Building Fair Tax Systems, Boosting Private Investment in Sustainable Development Focus of Discussions as Forum on Financing for Development Continues Session
Inequalities in financial space and an unfair international corporate tax architecture urgently require reform to foster recovery and growth in developing countries — with private finance and investment key factors — speakers told the Economic and Social Council today as it continued its annual forum on financing for development follow-up with three panel discussions.
In the morning, the forum held a panel discussion on “Building a fair and effective tax system and combating illicit financial flows”, moderated by Olga Algayerova, Executive Secretary of the Economic Commission for Europe (ECE). Featured panellists were: Anne Beathe Kristiansen Tvinnerheim, Minister for International Development of Norway; Clem Agba, Minister for State Budget and National Planning of Nigeria; Pavel Ernesto Isa Contreras, Vice-Minister for Planning in the Ministry of Economy, Planning and Development of the Dominican Republic; Augustus Flomo, Deputy Minister for Economic Management in the Ministry of Finance and Development Planning of Liberia; Antonette Tionko, Undersecretary of the Corporate Affairs Group and Revenue Operations Group of the Department of Finance of the Philippines; and Yoshiki Takeuchi, Deputy Secretary-General of the Organisation for Economic Co-operation and Development (OECD). Lead discussants were Logan Wort, Executive Secretary of the African Tax Administration Forum; and Chenai Mukumba, Policy Research and Advocacy Manager at the Tax Justice Network Africa.
In opening remarks, Ms. Algayerova noted that the global economy is under severe stress, due to the uneven recovery from the pandemic, “the ticking time bomb of climate change”, and the shock waves caused by the war in Ukraine. The reform of international tax architecture holds the promise of addressing the rampant inequalities in the global financial space, she said, highlighting the problems posed by the inability to effectively tax digital goods and services.
Mr. Contreras stressed the importance of mobilizing domestic resources and private financing to adequately meet public expenditure. International cooperation can make the difference in sectors such as water and sanitation, and education, he said — and while acknowledging the primary responsibility of Governments to mobilize resources for achieving the Sustainable Development Goals, he emphasized that private sector resources are especially crucial to creating sustainable cities and infrastructure.
Mr. Takeuchi said that since the global financial crisis, it has worked to implement new standards on international taxation, with over 160 jurisdictions now committed to exchanging information as part of a global forum. Meanwhile, over 140 jurisdictions are part of the index of the Inclusive Framework of the OECD G20 Base Erosion and Profit Shifting Project, working to modernize taxation of multinationals, with all members, including developing countries, interacting on an equal footing. He expects a global increase of $150 billion in additional annual tax revenue, increasing developing countries’ revenue by 1.5 to 2 per cent of corporate tax revenue. Under the Inclusive Framework, he noted $125 billion in profits will be reallocated, with developing countries gaining more than developed States as a share of global tax revenues.
Ms. Mukumba pushed back on some of those policy proposals, noting that current discussions are spearheaded by OECD — but only half of the 54 countries in Africa are members, and fewer than half have adopted the Inclusive Framework. She noted 100 per cent are members of the United Nations, which should be the platform for discussions on tax and illicit financial flows. Under the current system, developing countries have not been able to equally contribute to reform discussions — while $240 billion of corporate tax revenue is lost due to tax avoidance by multinational enterprises. The blueprints that have been developed by OECD are unlikely to deliver an outcome that is a substantial improvement on existing frameworks, she said — rather, they will reinforce the current allocation of taxing rights between source and residence countries, penalizing countries in the Global South.
Stressing the importance of financial accountability and integrity, Ms. Tvinnerheim pointed out that large-scale corruption and tax evasion without legal prosecution are undermining trust and public finances. As long as illicit financial flows continue, all efforts to achieve the goal of leaving no one behind will fail. “There is little point in trying to fill a bathtub when the drain is open,” she said. Noting Norway’s ongoing efforts include support for development cooperation on tax-related issues, she said the country is working with partner countries to improve their capacity and collectively “plug the drain”.
In the ensuing interactive dialogue, a representative of the Society for International Development noted that illicit financial flows are at the highest levels ever, while the United Nations is marginalized from the multilateral negotiations concerning this. A representative of EuroDebt expressed concern that some developed countries are discussing blacklisting countries that do not follow OECD standards for tax reform. This is not tax cooperation, she stressed, cautioning that it will lead to more inconsistencies in the global tax system.
In the afternoon, the forum held panel discussions on the topics of “Boosting private investment in the Sustainable Development Goals (SDGs)” and “Expanding concessional finance aligned with national sustainable development strategies”.
