Blog: A crucial year ahead: development finance and the need for fresh perspectives

This article was originally published by Overseas Development Institute

Negotiations on the UN’s 3rd international conference on financing for development have kicked-off in New York. With just six months to go until the conference in Addis Ababa, there is precious little time to negotiate a document that will outline how the world intends to find the finance for the new Sustainable Development Goals (or SDGs).

A snow storm delayed negotiations for a day. Great for the city’s children; schools were closed and they got to throw snowballs around. For the negotiators, it meant late-night discussions to make up for lost time.

So with the first round of negotiations now over, where are the debates on financing for development? Did New York’s snow storm set the scene for a stormy negotiation process? Or was it more like Lake Placid, with everyone on the same page? Below are a few takeaways plus some perspectives on how we see some of these debates at UNDP.

Some of the usual (predictable) discussions took place, i.e. donors need to meet their commitment to allocate 0.7% of GNI to ODA. Most donors, in turn, reaffirmed their commitment to this target.

But other, more interesting dynamics were also at play. A lot of attention has focused so far on the role of the public versus the private sector in financing sustainable development.

Many developing countries were keen to emphasise that commitments to increase public resources for development (and to use them more effectively) should be at the heart of the Addis Ababa outcome document and demonstrate where governments’ priorities lie. Private finance does not flow easily to many sectors that are critical for sustainable development, and only so much can be done (e.g. through regulatory changes) to push more private finance in this direction.

Many developed countries, however, said the opposite; that a dynamic private sector lays the foundations for sustained economic development and poverty reduction. More efforts are needed, therefore, to improve the domestic investment climate, support financial inclusion and use official resources to ‘catalyse’ private finance.

This led to heated discussions over so-called ‘smart’ aid – a term that can mean just about anything (if my aid-funded project works, is it ‘smart’?). But it’s a term often used by donors to describe aid that leverages other public andprivate financial flows. The basic idea is that by ‘blending’ grant and non-grant resources, aid monies can be ‘stretched’ further and can do more.

Many developed countries want to expand these schemes and stress their experience and expertise in this area. Some developing countries, however, worry that scarce aid resources will support the private sector rather than  fund essential services. Overall, there was a strong push-back from many developing countries on public-private partnerships; to quote South Africa’s negotiator, a sense that there are just ‘too many unknown risks’, especially in poorer countries.

A major sticking point continues to be how to count resources for climate-change adaptation and mitigation. Most developing countries insist that climate finance must be new and additional to aid, so must be counted separately. Some countries supported the UN Secretary-General’s recent proposal for a technical committee to set out next steps. Developed countries tended to push back; many resources integrate social, environmental and economic dimensions simultaneously, they say. And this is the smart way to do business.

The discussions on universality were an eye-opener. What exactly do we mean when we say the SDGs are universal? It’s generally understood to mean that the SDGs apply to all countries; so all countries have to make efforts to reduce domestic inequality, ensure gender equality, protect the environment and tackle climate change. But several developed countries stress that universality means that all countries must contribute to the financing of the new agenda; it’s about fair burden-sharing. The clear implication is that middle-income countries should put more cash on the table, and improve the quality of their interventions. Some NGOs even suggested a concrete aid target for the BRICS (0.3% of GNI). Not surprisingly, most developing nations stressed that South-South Cooperation is strictly complementary to developed-country aid.

Everyone seemed happy to maintain the structure of the 2002 Monterrey Consensus on Financing for Development, but with new a section on technology and innovation. There were also discussions about how we put in place a robust framework to monitor the commitments that will soon be made in Addis Ababa, as well as a need for more transparency in official financial flows.

What’s UNDP’s perspective on these discussions? They still echo old ‘MDG-type’ debates. In the MDG-era, we looked at resource ‘gaps’ that needed to be filled, with richer countries asked to foot the bill where domestic resources were insufficient. The SDGs, however, are more about the kinds of economic growth and development strategies all countries choose to pursue, and whether these are aligned with sustainable development objectives. The range of challenges that international public resources need to address has also expanded considerably. In addition to development, resources are also needed in areas such as climate change adaptation and mitigation, research, science and new technologies and communicable disease control. We need to think about how we can ensure all these areas are well-resourced without compromising development aid.

There is also a need to recognise volatility as the new normal. Risk and resilience are rarely front and centre of international policy discussions on financing for development. But in our highly interconnected and challenged world, shocks are commonplace and the costs are high. Financing for development in the post-2015 era cannot be considered only in the context of ‘stable times’. Achieving sustainable development will be impossible unless nations and communities are resilient, and able to anticipate, shape and adapt to the many shocks and challenges that can frustrate development processes.

We also asked the international community to look at the criteria it uses to steer the allocation of concessional finance; many multilateral and bilateral partners still use income per capita to determine who receives aid and on what terms. But countries with similar levels of income per capita levels vary enormously in their capacities to mobilise domestic and external resources. And if the share of official resources provided on non-concessional terms increases in the future, we must be careful not to sow the seeds of future debt crises.

It’s not surprising that different countries emphasised different challenges and concerns, according to their national situations. Many African countries, for instance, highlighted the need to curtail illicit financial flows and support technology transfer, while Small Island Developing States emphasised access to climate finance and vulnerability to shocks.

This shows the complexity of the task ahead and the need for fresh perspectives – the focus of the Financing the Future conference in March. The conference will provide an important opportunity to debate difficult issues such as where we allocate scarce aid resources in the future and the balance between country needs versus Global Public Goods.

Some of the choices will be difficult to make, but there will be major dividends if we get financing for sustainable development right.

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