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Catalysing additional resources

The potential of ODA to leverage additional financing for development was already recognized in the Monterrey Consensus. To support the mobilization of additional domestic public resources, donors have increased their engagement in tax capacity-building, even though the share of ODA for this purpose remains low. There is also renewed interest in phasing out tax exemptions for ODA, which run counter to efforts to strengthen national tax systems.

The biggest focus to date, however, has been placed on development finance’s ability to crowd in, leverage, or catalyze additional private or commercial financing, often referred to as “blended finance”. The use of blending instruments is increasing, putting a spotlight on their allocation across country groups, their development impact, and their alignment with key development effectiveness principles such as country ownership and transparency. Existing experience suggests that there would be benefit for all stakeholders to further consider how blending modalities can support and be aligned with relevant principles in the Addis Agenda and the overarching principles of development effectiveness.

Blended finance landscape

Blended finance uses financial instruments such as grants, loans, guarantees and equity to improve the risk-return profile of investments, to mobilize additional commercial financing that would not have been available without public intervention. While there is no universally agreed definition of blended finance, in its broadest sense it includes all development finance that mobilizes commercial finance for sustainable development.  Based on this broad interpretation, the use of such instruments has been growing. Seventeen out of 23 DAC members responding to a recent survey reported that they are engaging in blended finance, often through intermediaries such as development finance institutions and development banks.  While there is no comprehensive estimate of blended finance globally, a 2016 OECD survey found that between 2012-2015, $81.1 billion was mobilized from the private sector by five instruments surveyed (guarantees, syndicated loans, credit lines, direct investments in companies, and shares in collective investment vehicles), with the amounts mobilized increasing over the period. 

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Donors often use pooled vehicles such as facilities and funds to channel their resources towards blended finance. Such vehicles either pool public and private resources at the capital structure level or provide finance to intermediaries to do so. Between 2000 and 2016, 167 new blended finance facilities, with approximately $31 billion in combined commitments, and 189 blended finance funds were launched.  The European Union, which is the single largest contributor to blended finance facilities, has made the European Fund for Sustainable Development a key pillar of its External Investment Plan to address investment gaps in the European Neighbourhood and Africa, with a budget of €2.6 billion and a guarantee of €1.5 billion.

In line with blended finance’s focus on mobilizing commercial or private finance, blending facilities and funds tend to target SDG investment areas where the business case is clearer—such as energy, growth, infrastructure and climate action, and, to a lesser extent, water and sanitation—as well as cross-cutting priorities such as poverty and gender. Blending currently plays a much smaller role in areas such as ecosystems, reflecting the strong public good character of these investments, where public finance is often the most effective financing option.

Perhaps most importantly, blended finance so far largely eschews the poorest countries. The OECD survey found that only 7 per cent of private finance was mobilized for projects in LDCs, mirroring the similarly skewed distribution of MDB mobilization of private finance. The United Nations Capital Development Fund is currently carrying out analytical work to understand challenges and risks in applying blended finance in LDCs. The newly established IDA18 Private Sector Window, which has a clear target of mobilizing private investment to the poorest IDA countries, is another such step.



Effectiveness of blended finance

A number of lessons can be learned from existing experiences with blended finance instruments. For blended finance to achieve its stated goals, it should achieve both financial additionality (mobilize additional commercial financing) and development additionality (ensure that the investment has development impact and is aligned with the SDGs). Development additionality in particular has proven to be a source of concern in existing projects, due to limited availability of reliable evidence on the sustainable development impact of blending. Many blending projects have not monitored development impacts, and evaluations are not routinely made publicly available.  Those that are public have shown mixed results. An evaluation of blending facilities found that blending projects have often been of high quality and have mobilized additional finance, but that they generally had a modest impact on poverty. 


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Donor Governments should work towards ensuring that blended finance facilities they support enhance the quality of their monitoring, evaluation and, ultimately, sustainable development impact.

This is particularly important for intermediary institutions. Intermediaries are important conduits and facilitators for blended finance, due to their capacity to manage financial risks and their experience in engaging with the private sector. On the other hand, they are often less well equipped to monitor and evaluate sustainable development impact. Their monitoring and evaluation systems need to be strengthened to ensure effective use of blending instruments.

