End Structural, Financial Roadblocks for Developing Countries to Tackle Climate Crisis, Sustainably Transform Infrastructure, Speakers Tell Financing for Development Forum
On the third day of its annual Financing for Development Forum, the Economic and Social Council heard from speakers stressing the need to address structural and financing roadblocks that condemn developing countries to struggle with the multiple crises of climate change, sustainable infrastructure transformation, and international tax cooperation in tackling illicit financial flows.
In the Forum’s seventh panel discussion, “Climate financing for adaptation and the SDGs”, panellists highlighted the danger of a world failing to meet the targets of the Paris Agreement on climate change, leaving developing countries to face climate and financial crises that hinder development — further addressing how the private sector can significantly mobilize and scale up investment for climate adaptation and the role multilateral development banks can play to that end.
Ahmed Kamaly, Minister for Planning and Economic Development of Egypt, emphasized that the promise of developed countries to mobilize $100 billion annually by 2020 for climate action in developing countries has not been fulfilled. As a result, many of the latter are funding adaptation from their budgets, with African countries paying up to 5 per cent of their gross domestic product (GDP). Public finance cannot be a sole provider of climate finance, he said, highlighting the importance of bilateral cooperation, multilateral development banks, international financial institutions and investments.
Eva Del Hoyo-Barbolla, Director General for Sustainable Development Policies of Spain, noted that adaptation finance is increasing, representing 34 per cent of total climate finance — but not at the pace of climate impacts and the growing financing gap, which is estimated to be 5 to 10 times greater than current adaptation finance levels. Highlighting the importance of the private sector, she called for Government measures and incentives to help it redouble efforts to mobilize adaptation finance. The international community must demand transparency about the financing to avoid unnecessary subsidies, unfair competition and greenwashing, with multilateral development banks playing a leading role in increasing support to the most vulnerable countries through grants.
Marie-Hélène Loison, Deputy CEO at Agence Française de Développement, advocated for a complete alignment of financial flows with the Sustainable Development Goals and the Paris Agreement — as public development banks represent over 10 per cent of all public and private global financial flows and manage about $23 trillion in assets. In a world requiring the mobilization of some $4 trillion annually for energy transition and $1 trillion annually for adaptation by 2050, the international community must rethink how official development assistance (ODA) can serve the climate agenda. She called for all public and private financial flows to be directed towards the Global Goals and climate adaptation projects.
In the afternoon, the Forum held its eighth panel discussion, on the theme of “advancing international tax cooperation and tackling illicit financial flows to safeguard and mobilize domestic resources”.
Ibrahim Mayaki, FACTI Panel Co-Chair, stressed that illicit financial flows have derailed progress in financing the 2030 Agenda for Sustainable Development and the 2063 Agenda in Africa, underlining that developing countries are particularly vulnerable. While transparency and exchange of information have advanced in many ways, “we must scale up capacity support for developing countries to advance these tools and mechanisms,” he stressed — adding that promoting domestic tax cooperation will strengthen the domestic revenue realization and scale up international tax cooperation.
Zayda Manatta, Head of the Secretariat of the Global Forum on Transparency and Exchange of Information for Tax Purposes of the Organisation for Economic Co-operation and Development (OECD), noted major progress worldwide over the last 10 years in transforming the tax landscape, with standards on information exchange — including banking and legal and beneficial ownership information. There were 111 million financial account items exchanged in 2021, covering nearly €11 trillion and involving developing and developed countries. This has translated not only into greater transparency but revenue mobilization, identifying €140 billion, and €30 billion by developing countries. However, in Africa, only four countries — Kenya, Tunisia, Nigeria and Uganda — have responded to 92 per cent of all requests for information on the continent.
Earlier in the day, the Forum held its sixth panel discussion on the theme “financing sustainable industrial transformations”.
Stefano Prato of the Society for International Development said it is impossible to discuss industrial transformation without challenging the “homogenizing” role of global value chains, which have “trapped” developing economies into specialization and focus on primary production, compressed wages, and promoted economies of rent, while delocalizing social and environmental impacts of production. Global value chains have been extracting rather than adding value, he stressed, pointing to the commodity dependence of many Global South countries. He underscored the importance of shifting away from global to local economies, based on national and regional transformation agendas.