The first of those panels opened with a keynote address by Nano Dankwa Akufo-Addo, President of Ghana, and was moderated by Liz Bronder, Managing Director of Global Sustainable Finance at Bank of America. Featured panellists were Sosten Alfred Gwengwe, Minister for Finance and Economic Affairs and Member of Parliament of Malawi; Narantsogt Sanjaa, Deputy Minister for Finance of Mongolia; and Marc-André Blanchard, Executive Vice-President and Head of the Caisse de dépôt et placement du Québec Global; and also with lead discussant Rodolfo Lahoy Jr., representing IBON International, a non-governmental organization in consultative status with the Economic and Social Council.
The final panel opened with a keynote address by Iván Duque Márquez, President of Colombia, and was moderated by Masood Ahmed, President of the Center for Global Development. The featured panellists were Francisco André, State Secretary for Foreign Affairs and Cooperation of Portugal; Erivaldo Alfredo Gomes, Secretary of International Economic Affairs at the Ministry of Economy of Brazil; Titta Maja, Director-General at the Department for Development Policy of the Ministry for Foreign Affairs of Finland; Remy Rioux, Chair of the International Development Finance Club; and Carmen Madriz, acting General Manager for the Caribbean Department at the Inter-American Development Bank, with Mami Mizutori, Special Representative of the Secretary-General for Disaster Risk Reduction acting as lead discussant.
Also speaking in the interactive dialogue were the representatives of Finland, Zimbabwe and Russian Federation.
A representative from the Third World Network also spoke.
The Economic and Social Council will resume its forum on financing for development at 10 a.m. on Thursday, 28 April.
Panel I
In the morning, the forum on financing for development follow-up continued its session, holding its first panel discussion focused on the theme of “Building a fair and effective tax system and combatting illicit financial flows”, moderated by Olga Algayerova, Executive Secretary of the Economic Commission for Europe (ECE). Featured panellists were: Anne Beathe Kristiansen Tvinnerheim, Minister for International Development of Norway; Clem Agba, Minister for State Budget and National Planning of Nigeria; Pavel Ernesto Isa Contreras, Vice-Minister for Planning in the Ministry of Economy, Planning and Development of the Dominican Republic; Augustus Flomo, Deputy Minister for Economic Management in the Ministry of Finance and Development Planning of Liberia; Antonette Tionko, Undersecretary of the Corporate Affairs Group and Revenue Operations Group of the Department of Finance of the Philippines; and Yoshiki Takeuchi, Deputy Secretary-General of the Organisation for Economic Co-operation and Development (OECD). Lead discussants were Logan Wort, Executive Secretary of the African Tax Administration Forum; and Chenai Mukumba, Policy Research and Advocacy Manager at the Tax Justice Network Africa.
In her opening remarks, Ms. ALGAYEROVA noted that the global economy is under severe stress, due to the uneven recovery from the pandemic, “the ticking time bomb of climate change”, and the shock waves caused by the war in Ukraine. The reform of international tax architecture holds the promise of addressing the rampant inequalities in the global financial space, she said, highlighting the problems posed by the inability to effectively tax digital goods and services.
Ms. TVINNERHEIM said: “We were planning to build back better and greener when Russia’s illegal attack stirred turmoil in the global financial markets.” Stressing the importance of financial accountability and integrity, she added that “there is little point in trying to fill a bathtub when the drain is open”. Large-scale corruption and tax evasion without legal prosecution are undermining trust and public finances, she pointed out, stressing that as long as illicit financial flows continue, they will keep eroding the whole fabric of society and all efforts to achieve the goal of leaving no one behind will fail.
National efforts to achieve more inclusive societies, she emphasized, must be underpinned by international governance and common standards. The Inclusive Framework of the OECD G20 Base Erosion and Profit Shifting Project is proof that the international community can respond to new challenges, she said, stressing the need to create a more holistic and inclusive approach. Her country’s ongoing efforts include support for development cooperation on tax-related issues, she said, noting that Norway is working with partner countries to improve their capacity and collectively “plug the drain”.
Mr. AGBA said Nigeria launched its Strategic Revenue Growth Initiative in 2019 to address the low revenue to gross domestic product (GDP) ratio, and further diversify sources of revenue. He noted the Initiative set an ambitious target of achieving 15 per cent of GDP by 2025, with non-oil revenue sources, including company income tax, value added tax and customs levies already performing above expectations in the first year. The second version of the Initiative aims to include more revenue departments and agencies, strengthen performance monitoring and management, and address issues such as low tax morale. He also cited the Finance Act, another fiscal policy tool to push domestic resource mobilization, improve the business environment and promote fiscal equity especially for micro, small and medium-sized enterprises.
