Leveraging aid for trade to mobilize climate finance in the least developed countries

Abstract

The LDCs, which are not only highly vulnerable and least prepared to face climate-related challenges but also resource-strapped, can leverage AFT to mobilize climate finance. This, however, requires better appreciation of the need to enhance coordination, build capacity and achieve synergies between two important sources of development finance. Since this is an under researched area, this paper has made the attempt to fill the void by exploring, with the help of examples and where possible, various possibilities that exist. While indirect support for feasibility studies and project preparation can contribute to the foundational work in leveraging climate finance, direct support such as co-financing, developing proof of concept or de-risking projects to attract private investment, including through blended financing modality, is important to unlock the financing potential. At the same time, there is a need to maintain the right balance between mitigation and adaption when it comes to climate finance. One major limitation of the paper is that, in the interest of brevity, it narrowly focuses on select modalities and instruments such as development finance and private investment.