Editorial 2: Rephasing global development finance

Context

With geopolitical complexities affecting global development finance, a solution lies in evolving a mechanism of pooling resources with like-minded countries

Introduction

India’s development cooperation with the Global South has been growing steadily over the past several years. The country has worked to broaden its partnerships and has nearly doubled its support, increasing from about $3 billion in 2010–11 to around $7 billion in 2023–24. While efforts like training programmes, technology sharing, and duty-free access to Indian markets have played an important role, the main tool used has been the Lines of Credit (LoC) provided under the Indian Development and Economic Assistance Scheme (IDEAS).

India’s Evolving Development Cooperation Strategy: Key Highlights

Shrinking ODA and debt crisis

• ODA Crisis: Traditional Official Development Assistance (ODA) providers are facing budget cuts, while many Global South countries are struggling with a debt crisis.
• Falling Development Finance: Due to rising geopolitical tensions, the overall flow of development financeworldwide is sharply declining.
• Agency Collapse: The collapse of USAID and the decline of the UK’s FCDO (Foreign, Commonwealth and Development Office) highlight the deepening crisis in global development funding.
• ODA Reduction: Global ODA is expected to fall to around $97 billion, which is nearly a 45% drop from the $214 billion level in 2023.
• OECD DAC's Role: The OECD Development Assistance Committee (DAC), long seen as an elite group, has historically set the rules for aid and development programs in the Global South.
• Impact on Poor Nations: This shrinking aid is expected to severely impact development projects, especially in least developed countries already facing high debt burdens.
• Multiple Crises: Over the past two decades, repeated crises and global shifts have made it harder for developing nations to get funding, threatening their development goals.
• SDG Financing Gap: The investment needed to reach the Sustainable Development Goals (SDGs) has risen from $2.5 trillion in 2015 to over $4 trillion in 2024.
• Risks to SDGs: Without more funding, progress on SDGs — already delayed by COVID-19 and other global shocks — will be extremely difficult to achieve.
• Borrowing Difficulties: At the same time, borrowing money has become more expensive and less stable, adding to the financial stress on developing countries.

Rationale for triangular cooperation

• Resource Pooling: A new model of pooling resources with like-minded countries offers a ray of hope for more effective development partnerships.
• Rising Non-DAC Contributions: Funding from 19 non-DAC countries reporting to the OECD rose from $1.1 billion in 2000 to $17.7 billion in 2022, showing growing participation from emerging economies.
• South-South Experience: Countries like Indonesia and Brazil have gained global experience by partnering with Japan and Germany to implement development projects in third countries.
• Japan-Indonesia Partnership: Japan and Indonesia have jointly executed development programmes in several ASEAN nations, strengthening regional cooperation.
• Germany-Brazil Collaboration: Germany and Brazil have partnered in Mozambique, working across multiple development sectors.
• Bridge Mechanism – TrC: Triangular Cooperation (TrC) is proving to be an effective model to bridge the gapbetween the Global North and South, fostering balanced partnerships.
• Inclusive Model: The strength of TrC lies in its ability to bring together a traditional donor (Global North), a rising power (Global South), and a partner country (often also from the Global South), promoting shared learning, mutual respect, and customised solutions.
• Funding Estimates: While global TrC data is still being collected, initial estimates suggest funding flows range from $670 million to $1.1 billion, showing its growing relevance and success.

Partnerships with results

• Triangular Cooperation (TrC) has shown that investing in physical infrastructure can lead to social development.
  • For example, upgrading regional energy grids not only boosts digital connectivity but also opens up better access to education and healthcare services.
•  In this context, in 2022, India and Germany signed a Joint Declaration of Intent to carry out TrC projects in third countries, during the sixth India-Germany Inter-Governmental Consultations.
• The focus is on regions like Africa, Asia, and Latin America. Since then, projects have been launched in countries such as Cameroon, Ghana, and Malawi in Africa, and in Peru in Latin America.

Conclusion

These efforts clearly show how global development finance can be redesigned to produce reliable and effective outcomes while keeping costs low. During India’s G-20 presidency, there was a strong push to deepen engagement in Triangular Cooperation (TrC), with increased partnerships involving countries like Germany, the United States, the United Kingdom, the European Union, and France. These partnerships cover a wide range of sectors and models, including both grant-based projects and investment-led initiatives such as the Global Innovation Partnership (GIP)with the U.K. Together, they highlight how combining technical know-how, financial support, and skilled human resources can lead to impactful development outcomes in third countries.