In assenting to international tax agreements such as the OECD/G20 Inclusive Framework on Base Erosion and Profit Sharing, his Government cooperated on developing its terms — but always with the country’s best interests first, while working with other States to ensure fair deals for global allocation of profits for all market jurisdictions. Turning to illicit financial flows, he recognized the need to stem them to guarantee financing and meet the country’s medium-term development goals. Nigeria is one of 12 pilot countries in Africa in the project on defining, estimating and disseminating statistics on illicit financial flows in Africa. He noted the country cooperated with the United Nations Conference on Trade and Development (UNCTAD) and the United Nations Office on Drugs and Crime (UNODC) to establish a technical working group to produce statistical estimates on the issue. “We clearly understand the link between combating illicit financial flows and participating in an equitable global tax system while working to achieve our domestic resource mobilization efforts,” he said.
Mr. CONTRERAS, stressing the importance of mobilizing domestic resources and private financing in order to adequately meet public expenditure, noted the crucial role of North-South and South-South cooperation. Speaking from his country’s experience, he added that international cooperation can make the difference in sectors such as water and sanitation, and education. Acknowledging the primary responsibility of Governments to mobilize resources for achieving the Sustainable Development Goals, he said that private sector resources are especially crucial to creating sustainable cities and infrastructure. Governments need to provide regulatory frameworks and sufficient incentives to enable private investors to contribute to those goals, he added.
Underscoring the crucial role of democratic policymaking, he said that broader reforms in tax systems need to be “deeply rooted” to ensure that States can finance essential public services and ensure sustainable public debt. It is also necessary to make tax systems more progressive, he added, stressing that Governments must exploit all opportunities to create a wide tax base, including income tax and heritage tax. All these different tax streams can feed into financing development, he said, adding that “there's no single magic wand for financing”.
Mr. FLOMO said a good tax system gives nations the necessary assets expected to put resources into development, reduce poverty and transform public administration. Many developing countries that are strong in developing their domestic revenue mobilization programmes are focused on tax expansion initiatives including value added, excise, property, personal and corporate income taxes. Under the COVID-19 pandemic, he noted more focus has shifted to tax reform programmes, including simplifying the tax code, streamlining payment processes using digital systems and building capacities in revenue administration. He cited concrete measures in Liberia including imposition of excise tax on certain commodities; making provisions for online filing; and robust enforcement mechanisms by the Revenue Authority that are meant to increase compliance.
Increasing the tax rate might increase revenue in the short run, he noted, but will eventually reduce the tax base and consequently revenue as the increase in the tax rate might discourage economic activity. Tax rate increase can also have a retrogressive impact on the poor in the absence of social safety nets, so reforms must therefore consider the social cost. Combating illicit financial flows remains a critical priority for all Governments, he stressed, with OECD reporting that over $1.6 trillion is lost to money-laundering each year. Developing countries must therefore strengthen their legal and regulatory environments and build the capacities of financial intelligence units and audit agencies to help with national risks assessment and developing action plans to mitigate them. Banks and financial institutions should further be held accountable to write suspicious transactions reports and currency transactions reports and do those regularly for law enforcement. He said that financial intelligence units can also increase freezing orders on suspicious accounts, through rigorous monitoring of cross border movements of cash.
Ms. TIONKO noted that the Sustainable Development Goals are very much in line with her country’s stated objectives to reach by 2040. To fund the budget required for these goals, she said, her Government instituted budget reforms and improved tax and customs administration. Highlighting the Government’s efforts to secure property rights, enhance competition, improve food security and simplify regulations, she said that a comprehensive tax reform programme was crucial to generate revenue sustainably. These reforms corrected a long-standing inequity by reducing income taxes for 99 per cent of individual taxpayers, she said.
Outlining other reforms including taxes on tobacco and tax relief for private enterprises, she added that the new system is performance-based, targeted and transparent. This tax system, which is mindful of the country’s fiscal challenges, has helped catapult the Philippines into one of the fastest growing economies, she said, adding that the revenues collected have enabled it to make immense infrastructure investments and maintain fiscal sustainability during the pandemic. The reforms also ensure that compliance is easier, she pointed out, adding that while the road to economic recovery is long, the international community can go a long way by improving domestic and international tax systems.
Mr. TAKEUCHI said collective international action plays a vital role in building a fair and effective tax system, with common standards and information sharing being crucial in a digital world. Since the global financial crisis, OECD has worked to implement new standards and tools on international taxation, with over 160 jurisdictions now committed to exchanging information as part of a global forum for tax purposes. Over 100 of them are already engaged in an automatic exchange of information — a level, he noted, that was considered impossible only 15 years ago. He said over 140 jurisdictions are part of the inclusive frameworks index, working to modernize taxation of multinationals, ensuring that all members, even small and developing countries, interact on an equal footing — with countries in those categories having had a considerable influence on developing a two-pillar system.