Javiera Petersen, Vice-Minister for Economy and Smaller Enterprises of Chile, called for Governments to develop productive transformative processes — as achieving an environmentally sustainable transition requires a strong industrial base, and public financing is crucial, with high investment flows that can be difficult to achieve in developing countries. A multi-sectoral approach is needed, with green designs which will help decrease carbon emissions and help build a dynamic industrial base. Financing must be coordinated to move towards effective public and private investment, she said, while public programmes must also be developed to keep people employed during the transformation.
The Forum will reconvene again at 10 a.m. on Thursday, 20 April, to conclude its work.
The Forum held its sixth panel discussion on the theme “financing sustainable industrial transformations”. Moderated by Zou Ciyong, Deputy Director General of the United Nations Industrial Development Organization (UNIDO), it featured panellists Javiera Petersen, Vice-Minister for Economy and Smaller Enterprises of Chile; Elnur Ibrahimov, Leading Advisor on the Sustainable Development Goals (SDGs) in the Ministry of Economy of Azerbaijan; Jayati Ghosh, Professor of Economics at the University of Massachusetts Amherst; and Sanjay G. Reddy, Associate Professor and Department Chair of economics at The New School; with Stefano Prato of the Society for International Development serving as the lead discussant.
Mr. ZOU noted that the manufacturing sector is key to job creation, technological advancement and poverty reduction, while the industrial sector is also crucial in fast-tracking green energy and digitalization. At the midpoint of implementation of the 2030 Agenda for Sustainable Development, investment in sustainable industrial transformation must be accelerated to close the widening development gap and achieve the Sustainable Development Goals. Citing the 2023 Financing for Sustainable Development Report: Financing Sustainable Transformations, he said a new green industrial age can be a breakthrough for the Goals, requiring scaled up and targeted public and private investment, with a new generation of industrial policies integrated with national planning.
Ms. PETERSEN said to achieve the Global Goals Governments must develop productive transformative processes and efforts must be made to create socially and environmental responsible economies. To achieve an environmentally sustainable transition, a strong industrial base is needed, she said, adding that public financing in this area is crucial and requires high investment flows, which can be difficult to achieve in developing countries. As these countries Governments must balance current crises with long-term demands, public financing becomes a strategic tool. Developments in technology and production must be viewed as investments, not expenditures, she stressed. Chile is working to increase investments in science and technology. These are crucial to build resilience in the face of climate change.
To tackle all challenges, there must be multisectoral approaches to produce a true social and environmental transformation in the country. Doing so will require green designs, which will help decrease carbon emissions and help build a dynamic industrial base. The lack of access to long-term financing is a challenge for companies, especially in developing countries. Financing must be coordinated to move towards effective public and private investment, she said, stressing the need for various financing instruments. She noted that Chile is working on new reforms and creating a variety of financing instruments, such as credits for innovation, union credits and funds for capital risk. Public programmes must also be developed to keep people employed during the transformation, she stressed.
Mr. IBRAHIMOV said Azerbaijan “opened the door” to the new economic model by accepting two strategic documents: Azerbaijan 2030 National Priorities for Socio-Economic Development and Social Economic Development Strategy 2022-2026, which focus on industrialization, while aligning with the sustainable development agenda. By implementing these plans, the country is expected to achieve economic diversification, which along with increased oil exports, will drive its economic growth to 3‑4 per cent annually, while the private sector share is expected to increase to 8.8 per cent. Clean environment and green growth are the main priority areas of the country’s new agenda.
In its transition to financing industry for sustainable development, Azerbaijan has adopted two main policies, including the creation of industrial zones and industrial parks, that contribute to the increase of export potential and the production of competitive products, he said. Currently, the country has seven industrial parks and five industrial districts, with a total investment of $4 billion. Moreover, an investment promotion mechanism was created to expand investment in the industrial sector; create new production and service enterprises; and improve the business climate. Financing the industrial sector focuses on partnerships with corporations, he said, adding that Azerbaijan and UNIDO signed a cooperation framework document for 2022-2026 to facilitate achieving the Sustainable Development Goals.
Ms. GHOSH said industrial policy is in a sad state, as it is more difficult for countries to engage in structural transformation to provide incentives for private investment to move to higher-value activities today than it has been for decades, due to the design of international economic architecture. The economic and fiscal policies of developed States have too much impact on the rest of the world, including trade policies in response to geopolitical tensions — affecting capital flows, exchange rate movements, debt viability and trade patterns. The global tax architecture is not fit for purpose, she observed, depriving developing countries of essential revenues from large multinational companies operating there, as well as extremely wealthy individuals who can park their assets. All of this must change, she stressed, but is moving in the opposite direction. Advanced economies are heavily protectionist, and developing countries cannot respond adequately to protect themselves against protectionism.
