Adequate', 'stable', 'predictable' and 'innovative' financing were some of the buzzwords heard at Bali this week during the meetings of the High Level Panel on a post-2015 development agenda (HLP), set up by the United Nations Secretary General (UN-SG). The Panel, with 27 members from governments, civil society and academia around the world, has been tasked by the UN-SG to give him a bold yet practical development agenda for after 2015, when the current Millennium Development Goals (MDGs) expire. At Bali, the Panel heard parliamentarians, representatives of civil society, businessmen, academics and youth from around the world on what they see as priorities - especially on the vexing issues called "means of implementation" in UN language, essentially denoting technology, finance, capacity building, and other enablers of development.
Deciding on how the world should go about financing the post-2015 development agenda, is turning out to be a particularly tricky question. Foreign aid, or overseas development assistance (ODA), traditionally the focus of discussion, is losing its appeal. In donor countries, taxpayers have little appetite for higher foreign aid budgets when domestic spending is being sharply cut. In recipient countries, there is 'aid fatigue', as foreign aid is seen to have failed to live up to its promises. The terminology of 'donors' and 'recipients' is also seen as anachronistic in a rapidly evolving world order. Moreover, today foreign aid is dwarfed by other financial flows - ODA today is only around $144 billion a year, less than four per cent of public domestic financial flows ($4.4 trillion) and private financial flows ($4.8 trillion) a year.
The challenge therefore is to think innovatively on how to finance the ambitious development agenda the world seems keen to set for itself post-2015. As a wide range of ideas are being debated, here are four concrete suggestions that could be considered.
First, even as appetite for foreign aid runs low, it remains a moral imperative to make a bold call for a bare minimum level of commitment of international public funding for development. A commitment to ODA of 0.7 per cent of their gross national product by developed countries has been mentioned since 1970, but few countries, barring the Scandinavians, have put their money where their mouth is. Today, just climate change-related adaptation is expected to require more than $200 billion a year of incremental financing. So, there is need for a strong exhortation in this direction, asking developed countries to meet the 0.7 per cent target - or a collective dollar target, say at least $400 billion a year - through a bottom-up pledging process by 2015. This would signal a credible commitment and bring much needed momentum to the post-2015 process.
Second, there could be a proposal for a new funding window specifically to finance the goals and targets agreed to for the post-2015 agenda. Such a funding window could have a pooled disbursement structure and a unified governance mechanism to ensure scale, better targeting, and lower transactions costs. It could focus on a few key priorities where there is near consensus - primary education, health, water and sanitation, food security, climate adaptation, etc. - with specific windows for each, to which countries could contribute to and draw from, with incentives linked to outcomes. It could also have a special focus on funding innovations - that is, ensuring better last mile access, technology dissemination, and better impact evaluations of what works on the ground. These are areas that are often ignored in traditional aid debates but are becoming increasingly important. Previous models of global cooperation, such as the Consultative Group on International Agricultural Research (CGIAR), that facilitated the first Green Revolution in agriculture, show us that such an approach is feasible if the world community puts its mind to it.
Third, there is a need to 'unpack' what role the private sector could play. Today, while there is a lot of rhetoric on bringing more private-sector finance into the development space, there is little concrete progress on how this can be done - what would it really take for the private sector to come to the party, and how much finance can we expect from it? The concept of 'advance market commitments', where public financing is used to subsidise the cost of drugs that are actually demanded by target markets in developing countries, has shown good results in immunisation. These, and other financing arrangements in public-private partnerships, such as viability-gap-funding, need to be scaled up. The MDG-focused funding window, discussed above, could be used to finance such catalytic financial arrangements that incentivise the private sector.
Fourth, there is a need for a bold call against morally troubling cross-border financial flows and financial practices. Today, it is estimated that developing countries lose three times as much money to tax havens as they receive in aid every year. So there is a need to call for a crackdown on illicit financial flows which are abetted by certain country jurisdictions. There is also a need for a serious call for the recovery of stolen assets parked overseas (conservatively estimated at $20-30 billion). Even tax avoidance practices (e.g., transfer pricing by MNCs) which undermine the tax base of developing countries, need to be examined closely and curbed through better coordination, information sharing and standardised tax norms across countries.
Finance will remain a complex issue in the post-2015 debate, but with some bold yet practical proposals the world community can make substantial progress.
The author is the Officer on Special Duty to the minister for rural development, and advises Abhijit Banerjee on the UN SG's High Level Panel. These views are his own
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