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Financing Development
The document discusses the substantial financing needs required to meet the 2030 Agenda for Sustainable Development, highlighting a shortfall of trillions of dollars annually, particularly affecting low- and middle-income countries like Kenya. It reviews historical financing frameworks and challenges, emphasizing the importance of domestic resource mobilization and innovative funding solutions to achieve sustainable development goals. Key issues include the significance of political will, effective public financial management, and addressing international financial flows and corruption to increase revenue for development.
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Financing Development
- 1. FINANCING DEVELOPMENT Virtual Lecture Universityof Nairobi School of Law, Kisumu Campus 2020
- 3. The Financing Challenge Estimatesof the amounts needed to finance the 2030 Agenda are in the range of “trillions, not billions”, to cover global financing gaps of between USD 1.5 trillion per year to USD 2.5 trillion or more. While this amounts to 2 to 3 percent of global gross national income (GNI), the costs of implementing the 2030 Agenda in proportion to the GNI of developing countries (low- and middle income) are far higher. The magnitude of financing requirements at the national level can be illustrated by looking at a subset of the goals related to social protection as defined by each country. Kenya – health shortfall of 242billion. Climate finance, shortfall of 120billion, currently, in debt of a trillion dollars.
- 4. Historical context Financing for Development: Global policy making 1992 EarthSummit adopted Agenda 21 (global partnership for SD to improve human lives and protect the environment) 2000 Millennium Declaration and MDGs (to reduce extreme poverty by 2015) 2002 Johannesburg Declaration on SD and the Plan of Implementation (commitment to poverty eradication and the environment and emphasized on multilateral partnerships 2012 UN Conference on SD (Rio +20) - outcome document ‘The Future We Want’ – to develop a set of SDGs to build upon the MDGs 2013 OWG to develop proposal on SDGs 2015 UNGA began negotiation process on the post 2015 development agenda and adoption of 2030 Agenda for SD
- 5. Development is rootedin finance • Monterrey Consensus of the International Conference on FfD (2002) • Mobilise domestic financial resources for development • Mobilise international resources for development: FDI and other private flows • International trade as an engine for development • Increasing international financial and technical cooperation for development • External debt • Doha Declaration on FfD (2008) – follow up to MC • Same as for MC • Addis Ababa Action Agenda of the Third International Conference on FfD • Domestic public resources • Domestic and international private business and finance • International development cooperation • International trade as an engine for growth • Debt and debt sustainability • Science, technology, innovation and capacity building
- 6. FfD cont’d • WorldEconomic Forum • Global forum for public and private cooperation – shaping global, regional and industry agendas • System Initiative on Long Term Investing, Infrastructure and Development; • Sustainable Development Investment Partnership (SDIP) – developing regional hubs that will accelerate regional solutions • Global Future Council on Long Term Investing, Infrastructure and Development – finance for modernizing infrastructure • Sovereign Wealth Funds and Strategic Investment – unites strategic investors and supports institutions to identify how to transform commodity wealth and legacy assets into sustainable development • OECD • European agenda on development through cross border transactions – DTAs • Targeting private flows for taxation out of the digitalized economy – BEPS project • Official Development Aid through OECD’s Development Assistance Committee – 0.7% of GNI
- 7. FfD cont’d • IMF/WB •Infrastructure financing • Loan facility • AfDB • Providing finance to African governments and private corporations investing in member countries – focused on fighting poverty and improving living conditions (socio-economic development)
- 8. Blended finance • Strategicuse of development finance and philanthropic finance to mobilise private capital flows to emerging and frontier markets
- 9. Development and financenexus rooted in principles • Universal • Rules based • Open • Transparent • Predictable • Inclusive • Non discriminatory • Equitable Importance of: National ownership of development strategies Inclusive financial sector Enabling environment Expand the reach of private flows to a greater number of developing countries Fully maintaining ODA commitments by donors Exploring innovative sources of finance Debt restructuring
- 10. Contextualising FD in Africa SDGs AUAgenda 2063 Agenda 2063 Financing and Resource Mobilisation Strategy OECD BEPS Addis Tax Initiative Addis Ababa Action Agenda Local Visions and Agendas (Kenya Vision 2030 and Big Four Agenda)
- 11. All that wouldrequire an enabling framework • Laws to be in place (e.g., FDI capture through NIFC) • Regulations to define the parameters (e.g., StAR, FATF AML) • Judicial system to be seen to be effective (e.g., Matthew Okwanda Case) • Political will • Budgetary measures • Sustainable fiscal contract
- 12. The crux ofit all: the Sustainable Fiscal Contract
- 13. SFC must beattached to a DRM policy • DRM concerns mobilising sources of revenue through: • Broadening the tax base • Identifying additional tax/revenue streams • Combatting corruption and IFF • Closing tax loopholes • Caving in on (aggressive) tax avoidance and evasion • Strengthening tax compliance and administration • Re-appraising the efficacy of tax incentives and exemptions • (Re)negotiating tax treaties
