Remittances Key to Helping World’s Poorest Countries Reliably Finance Sustainable Development, Experts Stress as Preparatory Committee’s First Session Concludes
Delegates Discuss Elements of New 10-Year Framework for Least Developed Countries, to Be Adopted at Fifth United Nations Conference in January 2022
Reducing the cost of remittances is key to helping the world’s poorest countries marshal the resources needed to graduate from their low-income status and reliably finance sustainable development, experts said today as the first session of the Preparatory Committee for the fifth United Nations Conference on the Least Developed Countries concluded.
Remittances are increasingly becoming the most important sources of external finance for least developed countries, and in some cases, a main driver of economic growth, said Taffere Tesfachew, Senior Advisor at the Tony Blair Institute for Global Change. Speaking during a morning panel discussion, he said these transfers were equivalent to around 5 per cent of their gross domestic product (GDP) in 2019.
Even in the current COVID-19 shock, he said remittance flows have remained relatively stable because “crises make migrants more determined to provide support to families and friends”. In addition, increasing numbers of migrants from least developed countries are moving to wealthier countries in their region.
The panel discussion — held under the theme, “Mobilizing international solidarity, reinvigorated global partnerships and innovative tools for risk-informed sustainable development — A march towards sustainable graduation” — tackled the finance challenges associated with a smooth transition from least developed country status, as foreseen in the Istanbul Programme of Action. Panellists explored how countries, with support from their development partners, can increase Government revenues, mobilize domestic savings and reduce inequalities.
Thulani Shongwe, Manager of International Taxation at the African Tax Administration Forum, pointed out that Africa could finance its development needs by combatting illicit financial flows and tax evasion. He recommended measures to enhance transparency, revise outdated laws and regulations and strengthen revenue administration to deal with complex cross-border transactions, such as transfer pricing, aggressive tax planning and treaty shopping (a practice in which a person attempts to access the benefits of a tax treaty between two jurisdictions without being a resident of either one).
Harpinder Collacott, Executive Director of Development Initiatives, highlighted the critical importance of international public finance, which has supported jobs and livelihoods throughout the COVID-19 pandemic. He suggested a new model for public finance — “global public investment” — that calls for universal contributions to a new system that can be accessed according to need.
In the afternoon, the Preparatory Committee discussed the elements to include in the new Programme of Action, with Malawi’s delegate, speaking for the Group of Least Developed Countries, stressing that means of implementation will be the “lifeblood” of the new 10-year framework. The mix of financial resources should include increased official development assistance (ODA), debt relief and technology transfer. Further, negotiations should begin and conclude as early as possible so that time in Doha — where the fifth United Nations Conference will be held — can be devoted to discussing the Programme’s implementation.
Brazil’s representative said the structure of the new agenda should follow that of the Istanbul Programme and include sections on stocktaking, priority areas, South-South cooperation, a smooth graduation strategy, and follow-up and implementation. Specifically, the priority areas should cover productive capacity, agriculture and food security, international trade architecture, financial resources and capacity-building.
The United Kingdom’s delegate meanwhile said the Istanbul document was lengthy. The new Programme should be concise and focused for it to be impactful, dealing only with core issues.
Rounding out the discussion, the representative of the European Union delegation, in its capacity as observer, requested information about a proposed mechanism to support sustainable graduation of least developed countries, as well as a proposed monitoring mechanism. To forge a broad coalition, the Doha process also must encompass civil society.
In other business, the Preparatory Committee adopted the provisional agenda (document A/CONF.219/2021/IPC/L.1) of its second session, which will be held from 26 to 30 July. It also adopted the draft report (document A/CONF.219/2021/IPC/L.2) of its first session, introduced by Rapporteur Julio César Arriola Ramírez (Paraguay).
Other speakers in the morning included moderators Clemency Ligoya (Malawi) and Feridun Hadi Sinirlioğlu (Turkey), and Jutta Urpilainen, European Commissioner for International Partnerships, who delivered a video message. Preeti Sinha, Executive Secretary of the United Nations Capital Development Fund, and the representatives of Bangladesh and Eritrea (Group of Least Developed Countries) also participated in the discussion.
In the afternoon, the representatives of New Zealand (for Australia and Canada), Turkey and Uganda also spoke. Preparatory Committee Co-Chairs Rabab Fatima (Bangladesh) and Robert Rae (Canada) delivered concluding remarks.
The Preparatory Committee will reconvene at 10 a.m. on Monday, 26 July, to open its second session.
In the morning, the Preparatory Committee held a panel discussion under the theme, “Mobilizing international solidarity, reinvigorated global partnerships and innovative tools for risk-informed sustainable development — A march towards sustainable graduation”.