She called for consideration of how development financing institutions are responsible, and how to change the macroeconomic conditions and incentives for investment for structural transformation. Calling for the architecture to be changed, she cited the report submitted to the Secretariat entitled Breakthrough for People and Planet, featuring a number of recommendations, and urged for cooperation on tax reform and a coalition of the willing. Industrial policy cannot be considered as a national economic silo, but rather in relation to the global context, which must be reformed.
Mr. REDDY asked the audience to imagine a global economy that had already been transformed. He outlined such points as a world in which energy is generated locally from natural sources; the manufacturing processes that required widespread factories are minimized by the widespread use of 3D printing; and agriculture has benefited from the diffusion of new methods. The development goals of the twenty-first century would be viewed differently. People would see 2023 as a year in which people finally understood how transformative public financing investments and a range of new ideas could help countries develop sustainably. This year was important as the end of the pandemic had shown that the public sector could make breakthroughs in a brief time during periods of crises. It was shown that a shared sense of purpose was very important.
The architecture of global aid was seen as a fig leaf to deal with numerous global problems, he continued. New principles would have been developed to solve the global debt crisis, such as concessional approaches used after natural disasters struck countries. Multilateral banks would also be reformed and provide improved terms. Investments in global public goods would become important. A global economic architecture that relied on development would be used. Countries would work together in coalitions that invested in the global public good.
Mr. PRATO said it is impossible to discuss industrial transformation without challenging the “homogenizing” role of global value chains, which have “trapped” developing economies in specialization and focus on primary production, compressed wages, and promoted economies of rent, while delocalizing social and environmental impacts of production. Global value chains have been extracting rather than adding value, he stressed, pointing to the commodity dependance of many Global South countries. To this end, he underscored the importance of shifting away from global to local economies, based on national and regional transformation agendas. He further recognized the need for a different infrastructure agenda — not based on export and import corridors — that facilitates integration within primary, secondary and tertiary systems.
Spotlighting the push for energy and climate transformation, he said climate change is not the problem that requires transition in the Global South, but rather in the Global North. Turning to the sequence of financing, he called for a system without hegemonic institutions that could provide the scale of financing required. Recognizing the need for systemic reforms, he underscored the importance of protecting policy space and expanding it for developing countries, including by revising trade rules. “We need to re-open the conversation on trade and development,” he stressed.
In the ensuing interactive discussion, speakers stressed that industrial and structural transformation is crucial, but must be equitable, as current policies and architecture inhibit developing countries from advancing and reaching their potential.
The representative of Austria noted that sustainable industrialization can function as a bridge between climate and finance, with investment in sustainable and inclusive industrialization possibly driving the transformation in energy and food systems. He asked how to ensure that investments harness the maximum potential of digitalization for a productive green transition.
The representative of the Third World Network stated that developing countries, especially in Africa, have been calling for structural transformation for decades with industrial transformation at its core but have been restrained due to the global economic architecture, with trade policy at its centre. Developing countries require the space to use tariffs and subsidies as needed, she noted, calling for transformation that is sustainable but also equitable.
The African Union’s delegate said the African Continental Free Trade Area has designed a comprehensive market aimed at unlocking its potential and paving the way to structural transformation. With 18 per cent of the global population, heading towards 30 per cent, Africa represents one of the world’s largest markets, and requires access to international financing.
The representative of the Southern and Eastern Africa Trade Information and Negotiation Institute cited countries that export raw materials and import finished products. She offered the example of the chocolate industry, a $100 billion industry, with Ghana and Côte d’Ivoire producing the majority of the world’s cocoa but only earning $2 billion from it.
Responding to the delegates’ questions, Ms. PETERSEN said structural changes are required to meet development challenges and achieve transformation. New patterns of industrialization are required. There is a narrow window of opportunity for the Global South, she warned, adding that the localization of production will help ensure no one is left behind. She also stressed the importance of strengthening democracy.
Mr. IBRAHIMOV said moving towards transformation is not simple since all countries face unique challenges which require individual solutions. A focus on real human capital is needed.