As a result, he expects a global increase of $150 billion in additional annual tax revenue, increasing developing countries’ revenue by 1.5 to 2 per cent of corporate tax revenue. Pillar 1, he noted, will reallocate $125 billion in profits, with developing countries gaining more than developed States as a share of global tax revenues. He noted that effective collection of value added tax on international digital trade has been successful, with Australia collecting $1.4 billion in the first four years of operation. Chile collected $337 million in its first 16 months, Costa Rica collected $21.5 million in eight months and Mexico has collected $321.5 million since implementing the guidelines in 2020. However, capacity constrained countries need help to implement the standards. Further work is also needed on illicit financial flows, with more research to help Governments identify where the risks are.
Responding to the panellists, Mr. WORT stressed that creating fiscal space is crucial for achieving the Sustainable Development Goals. Noting the impact of the pandemic, as well as the war in Europe, on the global economy, he said the challenge of rebuilding economies at a time of rising inflation is far greater in Africa than elsewhere. Domestic resource mobilization remains the most viable solution for achieving the Sustainable Development Goals, he said, calling on Governments to address the wide range of fiscal policy options that will enable them to do that. “Broadening the tax base is crucial,” he said, adding that countries must move away from single-source income dependency, by introducing property taxes and capital gains taxes and broadening the tax register. Corporate behaviour is a big driver of illicit financial flows, he said, adding that the international community needs to move beyond rhetorical complaints and towards concerted action.
Ms. MUKUMBA said the current system sees $240 billion of corporate tax revenue lost due to tax avoidance by multinational enterprises. However, developing countries have not been able to equally contribute to reform discussions. Current discussions are spearheaded by OECD — but only half of the 54 countries in Africa are members, and fewer than half have adopted the inclusive framework. Meanwhile, she noted 100 per cent are Members of the United Nations, which should be the platform for discussions on tax and illicit financial flows. She said the blueprints that have been developed by OECD are unlikely to deliver an outcome that is a substantial improvement on existing frameworks — rather, they will reinforce the current allocation of taxing rights between source and residence countries, penalizing countries in the Global South.
She noted that pillar one — intended to address the allocation of taxing rights between jurisdictions and consider various proposals for new profit allocation and nexus rules — fails to come up with a comprehensive solution applicable to all multinational enterprises. Meanwhile, pillar two, calls for the development of a coordinated set of rules to address ongoing risks from structures that allow multinational enterprises to shift profit to jurisdictions where they are subject to no or very low taxation. She expressed support for calls by “Group of 77” developing countries and China for a universal intergovernmental tax body to be established at the United Nations. The African Group in 2019 also proposed a United Nations Tax Convention which the group believed could help tackle illicit financial flows. She noted that her civil society group has also followed up by publishing a proposal for a United Nations tax convention, as such a framework convention would be a legally binding document allowing Governments to strengthen international cooperation and governance on tax and tax-related illicit financial flows.
In the interactive dialogue that ensured, the representative of Finland stressed the importance of strengthening the taxation capacities of developing countries side by side with ensuring corporate tax responsibility. The perspectives of developing countries should be taken into consideration much more during global tax policy discussions, she said, asking the panellists for guidance on how best to step up cooperation between different initiatives.
The representative of Zimbabwe noted that many developing countries are rich in resources such as platinum, lithium, uranium and granite. But these national resources are not leveraged well, he pointed out, noting the large-scale exportation of raw minerals. Also pointing to the challenges of taxing the informal sector, he said that fiscal incentives often go against the goal of raising revenues.
The representative of the Russian Federation highlighted various measures his country has implemented recently to address suspicious financial transactions and money-laundering efforts.
A representative of the Society for International Development, noting that illicit financial flows are at the highest levels ever, expressed concern about the marginalization of the United Nations from the multilateral negotiations concerning this. The Inclusive Framework did not consider the perspectives of developing countries, he said, pointing to problems with the two-pillar approach.
A representative of EuroDebt expressed concern that some developed countries are discussing blacklisting countries that do not follow OECD standards for tax reform. This is not tax cooperation, she stressed, cautioning that it will lead to more inconsistencies in the global tax system and welcoming the proposal to negotiate a United Nations tax convention.
The representative of the Third World Network, also speaking for the Civil Society Financing for Development Group, said any tax reforms, especially of the digital economy must recognize every nation’s sovereign right to impose taxes, without threat of trade sanctions or political pressure to agree to an international framework that generates little or nothing in tax revenue in market jurisdictions. Unfortunately, the Inclusive Framework only seeks to tax companies with revenue of €20 billion. He echoed calls for creation of a United Nations tax body.
