Addis Ababa Financing for Development Conference: A Missed Opportunity to Discuss the Role of International Public Finance Post-2015

This contribution is published as part of the Think Piece Series The Road To Addis and Beyond, launched to coincide with the third and final drafting session of the outcome document of this summer's Third International Conference on Financing for Development. In this Series, global experts discuss a range of topics complementary to the UNRISD research project on the Politics of Domestic Resource Mobilization on how to fund social development and raise provocative or alternative perspectives that can generate further ideas and debates. Please share your thoughts on this article in the comments space below.

The Addis Ababa Financing for Development conference has concluded with an agreement that has both its supporters and its critics. In the run-up to Addis, discussions around international tax cooperation and how to leverage more private finance for development took centre stage. Less in evidence, however, was a frank discussion around how we need to use international public finance in the future; the international community still tends to think of this finance as ‘aid’ when in reality it will have a far larger and more complex role in supporting the realization of the new sustainable development agenda.

Gail Hurley is a Policy Specialist on Development Finance at the United Nations Development Programme (UNDP) in New York.

Introduction

The international community has outlined its plan for financing the world’s new ‘Sustainable Development Goals’, or SDGs. The Addis Ababa Action Agenda (AAAA), finalized in July in Ethiopia at the Third UN Conference on Financing for Development (FfD3), contains commitments in areas such as domestic resource mobilization, development aid, international tax cooperation, and enhanced support for social protection, infrastructure development, agriculture and nutrition. There is also a commitment to establish a ‘technology facilitation mechanism’, in September 2015, arguably one of the most important outcomes, which will reinforce cooperation on science, technology and innovation. Some hailed the conference a success while others were more critical, especially in the areas of development aid and international tax cooperation.

The FfD3 conference was an opportunity to think about how we mobilize and use public and private monies to address both national and international challenges in the future,—from poverty reduction and infrastructure development to environmental protection, science, research and climate change. The AAAA incorporates several ‘new’ issues such as the need to tackle illicit financial flows and address environmental sustainability, but follows a narrative broadly similar to the 2002 Monterrey Consensus on Financing for Development.

What about international public finance?

Much of the discussion in the run-up to the Addis Ababa conference focused on how to leverage more private finance in support of sustainable development—from foreign direct investment to migrant remittances to the resources held by investment funds, such as pension and mutual funds. Conversations on the need to strengthen international cooperation on tax also took a front seat. These issues are clearly important and reflect the growing importance of domestic private activity and international private investment over the last fifteen years, as well as a recognition that factors ‘beyond cash’ such as tax and subsidy policies have a massive impact on development.

Less in evidence, however, was an honest conversation about the role of international public finance (IPF) in the post-2015 period, and in particular the kinds of interventions we need to support with international public finance in the future. IPF can be understood as support for development cooperation, but also other international public policy purposes, such as climate change mitigation, research, macroeconomic stabilization, export promotion and security. This finance may be supplied on more or less concessional terms.

The international community tends to view international public finance largely through the development aid lens. This means seeing it as a narrow ‘assistance-like’ endeavour, similar to social transfers at the national level, where resources flow from those that are wealthier to those that are poor. It follows from this that as incomes climb, the need for these resources declines. It is an approach that reinforces the idea that there is a donor that supplies the finance on a ‘charitable’ basis, and a recipient that receives the (exclusive) benefits.

This is the narrative reflected by and large in the Addis Ababa Action Agenda which talks almost exclusively about the need for developed countries to meet longstanding international aid commitments, as well as strengthen efforts to make aid more effective. Throughout the negotiations, many heated discussions took place as to which countries now ‘need’ aid versus those that allegedly do not (given rising world incomes), and how scarce aid resources should better prioritize certain countries (such as Least Developed Countries or fragile states).

Many high-income donor countries argue that it is increasingly difficult to justify to taxpayers why they should continue to extend development aid to countries that are now relatively much wealthier. For the middle-income countries that typically see their aid cut, they face a lose-lose proposition: they are told by donors that they are too wealthy to receive aid (and that they should provide aid themselves in some cases), but at the same time their domestic resources and private finance are often still insufficient to meet their high investment needs (the so-called ‘missing middle’ problem whereby international flows fall faster than domestic revenues rise).

Towards a new IPF narrative in the post-2015 agenda

One can argue that a new narrative on international public finance is needed which reflects how different the new sustainable development agenda is from its predecessor, the Millennium Development Goals (MDGs). The SDGs are, on the one hand, about ‘traditional’ development challenges, such as continued extreme poverty, hunger and lack of access to basic health and education services. But they are also about other problems which have emerged, or become more pronounced, over recent years, such as climate change, accelerated environmental degradation, and unsustainable production and consumption. These are problems which, in many cases, relate predominantly to the high-income world and to fast-growing economies. The SDGs are universal in that they will apply to all countries. To achieve them will require major economic transformations in countries at all income levels if the planet’s natural limits are to be respected. What does this mean for how we approach international public finance post-2015?