Ms. GHOSH agreed on the need for regional cooperation and pointed to the African Union’s cooperation during the pandemic. Coalitions can share information, such as if they are part of similar trade agreements. The significance of multilateral institutions is great and she praised the General Assembly’s move in late November towards a United Nations tax convention that would produce a more inclusive outcome than the Organisation for Economic Co-operation and Development (OECD) model. Global responses are need to global problems. She emphasized the urgency of the moment and the need to meet the drastic challenges facing many countries, such as climate change and extreme debt stress. There is a need to rethink how industrial policies can be used with macroeconomic policies to respond to these crises.
Mr. REDDY associated himself with Ms. Ghosh’s remarks and agreed there is a sense of urgency and a business-as-usual approach is not acceptable. The setbacks to the Global Goals are quite serious. The reform of the multilateral banks is necessary, for example by lending much more extensively. Steep decreases in the prices of solar technology and other renewable technologies show how they are transformative tools.
In closing remarks, Mr. ZOU said the urgency of transformation is real and connected to all the Global Goals. To build a sustainable transition, it is necessary to create jobs and to foster domestic economic growth. There is a window of investment opportunity so developing countries will not be left behind. UNIDO stands ready to help countries. He said the outcomes of this session will provide important information for the high-level political forum in July.
Also speaking during the interactive discussion were the representatives of Argentina and Indonesia, as well as a representative of Gestos.
The Forum’s seventh panel discussion, “Climate financing for adaptation and the SDGs”, was moderated by Ligia Noronha, Assistant Secretary-General and Head of the New York Office of the United Nations Environment Programme (UNEP); and included panellists Ahmed Kamaly, Minister for Planning and Economic Development of Egypt, participating virtually; Eva Del Hoyo-Barbolla, Director General for Sustainable Development Policies of Spain; and Marie-Hélène Loison, Deputy CEO at Agence Française de Développement, participating virtually. Ms. Carola Mejía, Red Latinoamericana por Justicia Económica y Social, participated as lead discussant.
Ms. NOROHNA, opening the panel, said that the polycrysis of COVID-19, climate and conflicts has further thwarted achievement of the 2030 sustainable development agenda. Accelerated action to adapt to climate change is essential to closing the gap between existing adaptation and what is required, he stressed, adding that solutions lie in climate and biodiversity resilience development. She, however, lamented that financing to turn these plans into actions is not forthcoming and the development opportunities gap is widening.
Mr. KAMALY, noting that the promise of the developed countries to mobilize $100 billion annually by 2020 for climate action in the developing countries has not been fulfilled, said many of the latter are funding adaptation from their budgets, with African countries paying up to 5 per cent of their gross domestic product (GDP). Public finance cannot be a sole provider of climate finance, he said, highlighting the importance of bilateral cooperation, multilateral development banks, international financial institutions and investments. The developed countries, as the main shareholders with the largest financing through sovereign funds, should replenish the Green Climate Fund; push for multilateral development banks’ policy reform to enable more concessional funds; and use innovative instruments, such as guarantees, to reduce cost of finance and provide assurances to private investments.
To this end, following a participatory approach, Egypt launched “Environmental Sustainability Criteria Guidelines” to accelerate the green economy transition; expedite green recovery; and increase the share of green projects in the national investment plan. As a result, the country’s share of green projects reached 15 per cent in 2020-2021 with a view of reaching 50 per cent in 2024-2025. Additionally, the Government launched the twenty-seventh session of the Conference of the Parties to the United Nations (COP27) Presidency Initiative “Friends of Greening National Investment Plans in Africa and Developing Countries” to encourage the private sector to enhance green projects. In 2020, Egypt was the first country in the Middle East and North Africa region to launch “green bonds” of $750 million to mobilize resources for green projects in the field of clean mobility. Moreover, in 2019 it created a Sovereign Fund of Egypt in private investment to achieve the 2030 Agenda.