Ms. TIONKO said raising additional revenue for the Sustainable Development Goals can be successful when excise taxes are adjusted on tobacco and sugary drinks, as based on consumption — the more people consume, the more they pay, which does not affect lower-income people as much. While there is a need to strike a balance between attracting foreign investment and offering incentives, she noted each country can rationalize and target them to its needs.
Mr. FLOMO said partnerships and knowledge sharing can strengthen programmes designed for States’ tax needs. The problem arises when countries and their international partners working in the development space see themselves as two different actors, with a disconnect on the approach to the Sustainable Development Goals, affecting tax restructuring.
Mr. TAKEUCHI said effective, fair tax systems are crucial for achieving the Sustainable Development Goals, but without a conducive international environment, “we risk a race to the bottom”. The OECD is, therefore, working on capacity-building and tackling tax evasion and illicit financial flows for those countries that need it.
Mr. CONTRERAS said it is essential to build trust between the Government and the public before reforming tax architecture. Stressing the importance of participatory and transparent policymaking, he added that tax waivers and exemptions should be reassessed. Noting his country’s high rate of non-compliance with the tax code, he said it is crucial to transform tax administration mechanisms and tap into informal sectors, while also ensuring that small and medium-sized enterprises are not unduly punished.
Mr. AGBA, speaking from his country’s experience, said that Governments must focus on raising revenues from sectors that are less volatile. Resources such as oil and gas tend to be affected by global geopolitics, as well as weather, whereas corporate and value added taxes tend to be more reliable, he said. Nigeria is identifying new revenue streams while also improving efficiency in the collection system through the use of technology, he noted. Turning to the Inclusive Framework agreement, he said it does not adequately address the potential for negative revenue. The rules must not infringe on countries’ ability to introduce laws, he stressed.
Mr. WORT added that as long as the issue of source and residence is not up for debate, there can be no equitable tax system. Calling for a neutral space where this issue can be discussed, he said there needs to be greater interest in the tax standards around the world, as well as the impact of tax treaties.
Ms. MUKUMBA highlighted the proposal for a global tax convention and added that the current conversations are not happening in a space that allows for all views to be considered.
Panel II
In the afternoon, the forum held the second of its three panels for the day, on the theme of “Boosting private investment in the Sustainable Development Goals (SDGs)”. Opening with a keynote address by Nano Dankwa Akufo-Addo, President of Ghana, it was moderated by Liz Bronder, Managing Director of Global Sustainable Finance at Bank of America. Featured panellists were Sosten Alfred Gwengwe, Minister for Finance and Economic Affairs and Member of Parliament of Malawi; Narantsogt Sanjaa, Deputy Minister for Finance of Mongolia; and Marc-André Blanchard, Executive Vice-President and Head of the Caisse de dépôt et placement du Québec Global; and also with lead discussant Rodolfo Lahoy Jr., representing IBON International, a non-governmental organization in consultative status with the Economic and Social Council.
Mr. AKUFO-ADDO said global attempts to attain the Sustainable Development Goals are off target. Finance and investment needs of developing countries have increased as COVID-19 has not only reversed years of progress but revealed critical gaps in infrastructure in areas such as health care and digital connectivity. The prospects for developing countries making up lost ground have been severely undermined in recent months by rising geopolitical tensions, he noted, impacting commodity prices and raising financial market volatility. “Though the bombs might be dropping on cities half a world away, they are hitting our pockets, not only here in Ghana, but also in much of the developing world,” he stated. However, these global headwinds and uncertainties “should enhance our resolution”, he said, noting, “This is the time to think big and act smartly.”
Acting smartly, he continued, requires Governments of developing countries to find innovative solutions and adopt strategic measures to unveil opportunities for additional financing, especially from the private sector. His Government is determined to scale up private investment towards innovative and sustainable financing to bridge the investment gap. The country is also in the process of issuing green bonds to give investors the opportunity to invest in renewable energy, sustainable water management and other climate friendly projects. He also said Ghana is providing incentives for institutional investors, commercial banks and other capital market actors, through a combination of targeted policies, regulatory measures and institution/industry-specific initiatives. Two years into the decade of action on the Sustainable Development Goals, ramping up domestic and external private investment and exploring innovative financing frameworks remain key to unlocking the potential inherent in the commitments in the Addis Ababa Action Agenda.
Mr. GWENGWE, noting that foreign direct investment (FDI) flows to least developed countries have been on a decline since 2015, pointed out that current flows are heavily concentrated in the extractive industries. The top 10 countries receiving such flows accounted for three quarters of the investment, he said, adding that the pandemic had further weakened FDI flows. Calling this a warning indicator, he noted that the decline in food and agriculture investments is impacting the most vulnerable. FDI inflows are forecast to remain very low in 2022, he said, noting the disruption in global value chains. Such conditions are threatening the graduation plans of many least developed countries, he said.
