Challenged by Poor Access to External Financing, Aid, Least Developed Countries Must Mobilize Domestic Resources, Promote Investment, Speakers Stress at Doha Round Table
DOHA, 8 March — Efforts to mobilize domestic resources, increase Government revenues, promote investment and fight illicit financial flows are required to offset the challenges that least developed countries face in accessing concessional financing and insufficient external development aid, speakers stressed today as the fifth United Nations Conference on the Least Developed Countries held its last full day of high-level thematic round tables.
Opening the meeting on “Resource mobilization and strengthened global partnerships for sustainable development in least developed countries”, Sorasak Pan, Minister for Commerce of Cambodia and Co-Chair of the seventh high-level thematic round table, pointed out that least developed countries depend on public resources to finance their sustainable-development needs. Fiscal deficits have only grown, occasioned by increased spending needs across all sectors in response to the COVID-19 pandemic. Urgent measures are therefore needed to support economies and social-protection systems. On that point, he highlighted the gender impact of such policies, as women are impacted the most when public services are cut.
He went on to point out that least developed countries’ access to most forms of financing are stagnating or declining, while their external debt is rising in an unsustainable fashion. Further, such countries’ ability to mobilize domestic resources is affected by the underlying vulnerabilities that define the category, including low income levels, weak market infrastructure and high dependency on external development financing. Against that backdrop, he said that the Doha Programme of Action aims to expand the resources that least developed countries can channel towards achieving the 2030 Agenda for Sustainable Development.
Fitsum Assefa, Minister for Planning and Development of Ethiopia and Co-Chair, then underlined the need to discuss genuine partnerships that can help least developed countries graduate from that status. Most such countries face similar challenges in mobilizing domestic resources, fighting illicit financial flows, accessing external finance and attracting foreign direct investment (FDI). Noting that these issues have been discussed for a long time, she stressed that it remains true that official development assistance (ODA) is the largest source of external financing for many least developed countries. Reporting that domestic-revenue mobilization in Ethiopia — which faces high debt distress and limited fiscal space for development — is still low despite yearly increases, she said that her country requires capacity-building in areas such as streamlining tax policy and incorporating the informal sector into the national economy. This will allow sustainable development financing to be raised domestically, she said.
Annalisa Prizzon, Principal Research Fellow at the Overseas Development Institute, delivering a keynote address, noted that economic shocks are more frequent, prolonged and overlapping, that fiscal space in most countries is shrinking and that servicing debt is becoming more expensive. Financing is therefore necessary, but it is not sufficient for development and growth. Least developed countries have several things in common, she noted — structural vulnerabilities that hamper socioeconomic development, challenges in accessing financial resources, a dependence on ODA and limited access to external financial flows.
Against that backdrop, she stressed the need to avoid a decrease in ODA flowing to these countries in the years to come. In 2021, average donor contributions equated to only 0.09 per cent of gross national income on average, significantly short of the 0.15-0.20 target established in the Istanbul Programme of Action. Further, between 2020 and 2021, less than 25 per cent of total ODA reached least developed countries, and competition for concessional financing will only increase.
She also emphasized the need for greater alignment of development financing with least developed countries’ priorities, to increase coordination with development actors on the ground and to boost the delegation of authority to national offices. Local capacity must also be strengthened, shifting reliance on international consultants to local actors with a better understanding of the local context. She added that implementing the Doha Programme of Action will only be successful if scarce concessional financing is prioritized for least developed countries, stressing that such countries’ access should be as easy and sustainable as possible.
The seventh of eight thematic round tables scheduled for the Conference featured panellists Papa Amadou Sarr, Executive Director of the Mobilization, Partnerships and Communication Department of the French Development Agency; Nadjati Soidiki, Chief Executive Officer of the Comoros National Promotion Agency; and Robert Powell, Special Representative of the International Monetary Fund (IMF) to the United Nations.
Mr. Sarr said that the French Development Agency works with partners towards specific goals in the sectors that are often unattractive to international financial markets, such as health, education and infrastructure. Underlining the need for mass investment in least developed countries, he detailed the Agency’s assistance to Senegal, Morocco, Benin and Côte d’Ivoire in mobilizing domestic resources and long-term infrastructure investments. To help overindebted least developed countries, the Agency is working to help local financial institutions build capacity and mobilize more resources; identify project pipelines that could receive leveraged funding; build resource-monitoring tools to ensure that funds are channelled into the correct sectors; and bolster least developed countries’ resilience to shocks. Adding that investment from the private sector is the primary creator of jobs and growth in least developed countries, he underscored the need to “bring them in”.
Ms. Soidiki, noting that part of her mandate is mobilizing FDI, underlined the importance of doing so because of the need to reduce dependency on ODA over the long-term. She pointed out, however, that least developed countries are competing with all countries — not just those in their category — to attract FDI and, therefore, that they must boost their attractiveness for private investment. On that point, she detailed Comoros’ efforts to set up institutions — like the Agency she represents — and regulatory tools, alongside the reform of its Investment Code. In doing so, the Government has promoted investment policy that allows investors to feel welcome and incentivized to make the decision to invest, while also reducing the tax and customs exemptions that were contained in the previous code. Noting that these efforts strike a balance that allows her country to avoid sacrificing public revenue while sending a positive message to investors, she added that her country also offers investors guarantees against expropriation and the legal right to international arbitration in case of disputes.