Ms. DEL HOYO-BARBOLLA noted that adaptation finance is increasing, representing 34 per cent of total climate finance — but not at the pace of climate impacts and the growing financing gap, which is estimated to be 5 to 10 times greater than current adaptation finance levels. Highlighting the importance of the private sector, she called for Government measures and incentives to help it redouble efforts to mobilize adaptation finance. The international community must demand transparency about the financing to avoid unnecessary subsidies, unfair competition and greenwashing. She called on multilateral development banks to play a leading role in meeting climate finance targets, ensuring a balance between finance adaptation and mitigation and increasing support to the most vulnerable countries and populations through grants. The banks can better integrate climate objectives into their mission without neglecting the central focus that must continue to be poverty eradication and shared prosperity. She noted that the banks, as well as Governments and bilateral donors, can play a key role by providing financial support and risk-sharing instruments, building capacity, facilitating public-private partnerships, developing innovative financial instruments, and calling for political change.
Ms. MEJIA said the climate crisis was created by unsustainable global models. It was created by a small group of wealthy countries and the solutions and financing should come from these polluters. Current ways of operating and policies will produce more frequent natural disasters and disproportionately affect women, children, the poor, rural farmers and other vulnerable groups, she warned. People who live in the Global South, such as her country, Bolivia, are the least responsible for these problems. International climate financing could play an important role yet the pledges have been unfulfilled and there is a lack of transparency. Sixty-two per cent of climate adaptation financing has been delivered through loans, which just increase the debt of these countries and are very unfair. Private investors have no interest in financing private investment unless they can make money, she said, stressing private investment is not the magical solution.
She noted the huge sums paid by developed countries on military expenditures. Political will is urgently needed to save the world. A significant challenge to this is that 91 per cent of climate financing is made through loans, and they are not concessional. This adds to the developing countries’ debt load. It is time to think of other ways, she stressed. Countries need debt relief from creditors. She demanded that adaptation funding be doubled and be provided in the form of grants, adding that climate financing should be accountable and just.
After the floor opened for the interactive discussion, several delegations pointed out the importance of resource mobilization and financial support for developing countries, with the representative of Cuba stating that the support for climate financing is not a favor but an obligation for these countries.
To this end, the representative of Nepal, speaking for the least developed countries, recalled that although these countries account for less than 4 per cent of global emissions, they bear 69 per cent of the global debt related to climate.
In this vein, the representative of the International Monetary Fund (IMF) said the absence and the limited capacity of implementing adaptation measures in developing countries remains the major deterrence factor. Noting that international financial institutions can help countries to address these shortcomings by enhancing their technology and technical capacities and financial resources, he said that his organization appointed a Task Force on Climate.
The representative of Canada said that her country has doubled its funding to $5.3 billion in 2021, setting up 40 per cent of the spending on adaptation and allocating $315 million for the “Partnering for Climate” initiative in Sub-Saharan Africa. Moreover, in 2012 Canada provided $250 million to establish the Canadian Climate Fund for the private sector in the Americas with the Inter-American Development Bank Group.
Returning to panellists, Ms. LOISON, also speaking for the French Public Development Bank and the International Finance Development Club and the Finance Common Movement, advocated for a complete alignment of financial flows with the Sustainable Development Goals and the Paris Agreement on climate change — as public development banks represent over 10 per cent of all public and private global financial flows and manage about $23 trillion in assets. In a world requiring the mobilization of some $4 trillion annually for energy transition, and $1 trillion annually for adaptation by 2050, the international community must rethink how official development assistance (ODA) can serve the climate agenda. She urged for movement beyond the climate versus development finance dichotomy, as well as the North-South divide. With concessional funding limited despite the World Bank’s evolution road map and reforms, it is crucial to assess the best use of concessional resources and address priorities including the social impact of the climate transition. She called for all public and private financial flows to be directed towards the Global Goals and climate adaptation projects. In 2021, public development banks deployed $224 billion in green financing.
Returning to statements from the floor, a representative of Save the Children said the climate crisis is extreme, yet financing to address it remains inadequate. In addition, financing is not reaching the countries that most need it and financing applications are taking too long to be approved. Some countries are waiting two to five years, for example. The financing is unaffordable for the countries and should be delivered in the form of grants.
The representative of Belize agreed that climate financing is insufficient and too much is made through loans. For example, in Belize, only 36 per cent of the financing it receives is in grants. “Belize has to incur debt to adapt to a climate situation it did not cause,” he said. No regard to vulnerability is used in the application criteria. The various climate funds need to harmonize their application processes and standards.
The representative of the United States called for innovative financing vehicles which the private sector can support. Just 2 per cent of climate adaption financing comes from the private sector, he pointed out. The Joseph Biden Administration is working with partners to encourage businesses to provide more financing by reducing the investment risk.