Sustainable and long-lasting development impact also relies on national ownership. Projects that are aligned with national priorities and plans and that involve local and national actors are much more likely to have long-lasting impacts. One lesson from recent experiences is that commitment and leadership by national Governments is critical to achieving scale—to moving from individual projects towards building an enabling environment, regulatory frameworks and pipelines of suitable projects. Local ownership also entails working towards local value retention, ensuring that linkages are built with local suppliers or downstream users. Currently, recipient-country involvement in decision-making is relatively low in blended finance, due to the project form of many blending operations. However, blended finance providers can engage with host countries at the strategic level, to ensure that priorities in their project portfolios align with national priorities, and with a view to strengthening host-country capacities and enabling environments. They can also work with host Governments to identify and exploit opportunities to work with local actors.

Recipient countries on the other hand should select projects carefully and diligently assess the structure and use of blending instruments, to ensure that projects share risks and rewards fairly. This includes putting in place sound fiscal risk management frameworks that account for contingent liabilities and clear accountability mechanisms. Additional data and transparency are also needed, particularly as the use of such instruments grows, and efforts are underway. To provide for reliable and comparable data on blending, the OECD/DAC statistical system has started collecting data on financing mobilized from private sector instruments in 2017. The forthcoming OECD Global Outlook on Financing for Development will also examine catalytic uses of ODA through its statistical

Addis principles on blended finance and PPPS

Relevant actors have also worked on defining principles for blending. In the Addis Agenda, Member States had agreed on a set of overarching principles for blended finance and public-private partnerships. 

  • Careful consideration given to the structure and use of blended finance instruments (para. 48)
  • Sharing risks and reward fairly (para. 48)
  • Meeting social and environmental standards (para. 48)
  • Alignment with sustainable development, to ensure sustainable, accessible, affordable and resilient quality infrastructure (para. 48)
  • Ensuring clear accountability mechanisms (para 48)
  • Ensuring transparency, including in public procurement frameworks and contracts (paras. 30, 25 and 26)
  • Ensuring participation, particularly of local communities in decisions affecting their communities (para. 34)
  • Ensuring effective management, accounting, and budgeting for contingent liabilities, and debt sustainability (paras. 95 and 48)
  • Alignment with national priorities and relevant principles of effective development cooperation (para. 58)

The OECD/DAC Blended Finance principles,  approved at the DAC High-level Meeting held in Paris from 30 to 31 October 2017, are targeted at the policy level and aim to ensure that blended finance is deployed in the most effective way. The G20 released “Principles for the MDBs’ strategy for crowding-in Private Sector Finance for growth and sustainable development,” which provide a common framework among MDBs to increase levels of private investment in support of their development objectives.

A working group of development finance institutions and multilateral development banks in 2017 updated principles and guidance for providing blended concessional finance.  There is a case for the international community to explore how these various sets of principles developed by “implementers” relate to respective commitments made in the Addis Agenda and the overarching principles of development effectiveness, and to discuss this relationship in a universal forum such as the FfD Forum or the Development Cooperation Forum (DCF).



Total official support for sustainable development

A new statistical measure, total official support for sustainable development (TOSSD), is being developed with a view to measuring a broader range of resources deployed to finance, including “all officially-supported resource flows to promote sustainable development in developing countries, to support development enablers and to address global challenges at regional or global levels”.

In response to the call of the Addis Ababa Action Agenda to “hold open, inclusive and transparent discussions” on TOSSD, the OECD organized multi-stakeholder consultations in 2016 and 2017, and established an international TOSSD Task Force composed of a diverse set of stakeholders in the second quarter of 2017 to further clarify its scope and statistical features.


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The TOSSD Task Force has concluded its discussions on a number of key features of the TOSSD framework. The framework is comprised of two pillars: cross-border flows and development enablers and global challenges. The cross-border flow pillar will aim to capture all resources provided by government and official agencies, including state-owned enterprises and possibly other enterprises under significant government influence, to ODA recipients or countries that opt to be TOSSD recipients. Private resources mobilized by official development interventions will also be included, but presented separately. The Task Force has also discussed a number of “satellite indicators” to reflect flows that are important for development, but are not officially supported (e.g., remittances).

The TOSSD Task Force has advanced work in the first pillar, while some issues remain to be clarified. For example, two methods have been suggested for measuring in-kind technical cooperation (purchasing power parities or a standard salary table). Work on the development enablers and global challenges pillar aims to start in the second quarter of 2018. Governance questions will be subject to further discussion.