
Seville 2025 and the power of local institutions
As global leaders gather in Seville for the International Conference on Financing for Development, explore this collection of IGC research on the institutions and systems needed to close financing gaps and unlock sustainable growth in developing countries.
In 2024, it was estimated that developing countries faced a global annual USD 2.5-4 trillion funding gap to achieve the Sustainable Development Goals (SDGs) by 2030, and geopolitical tensions mean this figure could get wider yet.
In 2025, more than 50 global leaders are meeting in Seville for the UN’s Fourth International Conference on Financing for Development. As before, the conversations have focused on reshaping global financial architecture. But this year the world looks different. We have an urgent deadline to achieve the SDGs with less support for development and shrinking aid budgets, and many still face persistent issues in accessing and managing revenue to achieve long-term, sustainable growth.
Addressing these issues will require change on multiple levels – reforming multilateralism, improving debt systems, enhancing tax revenue, and attracting private capital.
What will this look like for those trying to put these ideas into practice, in systems that can prevent them from fully spending and managing funds well?
Why credible states matter
The importance of strong state systems and institutions to manage finances cannot be understated. Effective public systems are more likely to be efficient, instil confidence, and create fairer and more transparent fiscal systems. Weak institutions, by contrast, can undermine public trust, stall progress and lead to the misuse of funds.
The IGC has supported research from Bangladesh, Sierra Leone and the Democratic Republic of Congo which highlights that weak tax systems and frequent revenue shortfalls have increased vulnerability to economic shocks and led to more dependence on foreign aid, concessional loans and other sources of external funding for public services like schools, hospitals, and roads.
Bangladesh
Bangladesh has one of the lowest tax collection rates in South Asia. This is due to the fact that few individuals and businesses pay direct tax, there is limited tax compliance, and a high reliance on indirect taxes like VAT, which negatively affects the poorest communities.
IGC-supported researchers propose changes including broadening the tax base, digitising the tax system, strengthening tax enforcement and building trust among taxpayers. This could unlock more funds in Bangladesh to allocate towards development priorities.
“The underperformance of direct taxes not only undermines revenue generation but also limits the government’s ability to implement pro-poor fiscal policies and public investments aimed at reducing inequality.”
Sierra Leone
Sierra Leone has been collecting around 10% of GDP in taxes for the past decade - compared to the average 16% collected by 36 other African countries in the region. Contributing factors include its large informal economy, limited digitisation, a fragmented tax system, and disproportionately low amount of tax paid by wealthier individuals and property owners.
Improving tax enforcement in customs, VAT, excise and domestic taxes - as well as enhancing staff capacity, investing more in digitising processes and property tax reforms - could help address this deficit.
“Even modest reforms in customs, VAT, and property tax could yield fiscal space of 1-2% of GDP.”
Democratic Republic of Congo
In the Democratic Republic of Congo (DRC), traditional financing models often fail to meet the needs of the market due to high perceived risk, currency mismatches, institutional fragility, and weak enabling environments.
Research from the IGC’s State Fragility Initiative reveals how blended finance mechanisms, results-based financing, and tools like Peace Renewable Energy Credits can be used to finance climate-aligned investments such as solar mini-grids.
These instruments could support clean energy goals, and demonstrate how targeted financial innovation can unlock private investment from companies like Nuru in eastern DRC.
“Early experiences in fragile contexts - such as the Nuru mini-grid in eastern DRC - demonstrate how blended financing and market-based environmental credit instruments can unlock investment in sustainable infrastructure.”
Managing foreign exchange risk
Another persistent barrier to investment in many developing countries and fragile states is foreign exchange risk. While many public and private investments are financed in dollars or euros, revenues are earned in local currencies that may be volatile and prone to depreciation. This mismatch deters investment, raises costs, and limits the scalability of development finance.
Development finance institutions need to take a more proactive role in managing foreign exchange risk - including providing access to local currency lending, introducing hedging instruments adapted to fragile markets, and building partnerships with central banks and local financial institutions to stabilise funding channels.
“Reliance on foreign‑currency lending shifts currency risks onto fragile borrowers, exacerbating economic vulnerability and constraining scalable SDG financing.”
To unlock the trillions for the SDGs, we cannot overlook the importance of the systems and tools needed to deliver it – from strong states and institutions, to tax administration. Investing in local institutions will help money reach those who need it most.
Disclaimer: This article includes ideas and structural elements developed with the assistance of AI tools. While AI suggested themes and potential arguments, the final narrative and editing were completed by the author(s).