SDRs that are reserve assets valued based on a basket of five major currencies. Although they are not a currency, they can be converted to other currencies, and countries can use them at low interest rates, without having to repay the principal. As richer countries do not typically use their SDRs, this has recently led to repeated calls for richer countries to channel a significant portion of their unused SDRs — up to 50% — to support sustainable development in developing countries, including through MDBs. (i)

The Seville Compromise supports the instrument developed by the African Development Bank and Inter-American Development Bank to channel SDRs as hybrid capital, ideally by the end of 2025. However, it backed down – in comparison to the first draft - from specifically mentioning five countries to participate in this instrument by the end of 2025.  More concerning is the fact that the Outcome Document has not assigned follow-up responsibility to a specific body, such as the UN DESA. Instead, this responsibility now relies on the voluntary formation of a coalition of the willing under the Sevilla Platform for Action. If formed, this body should engage potential donor countries with low legal restrictions such as China, Japan and the UK, and open dialogue with the European Central Bank, which so far has resisted allowing European SDRs to be channeled to MDBs.

How to address the debt crisis?

The debt situation in developing countries has been exacerbated by multiple crises, including the ongoing effects of the pandemic, the war in Ukraine, and the climate crisis. These crises have generated an intense demand for substantial public spending while simultaneously altering the macroeconomic landscape. This has resulted in higher interest rates, restricting developing countries' access to international financial markets and increasing their debt servicing payments. Consequently, the financial resources available for investment in sustainable development are insufficient. In 2023, 54 developing countries — almost half of which are in Africa —  had net interest payments amounting to over 10 per cent of their state revenue. (ii)

Against this backdrop, some highly indebted developing countries need to be granted debt restructuring and, if necessary, debt cancellation. The “G20 Common Framework for Debt Treatments” is currently the only instrument available for comprehensive debt restructuring in low-income countries (LICs). This process involves the most important bilateral public and private creditors. However, since its introduction in 2020, only four debtor countries have participated: Chad, Ethiopia, Ghana and Zambia. (iii)

In the area of 'Debt and Debt Sustainability', the Outcome Document acknowledges and addresses the most significant instruments of the Global Debt Governance Architecture. Many valuable recommendations have been made, some of which are innovative. In particular, it proposes reforms to the G20 framework, including improved coordination of creditors and greater transparency regarding debt situations and contracts. The Outcome Document also calls for the creation of a global debt registry and backs state-contingent clauses in official lending, including climate-resilient debt clauses. Additionally, the Outcome Document proposes establishing a roadmap and multistakeholder working group to design and implement principles for responsible sovereign lending and borrowing such as an early dialogue between debtors and creditors, fair information exchange between all parties, fair creditor representation and equal treatment of all creditors, and maintenance of existing contracts. These principles should be linked to the G20 Common Framework..

The primary challenge will be to implement all these proposals, particularly in light of the United States' withdrawal from the FfD4 process, given its role as a major creditor of developing countries.

How to mobilize domestic resources?

Acknowledging that tax revenues are the most important source of public development finance, and that tax-to-GDP ratios in 2024 were very low in LICs at around 15 per cent compared to about 36 per cent in high-income countries according to the IMF, the FfD4 Outcome Document contains several reform proposals in this area that are needed both at the national and international levels. For instance, the Seville Compromise includes the following calls for national-level reforms:

• Broadening the tax base through greater transparency, efficiency, effectiveness, and the inclusion of the informal sector;
• Promoting progressive tax systems and addressing tax collection;
• Supporting new digital technologies to support tax authorities and prevent certain types of tax avoidance and evasion; and
• Introducing measures to augment oversight and management of tax expenditures, incorporating transparent tax expenditure reporting. Rationalizing tax expenditures has recently gained attention as new data underscores the relevance of the issue: worldwide, governments forgo about a quarter of tax revenue actually collected as a result of tax expenditures. (iv)

In the same vein, donor governments commit to enhance their support for developing countries establishing efficient tax administrations (taking into account digital solutions).

Despite the controversy surrounding the proposed changes to international tax rules during the preparation process, especially in relation to the ongoing negotiations on the UN Framework Convention on International Tax Cooperation, member states – except the US – have expressed their political support for this UN Framework in the Seville Compromise.

Role of private business and finance

Private business activity and investment are key drivers of job creation, economic growth, and sustainable development. However, in many developing countries, investment remains low due to underdeveloped financial sectors, high financing costs, and challenging business environments. The vision set by the Addis Ababa Action Agenda to leverage billions in public funds to mobilize trillions in private capital through blended finance has largely gone unrealized, with only about $231 billion mobilized between 2015 and 2024. Moreover, the majority of blended finance has been mobilized in middle-income countries, with a mere 6% of the total private sector finance raised by ODA between 2012 and 2018 being directed towards Least Developed Countries (LDCs). (v)

Against this backdrop, the FfD4 Outcome Document calls for strong action in three areas:

• Domestic financial and private sector development;
• Improved enabling environments; and
• Increased private capital mobilization, including through blended finance.

These calls also outline concrete measures for developing country governments to implement policy reforms to create favorable regulatory frameworks, and for donors, MDBs, and Development Finance Institutions to scale up technical assistance, capacity building, and financial support.

