Financing the Post-2015 Development Framework

FINANCING THE POST-2015 DEVELOPMENT FRAMEWORK

World Bank Roundtable on Post-2015 Development Agenda in ChinaBeijing – July 23, 2013

The World Bank

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Lessons from the existing MDGs framework

• The original MDGs were articulated independently of a financing framework (Monterrey 2002).

• In a context of fiscal consolidation, discussion of post-2015 goals must be integrated with consideration of supporting financing.

• No quantity of financing, whether grant, concessional, or non-concessional, can achieve the development goals without supporting policies and a credible commitment to combating poverty.

• Costing MDGs requires too many assumptions (WDR 2004), and is not the objective of this exercise.

3China’s MDGs and Indicators ProgressGoal 1: Eradicate Extreme Poverty and HungerA: Halve, between the proportion of people whose income is less than one dollar a day B: Achieve full and productive employment and decent work for all, including women and young peopleC: Halve the proportion of people who suffer from hunger

Already metPotentiallyAlready met

Goal 2: Achieve Universal Primary EducationChildren everywhere, boys and girls alike, will be able to complete a full course of primary schooling

Already met

Goal 3: Promote Gender Equality and Empower WomenEliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015

Likely

Goal 4: Reduce Child MortalityReduce by two-thirds the under five mortality rate Already met

Goal 5: Improve Maternal HealthA: Reduce by three quarters the maternal mortality ratio B: Achieve universal access to reproductive health

LikelyPotentially

Goal 6: Combat HIV/AIDS, Malaria and Other DiseasesA: Have halted by 2015 and begun to reverse the spread of HIV/AIDS B: Achieve, by 2010, universal access to treatment for HIV/AIDS for all those who need itC: Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases

LikelyPotentiallyLikely

Goal 7: Ensure Environmental SustainabilityA: Integrate the principles of sustainable development into country policies and programmes and reverse the loss of environmental resources B: Reduce biodiversity loss, achieving, by 2010, a significant reduction in the rate of lossC: Halve the proportion of people without sustainable access to safe drinking water and basic sanitationD: By 2020, to have achieved a significant improvement in the lives of at least 100 million slum dwellers.

Likely

PotentiallyLikelyLikely

Goal 8: Develop a global partnership for development On-goingSource of Information: Millennium Development Goal Report 2010

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A two-pronged approach to supporting a post-2015 development framework

Increase impact of available resources

Leverage additional resources

Good policies and credible institutions enhance the impact of available resources and leverage additional

resources from both domestic and foreign sources.

Good policies and credible institutions to:

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Parameters to consider in the post-2015 financing framework

What can developing countries do?

What can the international community

do?• Design targeted, evidence-

based policies and support sound institutions

• Generate more revenues• Ensure efficient public

spending• Promote financial

deepening and inclusion

• Maximize the impact of ODA

• Support new development partners

• Leverage the private sector• Tap into new sources of

finance• Deliver global public goods

Generate more revenuesTaxation capacity improving in MICs, progress needed in LICs

1994 1998 2003 20090

5

10

15

20

25

30

35

21.2

28.4 28.4 29.3

18.817.1

19 19.3

11.3 10 10.513.6

High Income Middle Income Low Income

Tax Revenue (in % of GDP) by Income Groups, 1994-2009

Source: World Development Indicators

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Ensure efficient public spendingFossil fuel subsidies do not target the poor

Source: World Energy Outlook, IEA, 2011

Subsidies are an inefficient means of assisting the poor: only 8% of the $409 billion spent on fossil-fuel subsidies in 2010 went to the poorest 20% of the population.

Fossil fuel consumption subsidies measure what developing countries spend to provide below-cost fuel to their citizens. High-income countries offer support to energy production in the form of tax credits or loan guarantees, which are not included in these calculations since they are directed towards production rather than consumption of the fuel.

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Financial sector development for growthA thriving private sector creates opportunities for entrepreneurship and job creation

How do financial institutions contribute to

economic growth?

Lower the cost of financial and nonfinancial

transactions

Facilitate efforts to reduce and trade risks

Financial InclusionAccess to finance is a major constraint to growth for entrepreneurs in LICs

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21 9 3 10

# Total MSMEs (formal and informal)

# with Checking account # with Loan/Overdraft # Unserved + Underserved

52 25 13

27



20 12 6 10



188

62

23

92



78

34 11

36



40 18

4 22



LAC

MNA

ECA EAP

SAR

AFR

# of MSMEs (in Mn)

Source: Two trillion and counting, IFC & McKinsey, 2010

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Source: MDG Gap Taskforce Report, 2012 and OECD IDS 2012

Maximize the impact of ODATotal net ODA, already short of Monterrey targets, has declined by 4% in 2012

United States

Germany

United Kingdom

France

Japan

Netherlands

Sweden

Canada

Australia

Norway

0.00 0.20 0.40 0.60 0.80 1.00 1.20

DAC Members' Official Development Assistance as a percentage of GNI, 2000-2012

2000-2001200720092011 2012

UN Target: 0.7% of GNI

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Collaborate with new development partnersEmerging donors, led by China, provide relatively limited aid as defined by the OECD, but contribute to development through other external flows and in-kind

assistance

Source: World Bank CFP Working Paper No. 8, Finance for Development

For the purpose of comparison, in 2009, net ODA from DAC members was 119.8 bn USD.

