On Tuesday, March 22nd, Minister of Finance Bill Morneau delivered the Government’s first Federal Budget of the 42nd Parliament in which it committed to modestly increase short term funding to the International Assistance Envelope by $256 million over the next two years,...
An intro to this week's Financing for Development Conference
Below is the first in a series of guest blog posts* from a diverse range of stakeholders and influencers across the global development space. The following has been penned by Aniket Bhushan** a version of which was initially published on the Canadian International Development Platform's website.
What is the Financing for Development or “FfD” agenda?
Global goals and targets, such as the Millennium Development Goals (MDGs) only go so far without a supportive and realistic financing framework. The Financing for Development (FfD) agenda is a menu of broad areas where financial resources are to be mobilized to finance the achievement of ambitious global targets.
The first FfD conference took place in Monterrey, Mexico in 2002, and led to the adoption of the so called ‘Monterrey Consensus‘. The second FfD conference which followed up on the Monterrey Consensus took place in Doha, Qatar in 2008.
The third International Conference on Financing for Development will be held in Addis Ababa, Ethiopia, from 13 to 16 July 2015.
What is different, what is the same?
If the original MDGs were broad, the emerging post-2015 Sustainable Development Goals (SDGs) are far wider.
The wider agenda at least in part reflects a more inclusive preparatory process. But it also risks coming across as lacking focus and being so unwieldy that it is unmarketable. As the Economist put it, the 169 commandments of the proposed SDGs would be “worse than useless” if adopted, as they distract attention from the one ambitious goal that is actually realistic – ending extreme poverty at the $1.25 a day level by 2030.
By most accounts the FfD bill is huge! The UN estimates infrastructure financing needs alone at $5 to $7 trillion annually. Other estimates place the SDGs cost at $2 to $3 trillion annually over 15 years.
The first FfD agenda (Monterrey Consensus) which accompanied the MDGs contained 6 leading actions: mobilizing domestic financial resources; mobilizing foreign direct investment and private flows; harnessing trade; increasing financial and technical cooperation (i.e. foreign aid); addressing external debt; and systemic issues (consistency and coherence in the international monetary, financial and trade system).
Perhaps unsurprisingly, the emerging FfD agenda that will support the post-2015 SDGs has also widened. The 6 leading actions above are largely retained with a few inflections that make them sound more contemporary, but are complemented by two new areas – technology, innovation and capacity building; and calls for more data, monitoring and follow-up – taking the total to 8.
The more important change is in the global finance and development finance landscape.
The global financial and economic system went through perhaps its biggest shock during the 2008 financial crisis. The direct and indirect effects of the same (e.g. through the unwinding of unprecedented monetary responses in one part of the world such as the US, and further easing in another such as Europe and Japan) are still with us today and could be for years to come. One need not look any further than the ongoing crisis in Greece to see that if anything the financial crisis has made political and economic perspective diverge even further.
The other major change is the emergence of China in global finance. The sheer size of China’s globally investable reserves seeking new opportunities and new partnerships make it a game changer. Chinese lending to Africa and Latin America is widely believed to far exceed that of the World Bank.
In a more direct challenge to the Bretton Woods based development finance system – comprising the International Monetary Fund, World Bank, and the regional development banks – which has been resistant to change, frustrating emerging economies, China started the process to establish the new Asian Infrastructure Investment Bank (AIIB) in 2014. Similarly the BRICS group of countries (Brazil, Russia, India, China and South Africa) have followed up their nascent multilateral venture with the recently launched New Development Bank (NDB). These forays may be small – both AIID and NDB start with capitalization around $50 billion and plans to grow at least to $100 billion; while the World Bank alone has a capital base upwards of $220 billion. But it is safe to say emerging players would rather take small steps towards a multilateral order that accommodates their interests commensurate with their global economic standing, rather than wait for changes in sclerotic development finance institutions.
In addition, some of the most important players in the development financing landscape either did not exist or were insignificant at the time of Monterrey. These include the Global Fund to Fight AIDS, Tuberculosis and Malaria, Gavi and private foundations.
The pattern of financial flows to developing regions has also changed dramatically. Foreign aid flows have grown at an unprecedented rate, reaching their highest ever level just prior to the financial crisis. But despite this, other flows such as foreign direct investment and remittances, have grown even faster, and dwarf foreign aid in many developing country contexts, with the stark exception of least developed, low income and fragile states.
What has not changed, perhaps, is the inability of broad global policy processes such as the SDGs and the accompanying emerging FfD agenda, to keep up with, let alone anticipate, big trends in the global finance and development finance landscape.
State of play
Both post 2015 and FfD agendas are at an advanced stage, with very little time and space remaining to influence the process and outcome. As is typical with UN negotiations however, dotting the “i’s” and crossing the “t’s” could well go to the eleventh hour, if not beyond.