Ms. HOYO-BARBOLLA, underscoring the importance of the loss and damage process, said it should involve a wide range of actors and the discussions should be held within and outside of the United Nations Framework Convention on Climate Change. To this end, she highlighted the need for an Organization-wide approach to understand developments in the context of the different agencies, including in the humanitarian sphere. At the macro level, all key players must be brought together to integrate new initiatives and develop a collective understanding, she stressed, underlining the importance of a coordinated approach between donors and recipients at national and international levels.
Ms. MEJÍA said: “The market has brought us to this climate crisis, and it will never be a solution for it.” Noting that the IMF’s Resilience and Sustainability Trust uses loans, she said it will not solve the problem. Climate financing should be additional to ODA, she added, while pointing to the absence of a single methodology and a clear concept of “climate finance”. Underscoring the importance of respecting common but differentiated responsibilities, she said financing for sustainable development should be focused on solving the root causes, while highlighting a need for structural reform.
The representative of the African Union noted that those countries lose 5 to 15 per cent of GDP annually due to climate change, while only receiving 3 per cent of global climate financing, leaving a huge and widening gap that may reach $127 billion by 2030. He called for reform of that financial architecture towards shared prosperity.
The representative of the Food and Agriculture Organization (FAO) noted that only 1.7 per cent of global climate financing goes to small-scale farmers; it is therefore crucial to promote green sustainable rural finance to support them.
A representative of the Peace, Education, and Art Communication Institute noted that on 30 March, the Vatican repudiated the Doctrine of Discovery, which dates back to 1444 — a lie that is the first record of racism, used to justify everything from the transatlantic slave trade to the colonial seizure of indigenous lands and the genocide which followed. As the modern world was built on the backs of black people, she called for help for her people — not the children of others — to have a chance at a future.
In closing remarks, Ms. NORONHA noted the concerns of many delegates and civil society members, such as the insufficient growth in climate financing that accounts for the needs of countries and people on the frontline of climate change. The Forum needs to focus on solutions that are just, she said, stressing that the unmet financing commitments must be met with additional financing to correct past injustices. The economic paradigm must be reformed for change to actually occur since the current financial architecture does not address the needs of vulnerable countries. Public development banks can make a difference, including by encouraging the private sector’s role in financing. The role of the multilateral banks is also important, though these banks need to keep supporting development. Solutions must be anchored in human rights and dignity for people, not just contributions to GDP, she said.
Also speaking during the interactive discussion were the representatives of the Philippines, Bangladesh, Argentina, Paraguay, Indonesia, Zambia, Honduras and Colombia, as well as of Equidad de Género.
The eighth panel discussion on “advancing international tax cooperation and tackling illicit financial flows to safeguard and mobilize domestic resources” featured a keynote address by Ibrahim Mayaki, FACTI Panel Co-Chair. Moderated by Iyabo Masha, Director of the G24 Secretariat, it included presentations by Bjørg Sandkjær, State Secretary/Deputy Minister for Development of Norway; Francis Nkea Ndzigue, Minister for the Promotion of Good Governance and the Fight against Corruption of Gabon; Zayda Manatta, Head of the Secretariat of the Global Forum on Transparency and Exchange of Information for Tax Purposes of the OECD; and Katherine Baer, Deputy Director of the Fiscal Affairs Department of the IMF. The lead discussant was Chenai Mukumba of Tax Justice Network Africa.
Mr. MAYAKI, speaking via a pre-recorded video message, said that illicit financial flows have derailed progress in financing the 2030 Agenda for Sustainable Development and the 2063 Agenda in Africa, underlining that developing countries are particularly vulnerable. To this end, accountability, transparency, legitimacy and fairness are needed, he said. Transparency and exchange of information have advanced in many ways, he observed, adding that more action is needed to ensure that all countries can access information to tackle illicit financial flows. He said that effective tools and mechanisms along with the new technologies play a critical role in this regard, while pointing to the need for systems allowing maximum value from domestic institutional mechanisms.
“We must scale up capacity support for developing countries to advance these tools and mechanisms,” he stressed, adding that promoting domestic tax cooperation will strengthen the domestic revenue realization and scale up international tax cooperation. Reiterating the importance of strengthening international tax cooperation in a more inclusive intergovernmental forum, he said a United Nations tax convention would be a valuable addition.
