Even though the world is becoming richer and more globalised, developing countries in particular are increasingly facing global challenges that are setting a new context for development and growth. The risks that are likely to have the greatest impact in the coming decade are climate change, fiscal crises, economic disparity, global governance failures, storms and cyclones, geopolitical conflict, corruption, flooding and water security. Recent discussions have also focused on commodity price volatility.

Here, we divide global challenges into three categories:

1. economic – maintaining investment during global economic and financial crises;
2. environmental – facilitating the transition towards a low-carbon development path; and
3. other – providing global health and security, especially in post-conflict countries, and addressing volatility and equity concerns.

We examine the role of development finance institutions (DFIs) in addressing such challenges, amongst a range of other policy responses. We distinguish among four different types of policy response to tackle these global challenges:

1. global rules;
2. developed country policies;
3. aid and public sector DFIs; and
4. DFIs supporting the private sector.

Isabella Massa and Dirk Willem te Velde