Co-chaired by Perks Master Clemency Ligoya (Malawi) and Feridun Hadi Sinirlioğlu (Turkey), it featured keynote speaker Jutta Urpilainen, European Commissioner for International Partnerships, and panellists Taffere Tesfachew, Committee for Development Policy Member, Senior Advisor, Tony Blair Institute for Global Change; Harpinder Collacott, Executive Director of Development Initiatives; and Thulani Shongwe, Manager, International Taxation, African Tax Administration Forum.
Mr. LIGOYA said that least developed countries are largely dependent on public resources — both domestic and foreign — to finance sustainable development and ensure a smooth transition from the low-income category. However, public resources have not been sufficient to cover their growing needs and have increased only slowly in the past. During the COVID-19 pandemic, needs have increased while available resources have declined, resulting in more limited fiscal space and greater debt. While efforts to mobilize government revenues have been under way in many least developed countries, they are facing challenges of tax evasion and illicit financial flows. These States need finance from other sources, such as blended finance from new and reallocated special drawing rights. While the Group of 20 (G20) Debt Service Suspension Initiative provided short-term relief, there is widespread agreement that long-term solutions are needed. Remittances are another source of finance, which are quite crucial for some least developed countries but which declined in 2020 after a steady rise over the past decade, contributing to increased poverty. While almost all Asian-Pacific least developed countries are in the graduation process, more focus must be placed on the graduation challenges of those in Africa. “Our task this morning is to look at how the specific challenges the least developed countries are facing with respect to access to resources for their sustainable development can be overcome,” he said.
Ms. URPILAINEN, in a pre-recorded video message, said the European Union is determined to use the Decade of Action for Sustainable Development to speed its efforts to achieve the Sustainable Development Goals for the benefit of all, in particular least developed countries. The bloc remains their largest development and trading partner, prioritizing human development, particularly education for women and youth. It is important to help least developed countries sustain their recovery, addressing poverty and inequality, climate change and digitalization in an integrated manner. The Union works with these countries to mobilize all financial resources, domestic and external. Under its new financial instrument “Global Europe for 2021-2027”, the bloc will prioritize these and other vulnerable countries. Global financial flows used for recovery must also reinforce the 2030 Agenda and the Paris Agreement. Noting that the bloc will support the integration of least developed countries into the global economy, she said the elimination of barriers to trade in goods and services that help to mitigate climate change can make lasting contributions. The fifth United Nations Conference must be fully aligned with the 2030 Agenda and the Paris Agreement, she added.
Mr. TESFACHEW said that over the last two decades, remittance flows to least developed countries have emerged as one of the most important sources of external finance — along with traditional official development assistance (ODA), foreign direct investment, external borrowing, and more recently, blended finance. Remittances now account for a large proportion — more than 33 per cent — of the total external financial flows to these countries. In 2019, they equalled 5 per cent of GDP. In short, remittances are becoming the most important source of external finance for least developed countries, and in some cases, a key driver of economic growth. Remittance flows are generally less volatile than other sources of external finance during episodes of high instability in international financial markets. Even during the current COVID-19 shock, remittance flows have remained relatively stable compared to other external financial flows. This is because “crises make migrants more determined to provide support to families and friends who are left behind back home — even if it means digging into savings or arranging loans”, he said, adding that it is also because increasing numbers of migrants from least developed countries are moving to relatively wealthier developing countries in their region.
He stressed that remittances also contribute directly to poverty reduction, human resource development and improvement in household income and living standards. They have direct micro-level impact by enabling recipients to supplement their income, pay for food, school fees, health care, house repair and to generally improve the living conditions of the household. The contributions of other forms of external financial flows to poverty reduction depend largely on Government policy, the effectiveness of public institutions and the absence of corruption or other obstacles to efficient implementation of policies. The most effective approach to mobilizing remittances as a source of finance for development is to create a conducive domestic macroeconomic, financial, business and regulatory environment that enables recipients of remittances to save more and divert their savings towards productive investment. The fifth United Nations Conference should find a lasting solution to the high cost of transferring remittances to least developed countries.
Ms. COLLACOTT highlighted the critical importance of international public finance, which has supported jobs and livelihoods during the pandemic. However, least developed countries do not enjoy the same access to finance as do rich States, and the pandemic has had a disproportionate impact on those already living in poverty, pushing at least 100 million people into extreme poverty. If nothing is done, more than half a billion people will be impoverished by 2030. She stressed that least developed countries face a unique challenge in that they are more exposed to the aftereffect of shocks like COVID-19 but have fewer resources to address these challenges due to debt issues, falling remittances and decreasing foreign direct investment. Tourism revenue — on which many countries rely — has fallen by almost $20 billion from 2019 to 2021, further inhibiting Government ability to respond to crises. Turning to ODA, she underscored the need for this aid to reach the places and people most in need to ensure a fair recovery that does not push the poorest further behind. She also suggested a new model for international public finance — “global public investment” — that calls for universal contributions to a new system that can be accessed according to need.
