Space to run? Capital markets as development finance

The private sector is increasingly being used to finance economic development in poorer countries - partly by the countries themselves, but especially by foreign public donors and development banks.

Even if this is often not new, for example in the form of government bonds, privatization or financial guarantees, it has recently reached a new dimension. Public development banks are now also using the most complex financial products on the capital market. They are even used to improve disaster prevention and disease control.

Not enough attention is paid to the fact that government bonds can lead to debt crises and that derivatives last led to a major financial crisis in 2008. The capital market-based approaches to disaster prevention have largely failed to date. There are insufficient guidelines for financial transactions to ensure their sustainability.

Minimum standards are therefore needed for all financial players and sustainability requirements for all financial products. New approaches by the European Union in this direction are positive, but not binding enough. Development banks should also steer clear of risky financial transactions and problematic investments.

Instead of relying more and more on capital markets, the financing of development via public funds and institutions or via local cooperatives should be promoted and used to a greater extent again.