Transcript Ministerial Meeting on Enhancing the Mobilization of Financial Resources for the Least Developed Countries’ Development Lisbon, 2-3 October 2010 TAPPING INNOVATIVE SOURCES OF FINANCE INCLUDING.

Ministerial Meeting on
Enhancing the Mobilization of Financial Resources
for the Least Developed Countries’ Development
Lisbon, 2-3 October 2010
TAPPING INNOVATIVE SOURCES OF FINANCE
INCLUDING MIGRANT REMITTANCES FOR LDCS
DEVELOPMENT
What is innovative development financing?
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Innovative finance:
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mechanisms aimed at generating substantial and stable flows of funds for
development
a reaction to shortfalls in ODA despite commitments
key feature is human solidarity; complementary to ODAs
closely linked to the idea of global public goods (to be financed by taxes on
global externalities like global warming and exchange rate volatilities)
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strong potential to complement traditional development aid
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US$2.5 billion in additional funding between 2006 and 2008
General Assembly resolution A/64/193 of 21 December 2009:
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E.g., Tobin tax originally proposed in 1972
Several othe initiatives conceived ranging from government taxes to public-private
partnership
recognized potential of various voluntary innovative sources of financing to
supplement and complement traditional sources of financing
The BPoA called for:
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Promoting and encouraging innovative sources of funding and providing technical support
through partnerships among LDC and donor Governments, the national and international
private sector, and NGOs private and foundations, philantropical organization
Recent developments in raising new finance
New taxes at the international level:
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Taxes on currency transactions or aircraft fuel aimed at reducing the
negative effects of speculation or pollution and at the same time make
available new funds for development (e.g Tobin tax)
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Recent proposals:
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Global carbon taxes, taxes on international transport emissions, taxes on
international financial or currency transactions, new allocation of IMF
special drawing rights, gold sales or the sale of “green bonds” in global
capital markets
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Sector-specific mechanisms:
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Levies and voluntary solidarity contributions (VSC) on
airline tickets
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Estimated to generateUS$1 billion annually worldwide; funds used to support
projects on HIV/AIDs, tuberculosis and malaria treatments
Recent developments in raising new finance
Sector-specific mechanisms (cont.)
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International Finance Facility for Immunization (IFFIm)
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has raised more than US$2 billion through issuance of floating bonds; funds used to
support immunization programmes
Advance Market Commitments (AMC)
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established contractual partnerships between donors and pharmaceutical firms - focus
on research on neglected diseases and distribute drugs at affordable prices
Debt2Health initiative
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uses debt swaps to convert portions of their old debt claims into new domestic resources
for health through the Global Fund.
Payment for Environmental Services (PES)
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allow consumers of public goods to compensate ffor part of the costs borne by those in
carge of producing or preserving it
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Current PES mainly aroun environmental services: water quality and quantity, carbon
sequestration and biodiversity conservation
Globalizing Solidarity: The Case for
Financial Levies
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The Report of the Committee of Experts to the Taskforce on
International Financial Transactions for Development entitled:
“Globalizing Solidarity: The Case for Financial Levies”:
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assessed the feasibility of different financing options based on these
criteria: sufficiency; market impact; feasibility; and sustainability and
suitability
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analysis includes a financial transactions tax as well as different
forms of currency transaction taxes as additional sources of funding
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a financial transaction tax would be more predictable and stable than
traditional ODA as resources
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not linked to government revenues or political priorities of developed
countries
Globalizing Solidarity: The Case for
Financial Levies (2)
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Report concludes:
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a global currency transaction tax (CTT) – to be applied to foreign
exchange transaction on all major currency-markets at the point
of settlement IS THE MOST APPROPRIATE option
With volume of transaction estimated at US$1 trillion per day, a
very small levy on foreign exchange transactions could raise
billions without affecting markets
Proceeds would be paid into a dedicated fund – the
Global Solidarity Fund
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The fund could provide substantial resources for LDCs’
development, including for structural transformation
Challenges:
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There is a wide array of innovative financing proposals
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Challenge is to identify the most useful and realistic
ones
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One which is quick to implement and generates
adequate revenue
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Once new funds are made available, the other
challenge is: governing these funds.
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LDCs need to have a voice in decision making bodies
Accountability mechanisms need to be designed
Private contributions: Remittances
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Remittances have become an important souce of
development finance for LDCs
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Accounting for 4% of GDP of LDCs in 2007
 In Lesotho and Samoa – represent a quarter of the GDP in
2008
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Flows to LDCs have increased from US$6.1 billion in
2000 to US$17.5 billion in 2007 and US$23 billion in
2008
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Figures are most likely underestimated as many flows
remain unregistered
Second to ODA, remittance flows to LDCs superseded
FDI
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Remittances represent for LDCs a more stable and
countercyclical financial flow compared to ODA and FDI
Private contributions: Remittances
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Community projects financed through remittances
have contributed to develop the local infrastructure in
several LDCs
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To avoid brain drain and maximize the productive uses
of remittances, sending and receiving countries are
now scaling up efforts to these ends through codevelopment partnerships
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Government-to-government efforts
Diapora and local communities
NGOs
Other Instruments
Clean Development Mechanism (CDM)
should be made more accessible to
LDCs and related investments and
technology transfer directed to LDCs
 GEF and climate funds be augmented
and targetted to LDCs
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Way Forward
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Innovative sources of finance necessary to fill the resource gap of
LDCs
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need to be substantial, predictable and disbursed in a manner that
respects the priorities and special needs of LDCs;
Initial focus was on health issues but should be expanded to other
areas such as food security, education and climate change
to be provided as budget aid to allow recipeinet to align it with their
priorities
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Additional funds created through the establishment of
international currency or financial transaction taxes need to be
allocated to LDCs
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New Funds dedicated to the development of LDCs need to
ensure democratic decision-making by stakeholders and that
access to the Fund must be procedurally easy
Way Forward
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Establishment of a “crisis mitigation and resilience building fund
for LDCs”
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A substantial special SDR allocation should be made for LDCs to
provide a liquidity cushion in case of internal and external crisis and
shock.
Encourage non-DAC providers of aid including global funds,
NGOs and private foundations to participate in mutual
accountability at the national level
Way Forward
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Home and host countries to lower transfer costs:
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through improved technology (mobile phones and e-transfers)
changes in regulation – removing restrictions on outward
remittances in source countries or removing taxation on
remittances repatriated
Channel remittances into productive use and private
sector development activities
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Co-development schemes
Providing investment information to encourage
entrepreneurship
Fostering the development of formal financial systems to
encourage savings and investment
Developing incentive schemes for development projects (e.g.,
matching grants)