Mr. SHONGWE said development partners should strengthen their support for regional tax organizations. In many least developed countries, some rules and regulations are easily circumvented by tax lawyers, aggressive tax planners and large multinationals, increasing the risk of tax avoidance in many African countries where legislation and regulations are outdated. Moreover, the low treaty network and exchange of information systems mean that countries do not have the means to collect information on taxpayers, or suspected tax evasion or avoidance. Combatting illicit financial flows is an important area of focus. In short, Africa could finance its development needs by combatting illicit financial flows. He recommended measures to enhance transparency and strengthen the ability of revenue administrations to handle complex cross-border transactions, such as transfer pricing, aggressive tax planning and treaty shopping. Research has shown that a high rate of savings results in higher investment in-country projects such as building roads, schools and other long-term infrastructure projects, he said. Noting that efforts to broadening the tax base are undermined by the proliferation of special tax arrangements, including the tax-exempt status of ODA, he said ODA tax exemptions represent 3 per cent of GDP in countries where tax revenues barely surpass 15 per cent of GDP. ODA tax exemptions increase complexity, imposing additional burdens on the tax administrations of recipient countries. The United Nations should publish all ODA framework treaties in full. For their part, donors and implementing agencies with a long-term physical presence in a recipient country should act within the tax system and withhold tax payments to non-exempt entities. He pressed donors to end the “don’t ask, don’t tell” approach to the taxation of contractors, which facilitates tax avoidance, stressing that exemptions should only be granted where contractors can demonstrate double taxation.
In the ensuing discussion, the representative of Bangladesh said the COVID-19 pandemic has jeopardized the graduation process for many least developed countries, potentially reversing decades of development progress and limiting access to finance for implementing the Sustainable Development Goals. A multistakeholder approach is required to incentivize and ensure irreversible graduation. Noting that graduation is a demand-driven and country-led process that requires considerable political will at the national level, she called for the creation of a global support structure to incentivize least developed countries to take the challenging pathway to graduation.
The representative of Eritrea, speaking for the Group of Least Developed Countries, said that, while such countries need to do their part to broaden their tax base and enhance compliance and transparency, the international community must work to stop tax evasion and illicit financial flows. She urged international partners to fulfil their ODA commitments, calling also for a replenishment of concessional windows offered by all multilateral development banks operating in least developed countries. A mechanism that leads to real debt relief and restructuring is also needed, so that the burden of related negotiations is not placed solely on the limited capacity of least developed countries. Turning to graduation, she called for continued support for countries reaching graduation criteria — as they are still highly vulnerable — and for assistance that continues after graduation is achieved.
PREETI SINHA, Executive Secretary of the United Nations Capital Development Fund, said the Fund aims to use both traditional and innovative finance to evolve into a hybrid between a development agency and a development-financing agency, providing grants, loans and guarantees. She called for international support to allow the Fund to scale up its work, aggregating project pipelines into a portfolio approach that will encourage traditional capital investment. It also plans to organize global roadshows in the hope that greater understanding of its work will lead to greater investment. She also said the Fund will work to connect countries with investors who believe in both social and financial returns but can only do this if traditional donors facilitate access to global capital markets.
Mr. TESFACHEW echoed the need to develop comprehensive support measures for graduating and graduated countries during the upcoming conference. When least developed country status was created in 1971, the international community committed to creating a future without the need for this category. Development partners must understand that graduation is both a national accomplishment and a global one. Noting that Bangladesh is a role model for other least developed countries aspiring to meet graduation criteria, he stressed that least developed countries must be assured at the next conference that financial support will not disappear when they graduate, so they can continue to build on what they started.
Ms. COLLACOTT said that a diverse portfolio of financing from a variety of public and private sources is necessary to provide support to least developed countries, but even more important is assessing how all these sources are catalysed to impact change. She underscored the need to target ODA and concessional financing, and to ensure that donors are meeting their commitments at a time when other private financing flows are decreasing.
Mr. SHONGWE said that fair, equitable tax systems will help least developed countries mobilize domestic resources, and such systems require that those who can afford to pay contribute their fair share. Least developed countries will develop and graduate through various means, but mobilization of domestic resources is the best way for them to attain graduation and fund their own development “without any strings attached”.
Discussion on New Programme of Action
In the afternoon, the Preparatory Committee held an interactive discussion on the elements of the new Programme of Action to be adopted at the fifth United Nations Conference in January 2022.