- 14. Financing Trends inDeveloping Countries (2000-2014)
- 15. DRM priority? (reducinghealth budget) 3.7 3.8 4.1 4.1 3.9 21.28 19.24 18.97 19.16 0 5 10 15 20 25 2013/14 2014/15 2015/16 2016/17 2017/18 Health allocation as a % of total budget Health spending as a % of total budget Source: Lyla Latif (2018)
- 16. Domestic Resource Mobilisation PublicPrivate Taxes Duties Levies Service Charges National insurance Private insurance Community based financing Out of pocket payments
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- 18. 50:50 on DRMor IRM dependence on economic/fiscal capacity of a state For most countries, tax income is the most important national revenue source, accounting for 85 percent of government revenues in high-income countries of the Organisation for Economic Co-operation and Development (OECD), and around 70 percent in developing countries. However, for a number of countries, in particular LDCs, other revenues such as ODA are equally or even more important, with aid exceeding tax revenue in countries such as Liberia and Malawi
- 19. Challenges 1/3 Wealth andproperty are forms of DRM, what is the poverty level? Who are buying properties? What kind of properties? Should affordable housing be subject to the tax next? High net, what is high net in a country that does not have the earning power as the OECD, should high net have a different criteria? Anyone earning over 3000? What constraints can you identify with regard to DRM in your country? (insufficient growth performance, informality and unemployment, tax losses due to tax optimization, low national savings rate, lack of accessible and affordable banking systems and underdeveloped capital markets, financial crises, per capita income level, sector specific economy, MNC tax avoidance, IFF- Rwanda 2008-2012, IFF outflows 20.4% of country’s GDP) Increase tax base – export taxes?
- 20. Challenges 2/3 How cancountries increase DRM? (fair tax system? Progressive tax system? Anti trust legislation – breaking up monopolies, remove tax exemptions) – Uganda, tax system relies heavily on a small number of taxpayers, mostly MNCs with around 35 top taxpayers accounting for 50% of revenues collected by URA (73) -divest natural resource rents out of the hands of the politicians – decentralisation/devolution of revenue – Kenya county level fiscal autonomy Think of DRM – environmental taxes, PPP, global funds – implementation has been either slow or fraught with problems Do political factors influence resource mobilisation?
- 21. Challenges 3/3 DRM requirefinancial resources that are sustainable in economic, social, environmental and political terms Mandate – tax bargain- fiscal contract Negotiation between tax payer and government where the former agree to comply with tax obligations in exchange for the effective provision of public services.
- 22. PUBLIC RESOURCE MOBILISATION Smarter use ofODA to catalyse other finance resources Revision or elimination of subsidies Improving public expenditure and financial accountability Recovery of Stolen Assets Raise voice against corruption Combat IFF Fiscal autonomy and engagement of local governments Tax revenue and tax administration
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- 24. DRM and problem areas challenging financial sustainability •mobilising revenue (can’t identify, can’t trace) • securing revenue (corruption, public financial management loopholes) • earmarking the revenue (priorities) Challenges faced in: • implementing sustainable economic policies aligned with the mobilisation and use of public resources (SFC) • sound public financial management • UK and the Pattiserie Vallerie case/ UK homelessness case • corporate accountability within the SDG framework • CMC Di Ravenna (hydropower and drinking water projects in Nakuru & Elgeyo Marakwet) • Green Arava Ltd (Galana and Kulalu irrigation scheme in Kenya) Challenges can be countered through:
- 26. IFF Illegal sources earned, usedor transferred illegally Illegal sources earned, used or transferred legally Legal sources illegally used or transferred Funds with criminal origin, such as proceeds of crime Funds with a criminal destination, such as bribery, terrorist financing or conflict financing Funds associated with tax evasion Transfers to, by, or for, entities subject to financial sanctions Transfers which seek to evade anti money laundering/counter terrorist financing measures or other legal requirements (such as transparency or capital controls)
- 27. IFF losses Organisations TaxLoss Estimates per year AfDB >USD 1trillion in corporate tax losses since 1980 from Africa TJN USD 500billion in corporate tax losses globally IMF Fiscal Affairs Department USD 200billion in corporate tax losses globally HLP Report USD 50billion in IFF from Africa ECA USD 100billion through mis-invoicing from Africa AU USD 67billion in IFF from Africa – of which 5% lost through corruption
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- 32. Innovative financing for development •Kilimo Salama • Sukuk • Blended finance • As Sadaqa for SMEs • Digital platform – kiva crowd funding, pay as you go e-learning (allowing vulnerable or remote populations to access educational content digitally and affordably – see: Eneza Foundation mobile education platform • Diaspora bonds – bonds issued by a country to its own diaspora to tap in their wealth offshore
- 33. Securities & ExchangeCommission Lump sum repayment at maturity
- 34. DEVELOPING A TOOLKIT FOR CHECKING PROGRESSON FINANCING FOR DEVELOPMENT Operational principles Regulatory architecture Development goal Existing revenue streams Use of private sector and communities Protection of financial resources
- 35.