This blog first appeared on Forum Umwelt & Entwicklung, click here to read the German version.

Private finance is promoted as a way to address a so-called ‘financing gap’ in development (1), and increasingly in climate finance. This is best illustrated by the so-called ‘From Billions to Trillions’ agenda, led by the World Bank and other multilateral development banks. This agenda is aimed at shifting the development narrative and its practices, with promoters advocating for development finance that ‘can be used strategically to unlock, leverage and catalyse private flows and domestic resources’. Its goal has been to match large (unused) savings to investments across the global south. Despite strong criticism from civil society, this agenda was made a central feature of the AAAA.

Private finance as a ‘silver bullet’ for development 

The rise of private finance in development is supported by a discourse that focuses on the limited fiscal space of global south countries and allegations about the limitations of the public sector’s capacity to deliver high-quality public services. Yet, proponents of this agenda fail to acknowledge decades of structural adjustment and austerity policies and a draining of flows from the south to the north (2), that outstrip their aid receipts. Furthermore, most rich countries have failed to deliver on their commitments to allocate 0.7 per cent of their gross national income as Official Development Assistance (ODA). The outlook for ODA in 2025 is even worse, with rich countries’ ODA falling in 2024 for the first time since 2017, foreshadowing an even bigger crisis, following more aid budget cuts.

Yet, despite concerted efforts by the World Bank and others to lower the risks for private investors, evidence shows that the trillions in financing has not come. Even the World Bank’s Chief Economist recently admitted that ‘it all turned out to be a fantasy’. In other words, the financing gap remains and evidence that private finance would support the SDG agenda is scant (3). 

Over the years the level of enthusiasm about the potential of private finance to deliver on the SDGs has tempered. There is finally acceptance that private investors are not naturally concerned about development impact and approach investment in infrastructure and basic services with the same mindset as they approach any investment: ‘will this maximise returns for our shareholders?’ If that’s the case, then how is this acknowledgement to be squared with an ongoing agenda that is very unlikely to deliver the returns that private investors are pursuing?  

Disentangling the myth

The promotion of private finance has materialised in concrete policy approaches to scale up the use of various financing instruments, including public private partnerships (PPPs), blended finance and other risk-sharing mechanisms. 

PPPs are contractual arrangements where the private sector provides infrastructure assets and services that have traditionally been provided by the public sector, such as hospitals, schools, roads and water and sanitation plants. Meanwhile, blended finance is the combination of public concessional finance (i.e with more generous terms than the market) with private or public resources. A common feature of all these is that they aim to attract private investment.

In recent years, significant evidence has accumulated demonstrating that these financing instruments are not working as promoters claim. The fiscal and human cost of PPPs are sizeable, which can exacerbate existing vulnerabilities and lead to social unrest, as citizens feel the need to claim back their rights.

PPPs are, in most cases, an expensive and risky way of delivering public services, with financial risks being borne by the public purse (4). The problem of hidden indebtedness of PPPs to the host country is a source of concern, particularly in the context of a growing debt crisis. PPPs are often recorded off-balance sheet and they frequently lack transparency, which helps create a ‘fiscal illusion’ that prevents a careful assessment.

PPPs usually come with user fees – a payment required for the purpose of covering the cost of providing a service. This is problematic in essential public services because it makes the right to health, education and water, for instance, dependent upon people’s capacity to pay for that service. Moreover, PPPs may also exacerbate gender inequality, including by ushering in cuts in public services, which are more often used by women and are a source of decent work for them.

Blended finance entails an inherent and high risk that scarce aid resources will be diverted away from countries and people most in need. It goes mainly to middle-income countries and profitable sectors, such as energy and physical infrastructure. Additionally, it faces significant challenges to reduce poverty and inequalities, with some cases showing adverse impacts on communities.

Furthermore, blended finance often brings new debt, even if the beneficiaries are provided with softer terms than commercial loans. Lastly, as in the case of PPPs, blended finance projects lack transparency, which is justified under the guise of commercial confidentiality clauses. This results in weak accountability to the communities they are supposed to serve.

Bringing the developmental role of the state back in at the Sevilla UN Conference

The run-up to FfD4 has been inundated by global north countries’ unrelenting promotion of private finance and calls to create an enabling environment for business. The European Union’s Global Gateway strategy is a case in point (5), as it encourages the use of ODA to leverage private finance to deliver infrastructure projects, with the risk of prioritising EU’s geopolitical priorities. This agenda is likely to be promoted in the International Business Forum, to be hosted in Sevilla in parallel to the conference, despite concerns about the risk of increasing the corporate capture of the FfD agenda.

While it is true that global south countries have called for scaling-up private investment to their countries, they have also warned against private finance being considered a substitute for public finance. They have emphasised the importance of respecting their policy space to create a suitable regulatory environment and promote industrial policies.

In response, civil society is calling for public finance to be recognised as the main driver of development and not as a residual safety net for market failures. We argue development is not about de-risking private returns but about meeting essential needs on the basis of universal public services. This also implies elevating the developmental and regulatory role of the state. Without such a call it is difficult to see how private finance can align with the broader development agenda.

FfD4 provides an inclusive space to discuss the role of private and public sector actors. It can be a forum where a development finance paradigm can be rewritten so that it is in the interest of people, especially the most vulnerable. Intergovernmental discussions must continue with a view to agreeing on a comprehensive toolkit of policy measures that can regulate private sector financing in the public interest and towards the achievement of the SDGs. Failing to deliver on this will be a missed opportunity. 

Notes

(1) Bayliss, Kate/Romero, María-José/van Waeyenberge, Elisa (2021): Uneven outcomes from private infrastructure finance: evidence from two case studies. In: Development in Practice,31(7), S. 934–945.

(2) Hickel, Jason/Dorninger, Christian/Wieland, Hanspeter/Suwandi, Intan (2022):Imperialist appropriation in the world economy: Drain from the global South through unequal exchange, 1990–2015. In Global Environmental Change, Volume 73, 2022. 

(3) Mazzucato, Mariana (2025): Reimagining financing for the SDGs: from filling gaps to shaping finance. DESA Policy Brief No. 170. Special issue in collaboration with the United Nations High-level Advisory Board on Economic and Social Affairs New York. 

(4) Eurodad (2022): History RePPPeated II - Why Public-Private Partnerships are not the solution. Brussels. 

(5) Gerasimcikova, Alexandra/Sial, Farwa (2024): Who profits from the Global Gateway? The EU’s new strategy for development cooperation. Brussels