Financing the Post-2015 Agenda

If progressive governments want an ambitious development agenda, they need to start work right away on the policy choreography of the post-2015 discussions, and financing development is a crucial aspect of that choreography.

Overall, governments and other actors need to achieve five key things on finance:

1. Start from the recognition that the context for financing for development has changed dramatically since the MDGs were agreed. In particular, while many low income countries remain relatively aid-dependent, many middle income countries now have access to a much more diverse range of sources of finance, including foreign direct investment, portfolio equity, commercial debt, remittances, and domestic resource mobilization.

2. Defuse the potential for a damaging fight between the development and climate change communities – something that could easily emerge if they perceive themselves to be fighting each other for the same resources. Instead, the post-2015 agenda needs to show that the two communities have strongly aligned interests, and that a much more integrated approach to financing is both desirable and feasible.

3. Find ways of building much greater coherence between public and private flows of money. This will in part depend on clearer understanding of where business cases for private sector investment do and don’t exist – and what governments can do to change this calculus.

4. Build on the real successes of the MDG period in increasing mobilization of domestic resources – in particular by capitalizing on the moment of political opportunity that now exists for governments to make faster progress on tackling international tax avoidance and reducing illicit flows.

5. Bring all of these elements together in a coherent whole – both at country level and (crucially) at global level. The prospect of a major international conference on financing for development, designed to update the Monterrey Consensus for the post-2015 period offers a key opportunity to do this.

So how can they make progress on this challenging set of requirements? Here are five concrete proposals.

1. More international public finance for least developed countries. Whether or not they meet the 0.7% target as part of the post-2015 agenda, all OECD donors should at least meet the long-standing target of giving 0.15-0.20% of their gross national income to least developed countries. This would dramatically scale up resources for the countries that need it most, and that have the fewest financing options.

2. Clearer guidelines on international public finance in middle income countries. Calls to ‘graduate’ all middle income countries from all grant (as opposed to loan) assistance are excessive – but there does need to be a clearer rationale for when to invest aid or climate finance in MICs, especially given that they are now able to access so many other sources.

3. More international public finance on global public goods. The world seriously under-invests in global public goods like agricultural R&D, vaccine production,technology cooperation, peacekeeping, rainforest preservation, and climate mitigation. Aid donors should commit to spend a bigger proportion of aid on GPGs, and they need to get more serious about innovative financing.

4. Increasing capital markets’ role in financing sustainable development. There is no global shortage of capital; however, recent years have seen capital too often flow to where it is part of the problem (like subprime mortgages) rather than towards financing sustainable development. A detailed analysis is now needed to assess not only how much capital is needed to meet post-2015 and climate goals, but also how financial institutions could provide it.

5. Further progress on tackling tax avoidance and illicit flows. The tax and illicit flows agenda has unexpectedly acquired significant political momentum following the 2013 G8. The challenge now is to build on this progress, in particular by widening participation beyond the G8; the prize, meanwhile, is the potential for major increases in developing countries’ capacity to mobilize resources domestically, building on progress in this area during the MDG era. In practice, this means bringing as many developing countries as possible into the exchange of information standard currently being developed by the OECD; making corporate tax reporting public, rather than only available to tax authorities; and further progress on transparency of who really owns companies.

More specifics on how to make these ideas work, can be found in Delivering the Post-2015 Development Agenda: Options for a New Global Partnership.

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Dec 02, 2013
Alex Evans
Global Development