Ms. MASHA cited the United Nations resolution on the need for an effective, efficient and inclusive international tax framework (document A/RES/77/244), spearheaded by some African Member States. Citing developments in illicit financial flows and advances on tracing beneficial owners, she said it was time to assemble it all and see how using a potential new United Nations framework can advance a more inclusive tax framework for sustainable development. She called for concise and concrete recommendations from speakers to advance the issue.
Mr. NDZIGUE said strengthening international tax cooperation will help countries increase their tax revenues. However, no tax administration can claim to increase revenues without working with other tax jurisdictions. Gabon is working with other States and regional organizations dedicated to the issue of taxes, yet its main thrust is working bilaterally, he said. It also works with commercial partners and the United Nations. Accelerated trade leads to increased fraud and tax evasion, which means digital platforms must be created so information can be shared instantly. Fighting against tax non-compliance relies on the quality and quantity of information from other partners, he said, adding that Gabon is committed to sharing information automatically. The transparency of the shared information is also important as it can help divulge the information of entities or persons owning certain legal structures. Gabon aims to move ahead on international tax cooperation and combat illicit tax flows, he said.
Ms. SANDKJÆR said countries need both the capacity and political will to collect taxes, while also addressing structural weaknesses and stopping leaks. “The decision to initiate the intergovernmental tax discussion at the United Nations is momentous,” she said, noting that Member States need to ensure that discussions translate into real political commitments. To this end, she suggested enhancing coordination with the OECD and other institutional stakeholders to mutually reinforce each other. On beneficial ownership information, she stressed: “We need to make sure that the right people have the right information at the right time.” Underscoring the importance of transparency and access to information, including information exchange on beneficiaries between and within countries, she said the OECD has made important achievements in information-sharing. By nature, illicit financial flows cut across legal and illegal spaces, she noted, while highlighting the importance of a whole-of-Government approach. Encouraging Member States to invest in national monitoring capacities, she said work was ongoing to create a global repository on illicit financial flows and public revenue loss to help countries identify different sources and destinations of such flows.
Ms. MANATTA noted major progress worldwide over the last 10 years in transforming the tax landscape with standards on information exchange — including banking and legal and beneficial ownership information, with 167 global forum members exchanging information on request. She further cited more than 122 decisions that are implemented automatically in exchanging financial information from 2017 to 2026, with 48 developing countries involved. There were 111 million financial account items exchanged in 2021, covering nearly €11 trillion and involving developing and developed countries. Developing countries received information on 32 million financial accounts with a total value of €2.4 trillion in 2021. This has translated not only into greater transparency but revenue mobilization, identifying €140 billion, and €30 billion by developing countries. However, in Africa, only four countries — Kenya, Tunisia, Nigeria and Uganda — have responded to 92 per cent of all requests for info on the continent.
With a clear need to build capacity, last year the Global Forum assisted 76 developing economies, and the demand continues towards using information to fight illicit financial flows, she said. Citing the importance of beneficial ownership information, she said one third of Global Forum recommendations in the last round of reviews concern that information, and a centralized register is important — but no guarantee that information will be accurate and accessible. She called for collaboration in the domestic and international frameworks, noting that fighting illicit financial flows requires transparency, availability of information, assembling stakeholders, and ensuring a political buy-in.
Ms. BAER said the IMF works with countries to help them understand how to cope with emerging tax issues and regulations at both the country level and through international tax agreements. The Fund gives guidance on tax reforms through the issuance of public policy papers. Effective international cooperation on tax issues and rules is important across all countries. Yet, the Fund focuses its efforts on low-income countries, which need support to understand new rules and how they relate to existing regulations, she said.
The skills in the tax departments of some countries fall short of what is needed, she said. Many developing countries have weak tax departments that are poorly organized and do not monitor timely online filing of tax forms and payment of taxes, which means there is weak enforcement. Their digital systems may be outdated, which hampers the exchange of information at the national and international levels. She noted the Fund has capacity-building programmes to help countries in these areas. Strengthening the exchange of information among countries and ensuring developing countries have access to this information is very important. By helping countries boost their capacity to administer international tax rules, they can increase their domestic revenues. Strong political leadership is needed as well as support from development partners, she stressed, noting that the Fund is collaborating with the World Bank Group, the OECD and the United Nations on tax issues.
