Why shouldn’t every dollar count for sustainable development?
This fundamental query has been repeatedly emerging from Asia and the Pacific in the wake of the post-2015 Sustainable Development Goals now under discussion, and motivated ADB’s recent publication Making Money Work which starts with the same question. On the sidelines of this week’s 3rd International Conference on Financing for Development conference in Addis Ababa, ADB joined the UN Economic and Social Commission for Asia and the Pacific, and the UN Development Program (UNDP) to co-organize on Tuesday the panel discussion “Financing for Transformation” to discuss how countries in the region could move from agenda to action. The discussions opened by recognizing that Asia’s main challenge is not how to generate more domestic savings in this region of high savers, but rather how to direct them toward sustainable development investments. UNDP Administrator Helen Clark recognized Asia’s deep pockets, and suggested better taxation, curbing illicit financial flows and reviewing subsidy patterns and priorities to directing more finance for development. While certain vulnerable and poor countries will still need official development assistance (ODA), she proposed applying a risk-informed lens to all financing, with concessional finance incorporating vulnerabilities and national budget processes incorporating risk.
Among those fragile states are several Pacific island nations like Tuvalu, where fiscal reforms have yielded higher tax revenues but a narrow economic base limits scope. It was unrealistic to expect such states to rely mainly on domestic resources, said Tuvalu Finance Minister Maatia Toafa. In contrast, Mahbub Ahmad from Bangladesh’s Ministry of Fiance noted how a least developed country like his had shored up a comfortable macroeconomic situation allowing for expenditure on education, health and power mainly from domestic sources. Options like VAT, customs duties, direct taxes, and non-taxes had boosted fiscal revenues. To become less reliant on indirect taxes that are a burden on the poor, the capacity for direct tax collection needed to be strengthened. Pakistani Senator Taj Haidar brought in the role of provincial governments and called attention to the problem of leakages, including corporate leakages, undermined domestic revenues, while Ambassador-at-Large Askar Tazhiyev from Kazakhstan noted that it was necessary to balance incentives for the corporate sector through exemptions with widening the tax base.
Wayne Swan, Australia’s former deputy prime minister and treasurer, called attention to multinational corporations that do not pay their fair share of taxes in jurisdictions where they earn profits. That hurts poor countries, he pointed out, and should not fall off the agenda in financing for the SDGs. James Stewart, KPMG UK’s chair of global infrastructure, advocated for a serious dialogue with the private sector – most had never even heard of the SDGs. Countries need to understand that business leaders had global choices now – they would select destinations where there is a robust project pipeline, a level playing field, transparent procurement and a properly resourced public sector.
ADB Vice-President Stephen P. Groff, meanwhile, stressed the need to develop attractive pipelines for investments that draw in larger private funds for the SDGs, as neither fiscal options nor financing by multilateral development banks will be enough. Asia’s financial markets must continue growing, he said, and the region must do much more on trade finance. Multilateral development banks, he pointed out, can help developing countries rationalize and better target subsidies and monitor results. Institutions like ADB, he added, will remain strong partners and honest brokers between the private sector and public good, and use their leverage to make development opportunities more attractive for investors through instruments like guarantees and risk mitigation. Here are a few more takeaways from the Asia Pacific dialogue in Addis:
- Funds are there, but the challenge of moving the money towards the SDGs remains.
- There is a consensus that domestic fiscal sources are primary and need to grow through actions of the government, cooperation across borders, and responsible businesses.
- The largest sums are in private hands, but most of them are used for other purposes. These can be drawn in through specific actions by countries, financial markets, and far better communication with the private sector.
- The enormous diversity of the region requires customized responses, and ODA will continue to have a role, more of it strategic.
- The explosion of social media has made the consumer far more powerful in holding decision makers to account. Businesses and governments need to factor this in shifting from short-term gains to longer-time development success.