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Development Financing On The Ropes? How the Current Pace of Financing is Putting the SDGs at Risk

21 Jun 2017

  • Author(s): Bodo Ellmers

Development Financing On The Ropes? How the Current Pace of Financing is Putting the SDGs at Risk
This blog is published as part of The Transformation Conversation: Blogs on the UNRISD Flagship Report 2016 and Agenda 2030. The series explores what it takes to design and implement innovative eco-social policies that will lead to transformative change and fulfil the potential of the 2030 Agenda for Sustainable Development. Together with the evidence, analysis and case studies in the UNRISD 2016 Flagship Report they are part of the global conversation on implementing of the SDGs. This post also follows on from the UNRISD think piece series The Road to Addis and Beyond discussing financing for development issues as the Addis Ababa Action Agenda was being negotiated in 2015.

The outcome document of the 2017 Financing for Development (FfD) Forum paints an alarming picture: "The current global trajectory will not deliver the goal of eradicating poverty in all its forms and dimensions by 2030". A key reason is the lack of adequate funding for the SDGs in part because global resources are not being transformed into development finance, not least because the financial system has not been reformed. The following four sources of finance, and the respective pillars of the Addis agreement, were on the agenda.

Concessional finance: fighting for a slice of the cake


The access to concessional financing is one issue that divided developing countries and prevented the Group of 77 and China from building a more effective common front on more substantial issues. The total amount of aid grants and subsidized loans is obviously limited, even more so as most donors countries fail to meet the internationally agreed target to provide official development assistance (ODA) to the tune of 0.7 per cent of their GDP. Different developing country groupings have started to fight for the crumbs of the cake—while Least Developed Countries (LDCs) stressed their need for more of it, a number of countries in special situations (such as the Small Island Developing States) and even Middle Income Countries also asserted their desire for access to more concessional finance.

Private finance: few sticks, lots of carrots


Many participants stressed that ODA in any case won’t be sufficient to finance the SDGs, with private finance then often being held aloft as the solution, including in the EU’s new External Investment Plan. But to achieve the SDGs, we need appropriate regulation and accountability mechanisms to make private finance work for development and ensure that private firms and investors meet Goals on preventing environmental damage or respecting human and workers’ rights.

The strategy presented at the FfD Forum may not go far enough. On the carrot side of things, there was a lot: Multilateral Development Banks were encouraged to use their resources in a catalytic way and use all sorts of so-called "risk-sharing instruments", including co-investments, blended finance, public-private partnerships, and guarantees. Governments are supposed to develop "bankable projects" and to attract private investment through a "competitive business and investment climate". It was even "reaffirmed" that ODA should subsidize private investment, an incentive to redistribute money from scarce aid budgets to private investors, hoping to encourage good behaviour.

As for the sticks, there wasn't much to hold the private sector to account against the internationally agreed SDG commitments. Even soft approaches, such as the Addis commitment to work on PPP guidelines were not picked up this year.

Debt sustainability: crisis detected, solutions not forthcoming


A fundamental contradiction not reflected in the conclusions of the Forum is that the hype to boost leverage ratios by mobilizing new debt-creating flows from the private sector takes place in an existing environment of critical and unsustainable debt situations in a rapidly increasing number of countries. The situation becomes ever more difficult to manage as "changes in the composition of debt … pose additional risks to an already fragile global economy". Private debt (including corporate debt) once again played a key role, and with the call from some member states to leverage more of it, the problem becomes the solution and the solution is the problem.

The outcome document says little about solutions, however. CSOs attending the Forum protested that the Addis Ababa commitment to "work towards a global consensus on guidelines for debtor and creditor responsibilities" has still not been initiated at the UN and that work towards building a multilateral debt workout mechanism has been discontinued. In this light, the main progress was that a new study on regional debt relief initiatives for countries affected by climate change was presented at the Forum—which was picked up with appreciation by members of CARICOM.

Domestic resources and taxation: renewed call for a global tax body


The paragraphs of the FfD Forum’s conclusions dealing with domestic public resources devote a lot of space to mapping all the various tiny and fragmented initiatives that were set up following Addis, in order to find a compromise solution to the lack of an intergovernmental body on taxation. The need for a global tax body was stressed by many, including by a large number of CSOs and by Ecuador as representative of the G77 and China—the group that represents the vast majority of UN Member States.

The future of the Forum


On a more positive note, the FfD Forum and its conclusions did devote more attention to cross-cutting issues such as financing and safeguarding social protection and gender equity—but effective action remains a work in progress.

This year's FfD Forum attracted an increasing number of participants and organizers of side-events. It is slowly establishing itself as an inclusive opportunity to discuss issues related to financing for development and global economic governance which would be even more useful if it interacted more directly with the UN system, including the General Assembly. When it comes to the regulation of SDG financing, there is plenty of work left to do, and the opportunity provided by the Annual Financing for Development Forum should not be wasted.

ABOUT THE AUTHOR
Bodo Ellmers is Policy and Advocacy Manager - Debt and Responsible Finance at Eurodad, European Network on Debt and Development

NOTE
This contribution is based on a longer blog posted by the author on the Eurodad website.

Photo: Katrina Tuliao (CC via Commons Wikimedia); icon: Delwar Hossain (CC via the Noun Project).

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This article reflects the views of the author(s) and does not necessarily represent those of the United Nations Research Institute for Social Development.