Development Finance Impact Project – Digital Artifact

This artifact is aim at the general public to have an awareness of the financing for development initiative undertaken by World Bank group The main sources of and trends in development finance and the need for innovative solutions to generate the resources required to implement the new global development agenda.

Introduction to Financing for Development

Sustainable development is a term widely used by politicians all over the world even though the notion is still rather new and lacks a uniform interpretation. Important as it is, the concept of sustainable development is still being developed and the definition of the term is constantly being revised, extended, and refined. Using this book, you can try to improve the definition as you learn more about the relationships among its main components—the economic, social, and environmental factors of sustainable development—and as you decide on their relative significance based on your own system of values.

What are the sustainable development goals?

The sustainable development goals (SDGs) are a new, universal set of goals, targets and indicators that UN member states will be expected to use to frame their agendas and political policies over the next 15 years.

The SDGs follow and expand on the millennium development goals (MDGs), which were agreed by governments in 2001 and are due to expire at the end of this year.

There is broad agreement that, while the MDGs provided a focal point for governments – a framework around which they could develop policies and overseas aid programmes designed to end poverty and improve the lives of poor people – as well as a rallying point for NGOs to hold them to account, they were too narrow.

How will the goals be funded?

That’s the trillion-dollar question. Rough calculations from the intergovernmental committee of experts on sustainable development financing have put the cost of providing a social safety net to eradicate extreme poverty at about $66bn (£43bn) a year, while annual investments in improving infrastructure (water, agriculture, transport, power) could be up to a total of $7tn globally.

In its report last year, the committee said public finance and aid would be central to support the implementation of the SDGs. But it insisted that money generated from the private sector, through tax reforms, and through a crackdown on illicit financial flows and corruption, was also vital.

Implementation

http://cepei.org/wp-content/uploads/2015/10/Getting-ready-for-SDG-implementation-in-Latin-America.pdf

The Role of Public Sector Financing in Development

Domestic Resource Mobilization (DRM) — the process in which countries transparently raise and spend their own funds to provide for their people – is the long-term path to sustainable development finance. DRM doesn’t have to mean new taxes or higher tax rates — governments often see their revenues rise through improved audits or simplified filing processes. Improvements in tax compliance and revenues can, and often do, enable countries to lower tax rates.

https://www.usaid.gov/sites/default/files/documents/1865/120314_E3%20Brochure_Trifold_L_singles_0.pdf

Better grasp the concept of Illicit Financial Flows and their impact on development finance.

One trillion dollars, according to estimates by Global Financial Integrity, is the amount lost every year by developing countries through illicit financial outflows connected to trade mispricing, bribery, theft, kick-backs, tax evasion, organized crime, and trafficking of drugs, weapons, and humans. This means that for every one US dollar developing countries receive in external assistance, ten US dollars are lost to illicit financial flows (IFFS). These estimates should be treated with caution—it is difficult to measure what is designed to remain hidden. But even if we accept that these estimates are uncertain, no one doubts that IFFs are huge.

IFFs drain hard currency reserves, heighten inflation, reduce tax collection, discourage investment, and weaken free trade. These practices stifle poverty alleviation efforts, undermine the integrity of government, and damage the foundations of society

Define Official Development Assistance (ODA)

The DAC defines ODA as “those flows to countries and territories on the DAC List of ODA Recipients and to multilateral institutions which are:

i. provided by official agencies, including state and local governments, or by their executive agencies; and

ii. each transaction of which:

a) is administered with the promotion of the economic development and welfare of developing countries as its main objective; andb) is concessional in character and conveys a grant element of at least 25 per cent (calculated at a rate of discount of 10 per cent).”

Source of funds for ODA and its role in achieving development outcomes.

National Development Plan

National Development Plans (NDPs) are the lynchpin for mobilizing all sources of finance aimed at achieving the SDGs. The public sector implements these plans by prioritizing investment areas of an economy with the highest development returns. By implementing NDPs, governments also play a role in establishing a more favorable investment climate to attract private sector financing through supportive governance structures, competition policy, local capital market development and infrastructure, as well as by supporting public-private partnerships

Private Finance for Development

Achieving Post-2015 development goals will require the mobilization of resources from privatesources including FDI, bank loans, bond issuance, institutional investors and private transfers

Infrastructure and the debt markets

In the present climate, the key challenge for the debt markets remains attracting institutional pension

fund money. Whilst prior to the global financial crisis institutional money was invested directly into

projects with monoline credit enhancement, or helped to relieve banks’ balance sheets through

collateralised debt obligations, these structures are no longer a realistic option.

Large infrastructure debt portfolio sales by banks to institutions will continue; however, all market

participants will continue to try to create multi-investor institutional debt funds or find structured

products that mitigate the risk of senior debt. The capital debt markets need to be the prime source for

infrastructure refinancing; the rollover of bank debt can’t be counted on to meet current and future

needs.

Innovation and partnerships in financing development

http://www.mckinsey.com/insights/social_sector/innovative_development_financing

References:

http://www.pwc.com/gx/en/industries/capital-projects-infrastructure/future-of-infrastructure.html

http://devinit.org/#!/post/role-private-sector-financing-post-2015-agenda-sustainable-development

http://www.mckinsey.com/insights/social_sector/innovative_development_financing