Stressing the importance of reigniting the engines of trade and investment in the least developed countries, he highlighted the political consensus enshrined in the Doha Programme of Action. The international community must implement that document’s call to advance investment promotion, he said, also stressing the need to provide financial and technical support, as well as advisory support on investment-related dispute settlement. It is also necessary to explore the feasibility of an international investment support centre for least developed countries, he said, stressing the need for urgent action by international organizations, the private sector and Member States.
Mr. SANJAA said that in 2020 Mongolia amended its law on development policy and planning, forming a long-term development strategy compatible with the Sustainable Development Goals. The first phase of its recovery policy focuses on areas including energy, the industrial sector, urban and rural sectors and Government productivity, for a total of 93 projects costing $25.2 billion. He noted that 68 of those projects, using 86 per cent of its budget, are public-private partnerships and private sector investment — illustrating the importance of those initiatives. Without them, it would be impossible to overcome current constraints, further growth and expand the economy.
He noted comprehensive reforms to foster a favourable environment for private investment, including a law on public-private partnership submitted to Parliament, leading to a better legal environment and transparency for investors. The country is re-establishing an investment council and focusing on Government productivity and the digitalization of services, enabling investors to obtain visas and permits immediately without human interaction. He suggested that international financial institutions should pay more attention to creating new financial instruments and mechanisms to promote private investment for developing countries and requested the cooperation of the Economic and Social Council itself.
Mr. BLANCHARD stressed the importance of thinking big, “moving from billions to trillions”. The international community needs to accelerate investment flows but also change course in some places, he said, noting the decline in investment flows and the stagnation in official development assistance (ODA). The money has to come from the private sector, he said, adding that during his time at the United Nations, “what does the private sector want?” was a constant question. It is crucial to remember that the private sector has many players, from small and medium-sized enterprises to family-based philanthropy to institutional investors, he pointed out.
“It would be a mistake not to think of institutional investors,” he continued, calling for transparent information-sharing, to enable institutional investors to identify bankable projects. “Blended finance” calls for pools of capital, user-friendly instruments and infrastructure, he said, noting that the pension fund organization he represents is planning to invest in a billion-dollar platform for climate adaptation infrastructure in Africa. “We are not alone,” he said, adding that new partnerships such as this are crucial.
Mr. LAHOY said the current crises should have been an eye-opener about market power, financial markets and their pitfalls amid inequitable recovery, food price speculation and capital flight in the South. Yet, he noted, countries still heavily rely on private finance actors for solutions, blended finance and risk guarantees. The 2022 Financing for Sustainable Development Report admitted the limits of capital market hype, while the report stated the development impacts of blended finance are unclear at best. The Global South is not a stranger to the harms of so-called green infrastructure projects that have been made into business opportunities, he noted.
He stressed it is a policy mistake for States to be defined by their capacity to facilitate profits through business-friendly rules and carrying the risks that private investors are not ready to take. While agreeing on the overall sense of urgency and echoing calls to “think big”, he called for a focus on democratically determined policy and planning with financial regulation. The international community must downgrade private finance as a source, as public sources are more sustainable and directly accountable. While international financial institutions offer the same problematic approaches, he called for a United Nations international conference on financing for development. Acting smartly means moving beyond pre-pandemic choices, he said.
Responding, Mr. GWENGWE stressed the role of bold and decisive reforms to streamline processes for FDI. Using the extractive industry as an example, he noted that sometimes prospecting and mining can be “a long journey filled with hurdles”. Speed does matter, he said, adding that public policy must prioritize efficiency and speed. The agricultural space for FDI must allow the private sector to operate with minimal intervention by Governments, he said, adding that attracting substantial and attractive investments in that sector calls for free movement of goods. Also underscoring the role of digitalization, he called on least developed countries to embrace digital tools to offer investors easy access to information about the country and its investment climate and processes.
Mr. SANJAA said new kinds of partnerships with international financial agencies must be developed. Given Mongolia’s lack of experience in the arena, he asked to work with Mr. Blanchard and the Caisse de dépôt et placement du Québec in going forward.
Azerbaijan’s delegate noted various measures taken to improve the business climate in her country, from tax reforms to simplified customs procedures. Outlining a number of initiatives, many of them addressing the destruction caused by Armenia, she said that her Government rebuilt nine cities and hundreds of villages which were razed to the ground. Given the scale of destruction and the multifaceted nature of reconstruction, support from financial institutions is crucial, she said.