2003 2004 2005 2006 2007 2008 20090.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Estimated aid from BRICS, 2003-2009 (USD billion)

China India Russia Brazil South Africa

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Chinese Financing Commitment in African Infrastructure,

2001-2010 (million USD)

Source: Chen Chuan, 2013 based on World Bank-PPIAF Chinese Projects Database

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International flows to developing countriesInternational capital flows to developing countries dominated by foreign direct investment

Total capital inflows in 2012: USD 1,007 billion

Remittances, which are not part of capital inflows but are an important source of foreign currency for developing countries, were an estimated USD 399 bn in 2012.Inflows refer to flows from non-residents to developing countries. FDI inflows are net of disinvestments by non-residents. Debt inflows are debt disbursements net of repayments. Official flows include bilateral and multilateral lending and are not equivalent to ODA. Data on official capital inflows are “debt enhancing official assistance” and, thus, not the same as ODA, which is concessional in character with a grant element.

Source: Long-term financing for growth and development. G20 Umbrella Paper, Feb. 2013 and Global Economic Prospects 2013, World Bank.

FDI inflows; 600.1; 60%

Portfolio equity inflows; 44.4; 4%

Bonds; 143.3; 14%

Banks; 71.5; 7%

Short-term debt flows; 126.7; 13%

Other private; 7.1; 1%Official (World Bank, IMF, and other);

14.1; 1%

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ODA and remittances are especially critical for fragile states

Foreign direct investment505.7, 40%

Portfolio investment128.4, 10%

Long-term debt (private)155.8, 12%

ODA grants89, 7%

Long-term debt (official)

69.2, 5%

Worker remit -tances

319, 25%

Net financial flows to developing countries, 2010

Total: USD 1,267 billion

Foreign direct investment27.59, 22%

ODA50.04, 40%

Worker remit -tances

47.38, 38%

Gross financial flows to fragile states, 2010

Total: USD 125 billion

Source: World Bank CFP Working Paper No. 8, Finance for Development

Source: Fragile States 2013, OECDNB: Based on OECD definition of fragile states

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The official sector has a particularly important role to play in LICs and fragile states

0.9

6.4

7.8

Net official capital flows and transfers, 2012 (% of GDP)

Emerging market countries Low-income countries Fragile states

Source: Global Monitoring Report 2013, World Bank

The classification of countries is the one used in the IMF‘s World Economic Outlook. Emerging market and developing countries are those countries that are not designated as advanced countries. Countries that are eligible for financial assistance under the IMF‘s

Poverty Reduction and Growth Trust constitute a subset of emerging market and developing countries; these countries are denoted low-income countries although eligibility is based on other considerations in addition to income levels. Emerging market and

developing countries that are not eligible for financial assistance under the Poverty Reduction and Growth Trust are designated as emerging market countries. Fragile states are countries included in the World Bank‘s list of Fragile and Conflict-Affected States as of

early 2013.

Leverage the private sector: partnershipsWell-structured initiatives with a diverse range of partners help governments raise the large sums of capital required to meet

infrastructure needs and consequently spur development

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Maharashtra & Tamil Nadu, IndiaCLIFF COMMUNITY SANITATION PROJECT

Total initial investment: $7.2 million- Homeless International- SPARC (NGO in India)- Community-based Organizations

KenyaPRIVATE SECTOR POWER

GENERATION PROJECT

Total initial investment: $623 million- Kenya Power and Lighting Company

- IFC- MIGA

- Commercial Banks

Sao Paulo, Brazil METRO LINE 4

Total initial investment: $450 million- Companhia do Metropolitano de Sao Paolo- 5 Equity Sponsors- IDB- Commercial Banks

Lake Kivu, Rwanda KIVU WATT

Total initial investment: $142.25 million- ContourGlobal

- Energy Authority of Rwanda- MIGA

- Emerging Africa Infrastructure Fund- FMO- AfDB

- Belgian Development Bank

Source: Emerging Partnerships, IFC, 2013 and World Bank, Africa Region.

Emerging Partnerships

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1 to 5 years 5 to 10 years 10+ years0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

4%

29%25%

13%

22%

41%

6%

14%

23%

8%

21%24%

Percent of international syndications to the private sector in developing countries where an IFI participated, by income level and maturity, 2007-2010

Lower Lower middle Upper middle BRICT

Leverage the private sector: syndicationsIFI participation in syndications contributes to extending maturities of private flows to

developing countries and therefore financing long-term productive investments

Source: International Finance Institutions and Development through the Private Sector, IFC, 2011

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Key Messages• Promote targeted policies and support accountable, efficient institutions

• Mobilize domestic resources for development through:

▫ Broader tax coverage

▫ Increased taxation capacity

▫ Greater accountability

▫ Efficient public spending

▫ Natural resource revenue

▫ Deeper domestic financial sector

▫ A more vibrant private sector

• The international community must use ODA and other resources to:

▫ Leverage more private resources

▫ Deliver global public goods

▫ Draw on emerging and innovative sources of finance

• Financial instruments have different properties and comparative advantages. Selecting the right combination of instruments to meet a given goal, in a given country context, might be one of the most important tasks ahead to enable full implementation of the next development framework post-2015.

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Thank you for your attention

Mahmoud MohieldinPresident’s Special Envoy

The World [email protected]

Documents

Financing the Post-2015 Development Framework