Financing for ‘new’ issues

It may indeed be true that as world incomes continue to rise, the world of so-called ‘traditional development aid’ may become smaller in the future. However it is increasingly clear that a larger set of issues beyond the financing of traditional development cooperation is emerging.

The SDGs will require huge shifts in investment priorities over the next fifteen years and beyond. We will need, for example, to scale-up environmental responses in the post-2015 era, through increased investments in climate change mitigation, in protected areas and in sustainable infrastructure development. Resources for research, science, new technologies and innovation will be essential—and will need to be scaled-up—to support and enable the kinds of economic transformations the world needs to see. As shocks, both environmental and economic, become increasingly frequent and severe, adequate resources will be needed to support countries to deal with the consequences. Private finance will be essential, but many interventions will also be longer term and riskier in nature and/or have low to no economic return which can make them less attractive to private investors. International public finance will be essential and will be needed over the long term.

This new strand of financing has been called different names (new public finance, global policy finance, international public finance, international public investment) based on different conceptual approaches. A common feature is the need for international collaboration to effectively address these challenges.

Income per capita will not be the most important consideration as regards how—and where—to spend international public finance in the future; instead, a major factor will be where resources will have the biggest impact at the lowest cost. This may not be in the poorest and most vulnerable countries. This raises, in turn, difficult issues as to how to ensure that scaled-up finance for these areas does not come at the expense of much-needed resources for the poorest countries and peoples. “Leave no one behind” is, after all, the SDGs’ core message.

Many interventions will also benefit multiple countries, though to varying degrees (think climate change mitigation and communicable disease control for instance). This means the traditional ‘donor–recipient’ paradigm that has dominated the aid discourse is less valid.

In fact, earlier versions of the AAAA did a better job at articulating these perspectives. They talked about how “the demands of the post-2015 development agenda and the range of challenges that it seeks to address [will] require international public finance beyond ODA” (emphasis added)¹ and that resources would need to be stepped up for investments in climate change mitigation, conservation of biodiversity, science, innovation, new technologies and other areas. They also asked for more clarity on the question of how finance for these areas would sit alongside traditional development aid.

Looking beyond aid

Looking forward, a new narrative on international public finance is needed which acknowledges the critical role these resources will play in supporting the new sustainable development agenda. These roles include, but go beyond, aid as a ‘charitable’ donation from rich to poor. Instead of asserting or assuming that these resources will decline in the future as incomes rise, we should recognize the pivotal and long-term importance of international public finance—and do our best to ensure it serves the interests of the new SDGs.

In practical terms, does this mean we should cease to use terms such as ‘development aid’ when international public finance does so much more? Words matter after all. What are the alternatives? How can we ensure sufficient resources are mobilized for international public finance in the future, when the track record on mobilizing finance for development aid is so weak? A conversation is also needed as to how these resources should best be mediated (that is, the institutional arrangements) and allocated (for example, thematically and geographically) in the future. In many cases, multilateral approaches may be more effective than bilateral interventions.

International public finance will be needed for the foreseeable future. It is much more than aid. It is a common investment. And it is in our common interest to get it right.

The Addis Ababa Financing for Development conference has concluded with an agreement that has both its supporters and its critics. In the run-up to Addis, discussions around international tax cooperation and how to leverage more private finance for development took centre stage. Less in evidence, however, was a frank discussion around how we need to use international public finance in the future; the international community still tends to think of this finance as ‘aid’ when in reality it will have a far larger and more complex role in supporting the realization of the new sustainable development agenda.

FOOTNOTE
¹ This text is excerpted from the March 16 version of the AAAA which articulated these perspectives in Section C, entitled "International Public Finance". It is telling that the title of this section was later changed to "International Development Cooperation".

ABOUT THE AUTHOR

Gail Hurley is a Policy Specialist on Development Finance at the United Nations Development Programme (UNDP) in New York. She has held this role since January 2010. Her areas of expertise include international public finance, sovereign debt, innovative sources of finance and global finance more generally. Gail advises UNDP on development finance issues and has written numerous research papers, articles and blogs on the subject. These include research and analysis on sovereign debt in small island developing states, aid effectiveness, innovative sources of development finance and the future of international public finance. At the country level, she has also supported governments in the Caribbean and Africa to devise strategies for the expansion and diversification of their domestic and external revenue bases. At the time of writing this piece, Gail was leading UNDP’s preparations for the July 2015 UN conference on financing for development in Addis Ababa.