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FINANCING FOR DEVELOPMENT

 

 

We the peoples are the first words of the UN Charter, stating that the post-war development agenda is above all serving the peoples of the world. After the appalling atrocities of the Second World War the international agenda was based on the self-reinforcing effects of three pillars peace, human rights and development. Today it still seeks universal peace in larger freedom but the MDGs made the agenda measurable and focused on developmental goals for the first time guiding and systematizing development policies and national plans worldwide. After the joint debate on the beyond 2015 agenda that evaluated the impact of MDGs, we now live under the UN 169 commandments, mostly know by the Sustainable Development Goals. The new 17 SDGs (and 169 targets) of the development agenda has evolved to be not only a plan of action for people, but also planet and prosperity. It recognizes that eradicating poverty in all its forms and dimensions including extreme poverty is the greatest global challenge and indispensable requirement for sustainable development. It is a universal agenda based on the idea of inclusion where no one will be left behind. But it is more ambitious than ever because it adds simultaneously the mission to heal and secure our planet.

I have been actively following the beyond 2015 agenda through consultancies, forums and conferences and now the ongoing practical challenge of the SDGs is how do we support the implementation of the 2030 Agenda for Sustainable Development or in other words how do we finance sustainable development. During my networking trip to the World Bank in DC I had the opportunity to participate on a Financing for Development course and decided to share the main conclusions.

 

One of the major contributions to this issue has been the Addis Ababa Action Agenda (AAAA) adopted in July 2015 at the Third International Conference on Financing for Development that provided a comprehensive and integrated framework for financing sustainable development and support the implementation of the 2030 Agenda for Sustainable Development comprising several hundred concrete actions that member states pledged to undertake.

First the AAAA intends to be a response to the current context of the aid system: the SDGs have an ambitious magnitude that however exceeds the financing available. Official Development Aid ODA alone will not allow us to achieve these goals. Looking at numbers ODA comprises 135 billion USD annually; the WBG and 5 regional MDBs together committed 400 billion USD for the next 3 years. With the budget constraints triggered by the 2008 crisis the annual demand for infrastructure alone will be quite larger than all aid available through traditional channels. So the challenge is to find innovative sources of funding and unlock investment opportunities.

So for this end, the main outcomes of Addis Ababa are: 1) it recognizes the critical role of the private sector in achieving the SDGs that may find innovative solution and apply new approaches to finance. 2) The focus is now not the amount of ODA, but its use in a catalytic way crowding in additional sources of finance. 3) The role of MDBs has to be bold and innovative with a crucial role on mediating Public Private Partnerships and Solutions in order to mobilize finance. 4) It urges on the unprecedented need of cooperation and partnerships of MDBs with UN, Academic Organizations and Think Tanks, as no organization alone has the resources or the capacity to tackle these large challenges.

It is also the right time for new types of capital mobilization due to certain specific financing conditions. There is a combination of surplus of savings and low private investment in developed countries along with challenges in long term financing with low or negative yields. This absence of meaningful investment opportunities has created low confidence and depressed economic activity and interest rates. In contrast potentially high-productivity investment opportunities in developing countries with young populations are craving for sufficient financing to be channeled to developing countries. So there is a great opportunity of bridging this gap by unlocking these opportunities in developing countries. It could generate welfare gains to both advanced and developing nations. This is a win-win solution that transfers surplus savings in advanced economies with an aging population to long-term investment opportunities in developing countries in need. So it is possible to create well-structured infrastructure projects that can help reduce the current imbalance between savings and investment.

Additionally the 2030 Agenda for Sustainable Development is also an incentive to shift international investments towards climate change financing. The lack of long-term capital is pushing countries and cities towards dirty solutions (based in coal and gas) that require less upfront investment. Thus as it becomes urgent to reduce carbon relying investments there are opportunities to shift idle long-term private savings in advanced economies to green technologies in developing countries to reduce carbon footprint. It has the potential to create new meaningful income streams to global investors enhancing macroeconomic stability and supporting climate resilience. The role of MDBs is to bridge this gap and promote coordination with MDBs, governments and private sector to match the supply and demand of new innovative financing frameworks unlocking investment opportunities.

IDA has also complied to the AAAA agenda and has contributed to leverage and mobilize capital. It is the oldest and one of the largest sources of development assistance and finance for the world`s 75 poorest countries. The 18th replenishment IDA based on a coalition of over 60 donors agreed to the most radical transformation in IDA`s 56 years. For the first time IDA will leverage its equity by blending donor contributions with funds raised through debt markets. By blending concessional resources with capital markets debt IDA has expanded its fight against poverty to a record 75  billion USD. It offers expectional value for money with every one dollar generating 3 USD in spending. This leveraging effect is one of the most concrete and significant actions today on the AAAA that will be critical to achieve the SDGs.

 

 

There are also simultaneous strategic areas that should accompany these efforts to deepen its effects. Domestic mobilization through revenue mobilization and public expenditure efficiency, the improvement of business environment, promotion of transparency and control over illicit financial flows are all contributing factors to promote financing for development.

This is an exciting time for development that will require human ingenuity and creativity. Let`s hope the international community will manage to fulfil its mission and serve the Peoples of the world, our most important resource.

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