Paying for Zero: Global Development Finance and the Post-2015 Agenda

The World Economic Forum’s Global Agenda Council on Poverty and Sustainable Development, of which I am a member, has published a new paper on paying for the ambitious goals we hope will be agreed under the post-2015 framework. The full paper can be accessed here. The Conclusions are pasted in below. And the Members of the Council, in whose name the paper is issued, are:

Hiroto Arakawa, Sasja Beslik, Martin Dahinden, Michael Elliott, Helene Gayle, Thierry Geiger, Torgny Holmgren, Charles Kenny, Betty Maina, Simon Maxwell, John W McArthur, Mthuli Ncube, Ory Okolloh, Zainab Salbi, Mark Suzman, Virgilio Viana, and Jasmine Whitbread

Financing a transformational post-2015 sustainable development agenda will require policymakers and publics to amplify the key components of the current system that work well while addressing key constraints and exploiting new opportunities to match the evolving mix of needs and actors around the world. We highlight the following key conclusions to that end.

A high ambition for sustainable development finance, shared by all

1. Ambitious goals in the post-2015 sustainable development framework – addressing the reduction of poverty and inequality in all its forms while tackling the interwoven imperatives of global environmental sustainability – will require accompanying ambition and innovation in development finance.

2. Building on the 2002 Monterrey Consensus, primary responsibility for financing poverty reduction will rest with developing countries themselves. In addition, however, vital contributions will be made by international public and private finance, contributing both to national development and the provision of global public goods.

3. Development finance will increasingly be integrated across types. Flows from different sources will need to complement each other, with public finance leveraging additional private sector finance, and with flows from all sources adhering to common standards of measurement and reporting regarding transactions, beneficiaries, and impacts. Transparency and accountability towards results must be a centerpiece of post-2015 finance.

On Official Development Assistance (ODA)

4. The goal of ending extreme poverty by 2030 should not be confused with ending ODAOverseas Development Assistance by 2030. The need for ODAOverseas Development Assistance goes well beyond tackling PPP$ 1.25/day poverty, for example in public health or the provision of global public goods, in addition to other sustainable development priorities. Even a fully successful extreme poverty agenda will likely require targeted support beyond 2030; and ODAOverseas Development Assistance will also be needed to help lift poor people above higher thresholds, such as PPP$ 2/day.

5. The principle of common but differentiated responsibilities means that high-income countries should follow-through on the commitments they have promised, but also that middle-income countries (MICs) and emerging economies should be encouraged to make contributions to global poverty reduction and the provision of global public goods.

6. ODAOverseas Development Assistance will need to prioritize the poorest countries, and programs within those countries which target the poorest people and which most effectively reduce poverty.

7. The vast majority of the needs of MICs will be financed through domestic resource mobilization and access to international markets. However, many MICs, especially those which are fragile states, will merit some continued aid, including for humanitarian purposes and technical cooperation for institutional strengthening.

8. Graduation from aid needs very careful consideration. It will be necessary to ensure that emerging lower-middle-income countries (LMICs), especially those with large numbers of extreme poor, do not face a stark drop-off in access to external finance. This might require a rethinking of thresholds and bolstering of concessional finance.

9. There will be pressure to redefine ODAOverseas Development Assistance so as to include a wider range of peace-keeping activities. In principle, this should not be encouraged. Similarly, it is not acceptable for climate budgets to ‘cannibalize’ other components of aid budgets.

10. Improving the capacity of developing countries to mobilize their own resources should be an important element of ODA. In many cases, and without imposing unwanted conditionalities, it will be necessary to invest significantly in broadening the tax base, raising tax revenues, and combating fraud. International coordination should also be strengthened to avoid situations where tax policies in developed countries undermine developing countries’ capacity for domestic resource mobilization, for example in the areas of illicit financial flows.

11. Strong partnerships will also be required, consistent with the core principles of aid effectiveness (such as those outlined in the Paris, Accra, and Busan outcome documents) between traditional and new donors, including emerging official donors and the large number of impact investors and philanthropic organizations.

On private sector investments and responsibility

12. The private sector will play a major part in providing development finance post-2015, often partnering with governments and civil society. It is also important to recognize the non-financial private sector contributions that can be extremely valuable, including core business, shared value, and ‘do no harm’ contributions. It is essential that responsible business practices be promoted among national and international companies. Mandatory reporting is one way to promote high standards and accountability.

13. Governments will need to improve the policy and regulatory environment for enterprise creation and growth and for promoting investments that create jobs.

14. Greatly enhanced instruments are needed to accompany and incentivize the amount and nature of private finance that will be required to achieve a post-2015 sustainable development agenda. The biggest ticket investments are in infrastructure, energy, and agriculture (including water), all of which will typically require some degree of ‘blending,’ whether in the form of risk guarantees, advantageous long-term borrowing instruments, or other appropriate structures.

15. Innovative tools can also play an important role in leveraging and expanding available public sector resources, as has been the case with the Advanced Market Commitments for vaccines and the International Finance Facility for Immunizations. The growing importance and sustainability focus of large institutional investors, including sovereign wealth funds, can provide critical opportunities for innovation.

On the links to climate finance

16. The global challenge of climate financing extends far beyond traditional ODA. In addition to the structural transformations required to achieve a low-carbon global economy, there will be need for specific resources, public and private, to address climate change mitigation and adaptation in middle-income and low-income countries.

17. Many of the private and public infrastructure investments for sustainable development will be the same ones that determine the future of the world’s climate change mitigation and adaptation efforts. Despite the political divisions, the practicalities of financing poverty eradication, sustainable development and climate change mitigation and adaptation are deeply interwoven. Promoting financing that brings multi-dimensional benefits is key to addressing these challenges.