As far as the Sustainable Development Goals (SDGs) are concerned, goal areas and targets are being imported verbatim from the Open Working Group (OWG) proposal, which was a result of extensive intergovernmental consultations. Which means the unwieldy 17 goals and 169 targets are very likely to form the basis of the eventual framework, or (worse) adapted as they stand. The G77 developing countries in particular are highly resistant to change in the OWG package. Even though in several areas the framework is inconsistent with sector specific targets and plans (e.g. in the education sector). Resistance (oddly) also extends to further specifying placeholder targets (x, y % improvements etc. which the OWG document is replete with).
Changes are however expected to the preamble.
Means of Implementation
Given the broad nature of the SDGs perhaps more clarity and realism could be expected from the Means of Implementation (MOI), which include financing for development (FFD) and implementation (and follow-up) work-plans.
MOI discussions are fast becoming a parallel process, with lack of clarity on how they will feed into and integrate with the SDGs.
Follow up at national, regional levels have become even more important (given the agenda is so broad). It is expected that a high level forum at UNESCO will decide on follow up processes, including regional and national (country based) plans, monitoring and assessments. This represents a huge area of work – setting the agenda is relatively easier than monitoring progress along the same.
Mismatches between the SDGs and FfD
Developing countries increasingly want to frame the discussion as one about “North – South” flows and largely official flows (ODA). Whereas developed countries have pushed all along for a “holistic” and “universal” agenda. For e.g. developed countries have been quick to point out just how much the financing for development landscape has changed. ODA flows are shrinking as a share of overall flows between the ‘North’ and the ‘South’ as foreign direct investment, remittances, financing from non-traditional development partners (such as philanthropic and private foundations) increasingly make up a larger share.
It is up to interpretation whether these processes are a “debate about everything” i.e. holistic universal agendas, or primarily North – South transfers. However, advocates of a more universal/holistic approach have clearly garnered a greater share of the discourse, especially as reflected in the OWG and other proposals.
While it is easier to frame the SDGs in universal/holistic terms (i.e. frame as a global agenda that applies to all countries), it is far more complicated to apply those same principles to the practical means of implementation discussions (i.e. articulating who is responsible for what).
Canada and Financing for Development (FFD)
Canada has already publicly shared its take on post 2015 priorities. The core priorities for Canada (unsurprisingly) remain: maternal and new born child health (MNCH), job creation and sustainable economic growth, and accountability.
Furthermore, no additional aid money is expected from Canada, and no change to targets (or lack thereof; i.e. unlike other donors such as the UK, Canada has never explicitly set an ODA/GNI target and that is not expected to change).
Moreover, in its priority areas at least such as MNCH, Canada can claim that (a) it is already exceeding self imposed benchmarks, and (b) has already set further commitments (such as the extension of MNCH from 2015 to 2020).
Taxation and Domestic Revenue Mobilization
One area where there seems to be more consensus and agreement in FFD is domestic resource mobilization. This is perhaps no surprise as it is an area that has seen a lot of work since Monterrey and Doha (see our past projects for instance). It is also somewhat intuitive. Developing countries need to collect more in the form of taxes and non-tax revenues from their own citizens and businesses and this will reduce reliance on aid. Donors spend relatively little on aid to taxation capacity, have started to realize that even small amounts of aid in this area can have a big payoff, and in an era of relative aid scarcity (both in terms of donor fiscal space, and good ideas and modalities to spend money on) aid to taxation is attractive.
It is expected that the “Addis Tax Initiative”, which will enhance tax related aid and technical cooperation, will be announced at the Addis conference.
Canada is likely to support the initiative (other supporters include Netherlands and the United States). In fact the US has made domestic resource mobilization one of its two key priorities for Addis (the other being open data).
Expanded use of aid to taxation capacity and policy is very much in keeping with our own research and recommendations on taxation and foreign aid (most recently published by UNRISD as part of the Road to Addis series).
While goals and targets in the area of taxation have long been discussed, no explicit goal (i.e. tax/GDP ratio) is expected to feature in the final FfD document. Tax cooperation issues more generally (such as related to avoidance, transfer pricing, mis-invoicing, capital flight and tax havens) are bogged down in institutional issues surrounding where these should be deliberated, whether in a UN intergovernmental body (as the G77 developing countries are pushing for) or amongst tax experts (as advanced countries argue).
Stay tuned for more updates and news from Addis following the Ffd conference.
*The views expressed in this blogpost, and all other guest blogposts, do not necessarily reflect that of Engineers Without Borders Canada.
**Aniket Bhushan is Adjunct Research Professor at the Norman Paterson School of International Affairs (Carleton University, Ottawa). Prior to this he was Senior Research at the North-South Institute, a leading Canadian international development think-tank. Aniket leads the Canadian International Development Platform, an initiative that leverages open data and big data to analyze, visualize and discuss Canada’s engagement with the developing world. His work sits at the intersection of data, technology and international development. This includes extensive knowledge and experience in areas including: open data standards, social media big data, data management, visualization, open source software development, and their application to international development data. Aniket holds an MA in Political Science from Carleton University.