In 2023, the combined GDP of the LDCs was 10 per cent below the level it would have reached had the pre-pandemic (2010-2019) growth trend been sustained. As a result, at least an additional 15 million people in LDCs are now living in extreme poverty, with their governments severely constrained in their ability to sustain adequate investments in public services or invest in advancing development progress. The Report highlights the urgent need for concerted action to restore fiscal space in LDCs through the lasting resolution of the debt crisis, reform of the international financial architecture, and the mobilization of climate finance to enable needed investments towards low-carbon transition and green structural transformation. Without which, the SDGs and sustainable development cannot be realised. The Report advances several recommendations aimed at advancing the reform of global development finance, which in its current state, is deficient in terms of its quantity, quality, structure, cost and ease of accessibility. The Report also contains a detailed analysis of the possible role of central banks in shaping the financing of sustainable development and green structural transformation in LDCs. While the contribution of central banks to dealing with climate change has been discussed in developed countries, this is the first time this type of analysis is done in the context of the LDCs.

This publication takes stock of 50 years of development experience since the establishment of the LDC category in 1971. Most LDCs growth has been erratic, and they have not closed the income gap with other developing countries. This stems largely from the inefficacy of domestic and international policies in addressing structural impediments to structural transformation, i.e. low level of productive capacities, excessive export orientation, limited policy space, weak state capacity, technological backwardness, limited entrepreneurial development and insufficient investment in human capital formation. For the coming decade, the report proposes an overhaul of development policies and strategies in favour of initiatives that are centred on the development of productive capacities and led by a developmental state, which successfully aligns foreign agents’ dealings with LDCs to national development goals and priorities.

Least developed countries (LDCs) are among the world’s countries most dependent on foreign aid for the financing of their development. While this is a traditional feature of their development trajectory, it has become even more challenging in recent years for two reasons. First, the Sustainable Development Goals put requirements for additional investment and spending (especially for structural transformation) at a much higher level, and LDCs need to mobilize and manage the corresponding financing. Second, the international aid architecture has been transformed by the emergence of a large array of instruments and actors, including South-South Cooperation providers, private sector, philanthropic organizations and non-governmental organizations. This complex and changing landscape presents new challenges for the constrained policymaking capacities of LDC states in their quest for structural transformation. It requires LDC and their development partners to agree a new aid effectiveness agenda and transform the terms of their development partnership.