While these proposals are broadly supported, several LICs have voiced concern over an overreliance on blended finance, warning it could divert donor funding away from essential public services — such as health and social protection — toward sectors more attractive to private investors. The Outcome Document rightly emphasizes that blended finance should prioritize sustainable development impact as well as financial leverage. Moreover, bilateral and multilateral are asked to support LICs in attracting blended finance by offering tools like guarantees and currency risk hedging, helping develop bankable projects, and providing technical and financial support to improve regulatory frameworks and invest in critical infrastructure such as roads and electricity.

Promote a global sustainable finance architecture

Financial markets are not yet sufficiently aligned with the sustainability goals of the Paris Agreement and the 2030 Agenda, as they, for example, still largely finance fossil fuel-intensive industries. Global energy investments in fossil fuels amounted to more than $1 trillion in 2024. (vi) An appropriate global sustainable finance architecture is needed to direct financial flows towards sustainable investments and to counteract the “backlash against sustainable finance”. The Outcome Document includes policies to increase transparency on sustainability impacts of investments such as reporting requirements and sustainable finance taxonomies. However, risk assessment rules, standards for sustainable financial products such as green bonds are not mentioned. In addition, the Outcome Document does not include calls to create transparency around 'dirty' investments such as with dirty taxonomies. While the Outcome Document supports policy solutions that enhance the interoperability of sustainable finance policies, it should have also called for an international recognition mechanism for sustainable finance standards and taxonomies.

In this regard the document calls donor governments to support capacity-building measures in the field of sustainable business and finance regulations. However, it lacks specific measures such as  the establishment of a multilateral trust fund for capacity building in sustainable finance for developing countries, similar to the International Monetary Fund/World Bank Debt Management Facility.

3. The role of Germany and the European Union

The Outcome Document indicates that the global community remains committed to collaborating under the UN principle of leaving no one behind to address global challenges. However, continued attention is required for its implementation and to resolve many outstanding issues. The Sevilla Platform for Action has been created by the organisers to support this process. However, this platform is dependent on the existence of a coalition of the willing to advance the ambitious financing framework set by the Sevilla Compromise.

Due to their long-term bilateral and multilateral engagement, volume of ODA, and economic power, Germany and the EU are well placed to take on leading roles in such coalitions of the willing and in the implementation of the FfD4 Outcome Document. Regarding ODA, Germany and the EU should publicly commit to interim milestones in order to fulfil the target of allocating 0.7 per cent of ODA/GNI to developing countries. For example Germany and the EU should commit to increasing ODA to meet the 0.7% target by 2030/35 of which at least 0.2% should go to LDCs, with interim targets along the way.

Germany and the EU should maintain their leadership in MDB reform and support broader governance reforms in the international financial system to prevent further erosion of trust in institutions like the IMF and World Bank. They should also advocate for a capital increase in the upcoming World Bank shareholding review to ensure its expanded mandate does not dilute core development goals. Additionally, the EU Commission should urge the European Central Bank to reconsider its position on blocking the channeling of European SDRs to MDBs.

Germany and the EU should support the reform of the G20 Common Framework and take part in developing and implementing universal principles for responsible sovereign lending and borrowing.

In the Outcome Document, member countries committed to increasing capacity building with regard to domestic resource mobilisation. Germany and the EU should increase their bilateral technical support for LICs in this area and promote this through their mandates in international financial institutions.

Germany has also a key role to play in supporting developing countries to attract private finance. Its implementation agency, GIZ, and its banks DEG and KfW, have a reputation for expertise in providing technical assistance and capacity building in the area of private sector and private capital mobilization. They should also double down their innovations and efforts in solving more systemic problems impeding the flow of blended finance, such as the lack of standardization and the small size of the projects. The blended finance initiative “SCALED” (Scaling Capital for Sustainable Development), launched at the Hamburg Sustainability Conference in June 2025 and backed by Germany, KfW Bank, other governments, and private companies, is a welcome step in the right direction.

Likewise, in the Outcome Document the Member States have committed to enhancing capacity building in the field of sustainable finance. Germany and other EU countries could take the lead in contributing to a multilateral fund for capacity building in sustainable finance for developing countries. A trust fund - similar to the IMF and World Bank's Debt Management Facility, which supports capacity building in debt management - could be established for this purpose.

References

i) Berensmann, Kathrin / Yabibal Walle / Elise Dufief / Paulo Esteves / Rob Floyd / Yu Ye (2024). Channelling special drawing rights to multilateral development banks: overcoming remaining legal and political obstacles. Policy Brief 30/2024. https://doi.org/10.23661/ipb30.2024

ii) UNCTAD (United Nations Trade and Development) (2024): A World of Debt, unctad.org/publication/world-of-debt

iii) Berensmann, Kathrin (2025), Ideas to reform debt policy, in: D+C (2025/3), 47-49

iv) von Haldenwang, C., Redonda, A., & Aliu, F. (Eds.). (2023). Tax Expenditures in an Era of Transformative Change. GTED Flagship Report 2023. IDOS. https://doi.org/10.23661/r2.2023

v) OECD / UNCDF, Blended Finance in the Least Developed Countries 2020, Supporting a resilient COVID-19 recovery, 2020, https://www.oecd.org/dac/blended-finance-in-the-least-developed-countries-57620d04-en.htm

vi) IEA, World Energy Investment 2024, https://www.iea.org/reports/world-energy-investment-2024