The representative of the Society for International Development, also speaking on behalf of the Civil Society Financing for Development Group, including the Women’s Working Group on Financing for Development, said current financial architecture is not fit for purpose to achieve the Sustainable Development Goals — further calling for the United Nations to be the central platform for policy coherence, and a United Nations tax convention. Amid growing calls for Governments to create a welcoming business environment, she noted private investors have a lot of capital on their hands, wondering why Governments are being asked to take the risks on their behalf. She urged for debt cancellation and financial sector regulation.
The representative of Zimbabwe pointed to the concentration of FDI on the extraction of minerals, highlighting the challenge posed by the conflict between investors and communities due to exploitative extraction. It is crucial to ensure that such resources can be used by future generations, he said, also stressing the importance of value addition and cautioning that otherwise, when finite resources are used up, investors will leave.
Panel III
The forum then turned to the third panel discussion of the day, on the topic of “Expanding concessional finance aligned with national sustainable development strategies”. Opening with a keynote address by Iván Duque Márquez, President of Colombia, it was moderated by Masood Ahmed, President of the Center for Global Development. The featured panellists were Francisco André, State Secretary for Foreign Affairs and Cooperation of Portugal; Erivaldo Alfredo Gomes, Secretary of International Economic Affairs at the Ministry of Economy of Brazil; Titta Maja, Director-General at the Department for Development Policy of the Ministry for Foreign Affairs of Finland; Remy Rioux, Chair of the International Development Finance Club; and Carmen Madriz, acting General Manager for the Caribbean Department at the Inter-American Development Bank; with Mami Mizutori, Special Representative of the Secretary-General for Disaster Risk Reduction acting as lead discussant.
Mr. DUQUE said financing for development, the needs of recovery and reviving the health system require overcoming recent years of uncertainty. Colombia has done this, he noted: doubling the number of intensive care units and launching a free and fair mass vaccination programme covering 70 per cent of its population with two doses. The country has activated a $50 billion economic recovery programme paying particular attention to vulnerable populations, with economic transfers to 11 million homes. Achieving 10.6 per cent growth in 2021 and expecting to reach 5.8 per cent growth in 2022, Colombia recovered 90 per cent of employment lost during the pandemic. He cited new poverty figures revealing the inequality coefficient improved in 2021, even in comparison with pre-pandemic years.
He stressed the importance of capitalizing on various multilateral institutions, including the Inter-American Development Bank, strengthening the Central American Bank for Economic Integration and receiving more help from the World Bank — requiring a great deal of goodwill from developed countries. The most vulnerable countries require tools including debt exchanges as they cannot address climate change with traditional resources. Middle-income countries also need tools to access carbon bonds and green bonds and budget mechanisms that will free up resources for climate change without competing with social investment and infrastructure. He noted Colombia is growing: ranking as the country that has most reduced poverty over the past two years, as well as one of the fastest-growing economies.
Mr. GOMEZ said that COVID-19 represented a shock to the developing world and just as economies began to recover, the international community was struck by the conflict in Ukraine. Outlining the impact on the global markets, he noted rising energy prices, increasing inflation and a looming food crisis. Concessional finance is key to the developing world in this climate, he stressed, adding that multilateral banks play a key role in providing support. Stressing the need to design new concessional instruments, he said that it is also important to focus on complementary opportunities for private sector investment.
Underscoring the need to evolve beyond traditional lending instruments, he said that many banks are operating in the twentieth century when they should be innovating new tools that adapt to the changing demands of the twenty-first century. Highlighting the need to develop private capacity in the developing world, he noted immense funding gaps for infrastructure projects and called for increased collaboration to deliver innovation and concrete results for development.
Ms. MAJA said there is obviously an immense gap between funding needs and the current scale of finance aligned with the Sustainable Development Goals — which can only be achieved through the mobilization of both public and especially private capital. The pandemic and the Russian Federation’s aggressive war against Ukraine are not making the situation any easier, she stressed. Domestic resource mobilization, especially in taxation, plays an important role, she said, with Finland supporting regional initiatives in Africa to strengthen taxation capacity. Financing requirements include de-risking initiatives, and innovative structures promoting private sector participation. She noted that Finland’s total development policy investments and loans exceed €1 billion, especially benefitting Africa and climate action.
Mechanisms supporting capital mobilization should adhere to best practices and international standards, she said, with funding designs complying with agreed-upon blended finance principles. She noted the biggest amounts of funding are attracted to low-risk environments, while high-impact projects are often located in high-risk environments, making it challenging to mobilize private capital. As a result, Finland is providing grant-based assistance to those environments, while using lending portfolios in lower-risk environments. In the long-term, the bulk of investment will be from domestic savings, she said, with attractive solutions already in place. She noted that Finland has increased the capital base of its national development finance institution, or FinnFund, and strengthened its risk-taking capacity. Investments, she said, should always be in accordance with environmental, social and governance criteria.