RABAB FATIMA (Bangladesh), Co-chair of the Preparatory Committee, said the objective of the upcoming Doha summit is to develop a succinct, ambitious, forward-looking and compelling Programme of Action that addresses today’s challenges but also charts a course for better supporting least developed countries on their path to “build back better” and achieve the 2030 Agenda. She asked all speakers to highlight in concrete terms the potential elements of the next Programme of Action based on the comprehensive mandates provided by the General Assembly.
As for the timeline, she said the zero draft is expected to be submitted by least developed countries by mid-June, with negotiations starting in July continuing throughout the month and resuming in September. The negotiations are to be finalized by September before the high-level week of the General Assembly so that the Doha conference can focus on the implementation strategy of the next Programme of Action.
The representative of New Zealand, also speaking for Australia and Canada, said the next Programme must be focused and compelling so that it captures the attention of finance ministers and development partners. It must reflect what has changed since Istanbul by identifying the specific issues and actions that will best support least developed countries in achieving the Sustainable Development Goals. It should be concluded before the start of the seventy-sixth session of the General Assembly. Further, it must not shy away from issues such as conflict, human rights and gender equality, governance, or matters related to digital connectivity. “These are not boutique issues,” he said, calling for a “cold, hard look” at the United Nations processes related to least developed countries, including indices, timelines and incentives associated with the graduation process.
The representative of Turkey said the new Programme should be action-oriented and focused. Expressing support the proposed timeline, she said the process should be inclusive, involving international financial institutions and the United Nations development system. It is vital to mobilize a broad range of partners, including civil society, in the development of an “ambitious and realistic” Programme that builds on its predecessor and lessons learned from the COVID-19 pandemic. Economic transformation, technology and building productive capacity should be among the priorities.
The representative of Brazil said the structure of the new 10-year action agenda should follow that of the Istanbul Programme. It should include sections on taking stock of progress, priority areas of action, South-South cooperation, a smooth graduation strategy, and follow-up and implementation. The priority areas should include productive capacity, agriculture and food security, the international trade architecture, financial resources and capacity-building. The new Programme should highlight its alignment with the 2030 Agenda, he said, noting that Brazil, as a member of the Group of Friends of Least Developed Countries, looks forward to receiving the zero draft by mid-June.
The representative of the United Kingdom said the Doha process should use the 2030 Agenda as a guiding framework for discussion. On deliverables, his delegation considers support for smooth transition and graduation important. On monitoring and follow-up, existing mechanisms should be used. The Istanbul document was lengthy. The new Programme should be concise and focused, for it to be impactful, dealing only with core issues. Cutting and pasting agreed language from the previous documents should be avoided, he added.
The representative of the European Union delegation, in its capacity as observer, said the new outcome document should focus on ensuring all domestic and international actions, giving equal weight to domestic commitments by least developed countries. Her delegation is interested in receiving more information about a proposal on a mechanism to support sustainable graduation of least developed countries, as well as a proposed monitoring mechanism. To forge a broad coalition, the Doha process must encompass civil society. The outcome document should be concise, balanced, action-oriented and should avoid controversial issues if they are not central. She asked that negotiations be completed before the summer break so that more time can be devoted to discussing the implementation strategy of the next Programme.
The representative of Uganda highlighted the importance of a comprehensive appraisal of the fourth Conference’s Programme of Action to determine what hindered its implementation and “kept us where we are”. Noting the widening digital divide and the impact that COVID-19 has had on priority sectors — notably agriculture, food security and trade — he stressed the need to determine what effect these long-term challenges will have on the international community’s ability to implement the upcoming fifth Conference’s Programme of Action. Least developed countries, he added, “are looking for a new break”.
The representative of Malawi, speaking for the Group of Least Developed Countries, said negotiations must begin and conclude as early as possible so that time in Doha can be devoted to discussing ways to implement the Programme of Action. She called for open, transparent and inclusive discussions to bring action to the people living in the world’s 46 most vulnerable nations. Detailing several priority areas, she said that means of implementation will be the “lifeblood” of the new Programme, and should include increased ODA, debt relief and technology transfer.
RABAB FATIMA (Bangladesh), Co-Chair, commended all involved for a productive session, noting high participation and rich debate throughout. The six thematic meetings and 14 side events demonstrate the importance of the upcoming fifth Conference. Drawing attention to the ownership and leadership shown by least developed countries in their ambitious proposals, she called on all stakeholders to engage constructively in pursuit of consensus.
ROBERT RAE (Canada), Co-Chair, also thanked everyone who contributed to making the first Preparatory Committee a success. Noting the need for solutions and the inadequacy of “business as usual,” he said that “too much has happened and too much is not happening”, urging the international community to achieve results in Doha in 2022.