Funding a fairer future: The role of transparency in financing for development

This summer, the world watched as Kenyans took to the streets in massive protests that were met with violent repression. Sparked by a new tax on everyday essentials, the protests reflected widespread frustration, as many were already struggling with inflation and high unemployment. At the heart of the crisis, however, lies a fraught development financing framework, exacerbated by corruption.

The Kenyan government imposed the tax on the recommendation of its international lenders, to which the country owes billions of dollars in debt. According to the International Monetary Fund, Kenya is one of around 70 countries trapped in a compounding cycle of debt distress. In countries plagued by corruption, resources are lost, increasing the need for borrowing. Meanwhile, opaque deals enable corrupt officials to misuse or misappropriate funds. To repay debt, governments often resort to high taxation, yet the intended development projects remain largely unfulfilled.

To end the cycle of debt distress, as well as other barriers to sustainable development like the loss of public resources, the world must fight the corruption that fuels them. The 4th International Conference on Financing for Development (FfD4), held in Spain this June, will be a crucial part of this effort.

The Financing for Development process, led by the UN, brings governments, international organisations, businesses and civil society together to devise innovative financing strategies to achieve the Sustainable Development Goals (SGDs). The last conference was held in Addis Ababa in 2015, and outlined important steps for financing development.

The next conference should recognise that corruption is a cross-cutting issue that permeates all aspects of development financing. Transparency International has made recommendations outlining how corruption obstructs sustainable development in four of the agenda’s action areas, and how measures for transparency, accountability, cooperation and for closing existing loopholes can help to contain it.

One of the most important factors enabling sustainable development is the ability of a country’s own government to mobilise and invest resources. Corruption, however, is a massive disruption. Illicit financial flows hide potential revenue and divert assets, leaving the government with fewer resources to allocate. Corrupt public officials and institutions can also misallocate resources to benefit themselves or their cronies instead of those most in need, corroding public trust in the government.

Luckily, the solutions are clear. First, transparency is needed both around government actions and finances. Governments must publicly disclose how resource decisions are made and where funds are going across every step, from budget allocation and public procurement to actual expenditure. Implementing beneficial ownership transparency, including through a global asset register, would allow both public officials and civil society to help identify and recover lost funds. An “open by default” approach would ensure as much information as possible is available for observers to identify and call attention to corruption. Secondly, accountability and oversight must be strengthened by guaranteeing the capacity and independence of parliaments and Supreme Audit Institutions.

Civil society must be empowered to scrutinise government funding proposals and root out corruption everywhere, from the government to shady individuals to financial professionals that help hide dirty funds. Thirdly, collaboration between governments and civil society, and across governments, will enable different stakeholders to work together and ensure resources cannot be hidden across borders. In addition, specific strategies that will allow funds from stolen assets to return to the countries from which they were robbed will be crucial to finance efforts.

For a country to sustain itself, domestic businesses must be able to sustainably and legally succeed, as they are a crucial component of equitable economic growth. Corruption distorts this environment and discourages both foreign and domestic investment.

In this case, transparency can help to rebuild trust through multistakeholder collective action, anti-corruption compliance, and Environmental, Social, and Governance (ESG) reporting that reliably shows how businesses are functioning. The business community, along with government and civil society, can work together for accountability through Integrity Pacts that hold each other to key standards. Public-private dialogues can help to develop strategies and establish high standards that go beyond more legal compliance for ethical behaviour and responsibilities. Collaboration across the business community and with government and civil society will help to maintain efforts.

Too often, loans meant to build infrastructure and services fail to serve citizens as intended and are lost to corruption. Many debt negotiations are opaque, leaving the public in the dark and enabling corrupt officials to misallocate funds. In turn, countries are left struggling to repay loans and further squeeze citizens to repay, leaving them worse off than before, as has happened in Kenya. Now, 60 per cent of the least developed countries are at risk of being completely unable to make payments on debts owed.

To close the loopholes that allow corruption, transparency and accountability in debt negotiations and management is essential. Creditors and borrowers must be held to public disclosure standards that reveal not just debt owed, but structures of the deal and how it’s set to be repaid. A global public database on sovereign debt would make a significant impact by allowing open access to information, not just within countries but for all stakeholders globally so they can learn from one another and ensure fairer deals.

In the meantime, cooperation, especially with private lenders, to share relevant information and establish integrity assessments will improve global standards. Civil society and citizens should also be brought in to monitor and scrutinise loans as they are made, to ensure they take into account public needs. In addition, the new agenda should promote capacity development for at risk countries to improve their ability to manage debt sustainably.

The climate crisis makes sustainable development all the more difficult as the warming planet destroys existing infrastructure, causes natural disasters of increasing severity and frequency, and makes regions increasingly uninhabitable. Now, more investment is needed to help countries adapt to the changing climate. Corruption, once again, exacerbates the issue as climate financing is lost to graft, bribery and mismanagement. No sustainable development agenda will be successful without addressing these losses.

In this case, transparency, inclusive participation and accountability in climate financing will allow stakeholders to understand what funding should be coming and where it’s being allocated. Collaboration between government and public stakeholders will help ensure funding is allocated where it’s most needed and to uphold principles of good governance. In addition, safe channels for reporting corruption and the protection of environmental defenders and whistleblowers will help hold those allocating funds to account.

Right now, the UN reports that the world is on track to achieve just 17 per cent of the 2030 SDGs. This is a dismal performance, as millions around the world face hunger, disease and conflict. But it’s not too late. The FfD4 being held in Spain marks a crucial opportunity for governments to come together and commit to sustainable development and support humanity. But to do so, they must pledge to fight corruption at every step.