Mr. RIOUX said that his organization is a unique coalition of 530 public development banks around the world, who are motivated by the belief that it is essential to expand concessional financing in alignment with national development strategies. “The trillions needed are already there,” he said, but they need to be redirected to the poorest countries. Public development banks, if properly guided and incentivized by Governments, can help accomplish this, he said.
Highlighting the multifaceted role public development banks have played in various countries since the outbreak of the pandemic and the conflict in Ukraine, he pointed to Brazil and South Africa. “We are working hard to operationalize the concept of alignment,” he said, providing an overview of a partnership for energy transitions, in which several public development banks joined forces with the South African Government. Highlighting the need for shared standards and transparency, he called on Governments “to set our mandates right”. It is necessary that they explicitly support the Sustainable Development Goals and climate goals, he said, stressing the need to define a framework that goes beyond ODA.
Ms. MADRIZ said the region is now a poorer, more indebted and unequal region, after the biggest economic collapse in the last 200 years, reversing decades of progress. In that context, multinational development banks play a key role in making the best use of every dollar of financing, attracting public and private investment and emplacing highly technical advice for the recovery. The Inter-American Development Bank is increasingly helping countries to put in place comprehensive risk management tools and use hedging instruments for better foundations to cope with future shocks. She noted the war in Ukraine has shown how powerful commodity hedging instruments can be for net commodity importers.
Along the same lines, the Bank must mobilize more resources towards the Sustainable Development Goals, requiring adjustments in the business model. She noted innovations with development partners, including thematic bonds, and how public-private windows have supported one third of all sovereign and thematic bonds issued in Latin America and the Caribbean since 2016. Financial institutions and knowledge brokers can and should enhance cooperation between countries and international financial institutions. In the health-care domain, she said that multinational development banks helped countries procure vaccines, but there is enormous space to strengthen health-care systems for preparedness. These areas will require support for infrastructure expenditures and coordinated development assistance is essential for countries to set up pandemic preparedness.
Mr. ANDRÉ said least developed countries and small island developing States are particularly exposed to rising socioeconomic and environmental vulnerabilities due to limited fiscal space and high debt burdens. Achieving the Sustainable Development Goals without leaving any one behind requires innovative instruments and solutions, he said, noting the role of concessional finance in that regard. Portugal is among members of the Development Assistance Committee of OECD with the largest share of concessional finance portfolio channelled to small island developing States. His country has also been participating in discussions on creating new measures of development beyond GDP per capita, he said, stressing the need for development metrics that truly reflect realities on the ground to better address a country’s challenges. Expressing support for the high-level panel on the multidimensional vulnerability index, he noted that some international financial institutions and multilateral development banks already consider climate-related vulnerabilities when providing exceptional access to concessional windows for small island developing States.
Ms. MIZUTORI highlighted the need to support the most vulnerable and at-risk countries by helping them to attract an enabling environment for investment and business and strengthening development banks. It is particularly critical to ensure that all countries can invest in climate resilience, she said, also calling for more innovative market-based tools. At the same time, she said, it is vital for institutional investors to consider the social and environmental impact of their investments. Also highlighting the call for de-risking and grant-based finance in higher-risk countries, she encouraged all development partners to look beyond project-based funding, considering instead how to become catalysts in long-term financing for development partnerships.
The representative of Thailand said her country aims to reach carbon neutrality by 2050 and zero emissions by 2065. Thailand is building a robust sustainable financial ecosystem, with multiple initiatives including using enriched data sources, and launching a bonds platform. Sustainable Development Goal bonds are a crucial part of the ecosystem, including green bonds and sustainability bonds, with an eye on every innovation in the market.
The representative of the Philippines, noting that the pandemic has highlighted the need for a coordinated global response, added that developing countries must adopt a whole-of-society approach. Expressing gratitude for the support from bilateral and multilateral partners, he noted that his country received $11.24 billion which helped finance critical social and economic interventions.
Colombia’s delegate, speaking on behalf of the Like-Minded Group of Countries Supporters of Middle-Income Countries, stressed that concessional finance is crucial to the States in that bloc. Noting the multidimensional challenges caused by the planetary crisis, biodiversity loss and pollution, as well as highlighting the problems posed by the pandemic, he pointed to indebtedness, the large influx of refugees and the food crisis. The GDP-based indicator used to allocate ODA is insufficient, he said, urging the international community to use complementary measures that go beyond GDP.