Mr. Powell, noting that public finances are stretched in most countries, said that strengthening domestic resources — especially tax revenues — is a critical means with which least developed countries can support the Sustainable Development Goals. The livelihoods of those living in such countries depends on the State’s ability to raise resources and spend them effectively, and the fiscal system is an essential tool for sustainable structural transformation. He also stressed that tax systems are foundational to the social contract, in which taxpayers contribute to society and, in return, the Government provides valuable goods and services. There is, then, a need to invest in improving the administration of tax and customs revenue, he said, noting that, while the cost of administrative improvement is often not very high, it can yield large returns. Further, by building trust through the effective management of State revenue, Governments can more successfully advance other public policy goals. He added that, for its part, the IMF provides least developed countries with diagnostic and policy advice, targeted financing and outreach on debt issues.
The round table then turned to its lead discussants, Antonio Pedro, Acting Executive Secretary of the Economic Commission for Africa (ECA); and Eric LeCompte, Jubilee USA Network.
Mr. Pedro, spotlighting Rwanda’s experience in improving its tax administration by deploying digital infrastructure to reduce the costs of tax enforcement, underscored that similar measures must be implemented across least developed countries — especially in Africa. African and other least developed countries must take care of the basics, he stressed, including simplifying tax administration and mobilizing domestic resources. On that point, he noted that the Grand Ethiopian Renaissance Dam was financed by citizens and stated that initiatives such as this can contribute to Africa’s structural transformation. Further, a combination of FDI and industrial policy could expand the continent’s tax base as this would facilitate the creation of small and medium-sized enterprises, which would create employment and, therefore, increase the number of taxpayers. Pointing out that the African Continental Free Trade Area could be a market of 2.5 billion — the combined size of India and China — by 2050, he said that these numbers alone will make Africa a competitive investment destination.
Mr. LeCompte stressed that “debt and debt alone” is putting the Sustainable Development Goals in danger. Outlining an important solution on the horizon, he highlighted a New York law that has the potential to shift the financial system for developing countries. Since New York is the world’s financial capital, 52 per cent of the world’s privately held debt is governed by New York state law, he said, noting that the New York Taxpayer and International Debt Crises Protection Act addresses the international debt crisis and helps limit supply shocks. Calling on all stakeholders to urge the New York legislature to quickly pass this law, he also stressed the importance of curbing illicit financial flows, which will raise billions for least developed countries. More aid from the global North is not coming, he said, adding that it is crucial to curb the professional and corporate tax evasion that takes place in every least developed country. Urging these countries to use the technical expertise provided by the United States Department of the Treasury’s Office of Technical Assistance, he said its only role, at any country’s request, is to advise on how “to capture tax from those who are not paying taxes in your country”.
When the floor opened, many ministers and delegates urged developed countries to honour their ODA commitments of 0.7 per cent of gross national income and called for reform of the global financial architecture. Others shared national experiences and recommendations, urging that least developed countries can do more to mobilize domestic resources and finance development internally in lieu of the external financing that has declined in recent years.
Mpotjoane Lejone, Minister for Foreign Affairs of Lesotho, pointed out that least developed countries have been pushed deep into debt by attempts to supplement national resources that are insufficient for development. It is imperative, therefore, to prioritize domestic-resource mobilization and strengthen financial institutions to prevent illicit financial flows, combat money-laundering and bolster tax revenue. He also called on developed countries to fulfil their ODA commitments and on donor countries to consider debt cancellation or restructuring.
Aurélin Agbénonci, Minister for Foreign Affairs of Benin, also underlined the need to mobilize national resources, as least developed countries can no longer wait for charity from developed ones. These countries must also act to create environments conducive to developing public-private partnerships, attracting FDI and avoiding double taxation, fraud and tax evasion. Least developed countries must “speak the language of partnership, rather than just seeking help”, he added.
Seve Paeniu, Minister for Finance of Tuvalu, stated that conventional approaches to adaptation — such as nature-based projects — “no longer work”. Also no longer viable is the conventional financing of small, discrete, ad hoc projects. What is needed instead is comprehensive engineering- and infrastructure-based approaches that require significant investment. “This is the true cost of adaptation in Tuvalu,” he stressed. Noting that his country’s ability to mobilize domestic revenue is extremely limited given its narrow economic base, he underscored the importance of ODA.
In final remarks, Mr. Sarr noted that ODA is the primary source of financing for least developed countries, stressing that the focus going forward should be on the States’ capacity to mobilize concessional resources. Ms. Soidiki cited building capacity and expertise as essential to implement the strategies and mechanisms mentioned throughout the round table, which calls for the digitalization of administrations to resolve the challenges identified throughout the afternoon. Mr. Powell, citing the importance of financing, said that, with debt clearly unsustainable, ground rules must be clarified and processes made more effective and, further, that the international community should provide concessional lending and grants for those not in distress.
In her closing remarks, Ms. Assefa observed that least developed countries require reformed regulatory and policy environments, further noting that the transaction costs for sending remittances home must be lower. These are not new priorities, she said, but they require new focus if the Doha Programme of Action is to be implemented successfully. Most types of external financing have stagnated, she stressed, and more concessional financing should be provided to least developed countries — especially the most vulnerable — with the development of greater and more innovative forms of this support.
Also speaking were ministers and representatives of Burkina Faso, Mali, Zimbabwe, Angola, Finland, Liberia, Indonesia, Côte d’Ivoire, Senegal, Canada, Bangladesh and Morocco.
A representative of the United Nations Capital Development Fund also spoke, along with representatives of the International Anti-Corruption Academy, Public Foundation and Justice Call.