Ms. MUKUMBA, noting that domestic resource mobilization has been identified as the most sustainable source of financing, said that conversations about its enhancement have almost always been one-sided. Recognizing that the Global South countries are being saddled with responsibilities of improving their beneficial ownership transparency and strengthening their tax systems and revenue authorities, she noted: “Even if the Global South countries were able to address all of these issues, it would not be enough.” Only addressing national level constraints to domestic resource mobilization is “akin to constantly pouring water in a sieve”, she stressed, pointing to loopholes in the internal financial architecture and its inefficiency. Unlike other cross-border issues, international taxation is decentralized and does not have a coordinating tax authority overseeing it. To this end, she underscored the importance of a fair allocation of taxation rights and a multilateral tax body to address tax avoidance and evasion. Lamenting that developed countries refused to support such an initiative, she also recalled that the United Nations Fiscal Commission was abolished. In this regard, she reiterated a need for a binding multilateral solution, including a tax convention and a tax body.
As the floor opened for interactive discussion, the representative of Panama said it is necessary to agree on global governance making it possible to avoid tax fraud, corruption and asset laundering. Likewise, it is necessary to build a more robust, healthy and trustworthy economy.
Indonesia’s delegate emphasized the limited capacity of developing countries in knowledge, administration and institutions to implement international tax standards, which limits their ability to participate in policy discussions. This alarming situation persists due to the limited space afforded to advocate their perspectives.
The representative of the European Network on Debt and Development stressed that the current OECD tax rules do not work for developing countries — or anybody — as for the past 50 years, it has designed a failed tax system, costing Governments in the Global South and North hundreds of billions of dollars in annual tax revenue. She noted the OECD two-pillar solution of new rules would still leave 85 per cent of the world’s corporations uncovered.
In response, Mr. NDZIGUE said multiple sets of solutions are needed. One is information sharing, especially digital options. For example, in his country, a system called E-tax was created for use by the tax and customs departments. There also needs to be a binding mechanism, and he proposed the creation of a United Nations convention with binding measures. This would allow States to optimize their resources.
Ms. SANDKJÆR said she agrees that the current system is not working properly and better rules can stop illicit financial flows. Norway works consistently to facilitate discussions at the national level and among international organizations. She stressed the importance of the issue so countries can have sustainable financing and build trust among each other.
Ms. MANATTA said the fight against illicit financial flows can only work if there is coordination among countries and organizations. Measures taken in silos cannot target the problems. International institutions need to coordinate. But there must also be political buy-in by officials or the most beautiful decisions cannot be implemented.
Ms. BAER said tax rules must be simple and clear enough so developing country officials can implement them. She noted speakers’ reference to the importance of coordination and data exchange, but she added it is very important for the rules to be simple so they can be implemented. There is tremendous potential to make improvement in tax structures and implementation and thus help developing countries boost their revenues. For example, the VAT compliance gaps in advanced economies is 2.3 per cent of GDP, compared to 4.4 per cent of GDP in low-income countries. “That is double and there is a lot of work to do,” she added, by focusing on domestic tax systems and taking actions.
After the floor opened again for the interactive discussion, delegations addressed the means of tackling illicit financial flows, while many underscored the need for a United Nations tax convention.
The representative of Egypt, recognizing the importance of national measures, called for a universal approach and voiced support for the establishment of a universal convention. Similarly, the representative of the Asia-Pacific Forum on Women, Law and Development, endorsing negotiations on a tax convention, said a universal tax body should be created.
The representative of Zambia said international financial institutions, multilateral development banks and developed countries should continue helping low-income countries by allocating more grants and concessional loans to enhance their domestic resource mobilization. To this end, the representative of the International Chamber of Commerce, highlighting the central role of tax coordination in avoiding double taxation, said she was ready to support further the tax cooperation.
In her closing remarks, Ms. MASHA noted there are key weaknesses and gaps in the international tax architecture which necessitated the adoption of United Nations resolution A/RES/77/244. Domestic tax mobilization rates are not keeping up with the aspirations of countries, and many speakers welcomed the United Nations system, as it would be an intergovernmental process offering a more level playing field than other initiatives. A United Nations tax convention, she noted, could address all levels of high- or low-income countries — but at the end of the day, even with such a convention, what gets achieved is driven by political will and the capacity to implement, requiring countries to be more efficient and civil society organizations to take Governments to task.
Also speaking during the interactive discussion were the representatives of Spain and South Africa, as well as of the African Union and the Society for International Development.