Graphic credit: OECD - Photo: 2018

Decline in External Finance to Developing Countries Endanger Global Goals

By Krishan Dutta

PARIS (IDN) – “Donor countries have not followed through on their 2015 promise to expand development finance flows,” said OECD Development Co-operation Director Jorge Moreira da Silva, launching a landmark report at the Paris Peace Forum.

He was commenting on an important finding of the report that external finance to poor countries is declining, despite a promise by the international community three years ago to increase development finance flows, in particular through private investment.

The Global Outlook on Financing for Sustainable Development 2019 shows there was a 12% drop in external finance to developing countries from 2013 to 2016, a decline that casts serious doubt on the world’s ability to achieve the 2030 Sustainable Development Goals.

The Outlook makes recommendations for reforms in three areas: better measurement of the quantity and quality of finance for the SDGs; better incentives to direct the finance already available globally to the SDGs; and better co-ordination of actors to connect the supply and demand for financing for sustainable development in developing countries.

Of the external financing data that is available beyond 2016, foreign direct investment to developing countries fell by 30% over 2016-2017 and project finance was down 30% in the first quarter of 2018, the report published on November 12 shows.

The report notes that the decline comes as the need for financing for sustainable development is growing due to population growth, conflict and environmental degradation. The international community pledged at a 2015 United Nations conference in Addis Ababa to ramp up development finance, using private investment as a lever.

Official Development Assistance (ODA) from advanced economies is steady but below target, while other flows such as remittances and philanthropy are increasing but comparatively small, says the report.

Angel Gurría, Secretary-General of the OECD (Organisation for Economic Co-operation and Development), finds that the current Financing for Sustainable Development agenda urgently needs to be re-focussed.

“It must be examined through a broader lens, one where economic co-operation and development are viewed together as strategic partners in overcoming today’s most pressing global challenges,” he emphasizes.

He adds: “We know that failure to achieve the United Nations Sustainable Development Goals (SDGs) will result in unprecedented global impacts – increased natural disasters, epidemics, and large-scale forced migrations that respect no borders.”

In Gurria’s view, the OECD Global Outlook on Financing for Sustainable Development presents a path forward for OECD countries to provide better support in advancing the SDGs.

“Even more importantly, the Outlook demonstrates that OECD countries have a powerful capacity to achieve both inclusive growth at home, and support development gains in countries most in need. This is not a zero-sum game: some of the same policy tools used to achieve inclusive growth in OECD-countries can be harnessed to increase SDG financing,” he adds.

The Outlook makes a powerful argument for development to be considered within domestic policy contexts, bringing Ministers of Finance, Revenue, Trade, Investment and others, to join the fight. It is clear that Financing for Sustainable Development today requires eliminating silos and strengthening policy dialogues.

“Taking just one example from the Outlook, while substantial amounts of cross-border financing ($1.7 trillion) and tax revenues ($4.3 trillion) accrued to developing countries in 2016, little is known about the development impact of the vast bulk of this financing, and what partners can do to maximise it,” notes the OECD Secretary-General.

The report calls for more efforts to mobilise domestic resources, which are at least as important for sustainable development as external flows. For example, tax revenues are by far the biggest financial resource for poor countries. Yet tax revenues in low-income and least-developed countries average just 14% of GDP, less than half the OECD country level of 34% and below the 15% that is the recommended minimum for effective state functioning.

As another example, the transaction cost of migrants sending money home to relatives in developing countries can be as high as 14-20%. The report says that reducing transfer costs by just 1% would increase the value of total remittances (USD 466 billion in 2017) by USD 30 billion – equivalent to nearly a quarter of total ODA flows.

The report calls for an overhaul of the development finance system to improve transparency, set clear international standards and empower recipient countries to make optimal choices. It also calls for more to be done to measure the impact, rather than just the volume, of development finance, and for a more strategic interplay of suppliers, intermediaries and beneficiaries to ensure the maximum impact of each dollar spent.

On domestic resources, the international community should support trade and private sector development, identify and remove barriers to investment, build tax revenue capacities and help developing countries to prevent tax avoidance and evasion. [IDN-InDepthNews – 12 November 2018]

Graphic credit: OECD

IDN is flagship agency of the International Press Syndicate. –

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