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Financing for Development Post-2015

Financing for Development Post-2015. International Parliamentary Conference on the Post-2015 Development Agenda London, November 26, 2013. Introduction.

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Financing for Development Post-2015

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  1. Financing for Development Post-2015 International Parliamentary Conference on the Post-2015 Development Agenda London, November 26, 2013

  2. Introduction • The main focus of the Monterrey Consensus was a development partnership that mobilizes financing and emphasizes sound policies as means to achieve the MDGs. • A framework for financing post 2015 should draw on this commitment. • It also needs to adapt to changes in the global economic and financing landscape, such as the strong growth of some emerging economies, the increasing role of the private sector, the emergence of new types of financiers, and the need to address climate change.

  3. Financing for development post 2015A framework for discussion A global development cooperation that emphasizes financing from diverse sources: • Domestic resource mobilization • Better and smarter aid • Private finance for development • Innovative sources of finance, including for global public goods. The relative significance of each source, and the associated leveraging challenges, will differ between countries. Source: Financing for Development Post-2015, The World Bank Group, October 2013

  4. A two-pronged approach to leverage financing Good policies and credible institutions to: Good policies and credible institutions enhance the impact of available resources and leverage additional resources from both domestic and foreign sources.

  5. Private finance for developmentThe focus of this presentation • Leveraging private financing • Private sector and aid • Innovations in financing

  6. Leveraging private financingThe importance of domestic private and financial sector development • Developing financial institutions and markets will facilitate economic growth by mobilizing savings and allocating savings to the most productive uses. • A policy environment, which includes a good public investment program, encourages private investment that is crucial for growth and to create opportunities. • Developing countries’ financial markets will play an increasing role in intermediating external capital flows than they do today. • Developing countries are projected to account for about half of global capital inflows in 2030, up from about 23 percent in 2010 (Global Development Horizons, 2013).

  7. Leveraging private financingMobilizing international capital flows to developing countries will be needed to achieve Post-2015 goals • Foreign direct investment (FDI) has been a dominant source of external private financing. • Over the past decade, many countries have demonstrated an increasing ability to access international capital markets, despite some slowdown after the recent crisis. • Between 2000 and 2012, international long term debt flows – bonds and syndicated bank lending – increased four-fold. • Low income countries have less market access, however. • Overall, there is great need to leverage diverse sources of financing to meet investment needs for development, such as for infrastructure.

  8. International capital flows to developing countriesForeign direct investment (FDI) dominatesTotal capital inflows in 2012: USD 1.72 trillion Remittances in 2012 were an estimated US$ 399 bn. If included above, remittances would constitute 28% and net FDI inflows would constitute 43% of the total. Source: Long-term financing for growth and development. G20 Umbrella Paper, Feb. 2013.

  9. International long-term private debt to developing countries Source: World Bank Development Prospects Group (DECPG).

  10. International financial flows to fragile statesODA is especially critical • Official Development Assistance (ODA) have been an important source of financing for the poorest countries, and is likely to remain so in the future. • ODA to low income countries (LICs) has declined recently, however. • Ensuring well-targeted aid to fragile states and LICs, and exploring its catalytic role, is key to any future aid architecture. Source: Fragile States 2013, OECD NB: Based on OECD definition of fragile states

  11. Leveraging private financeMobilizing long-term finance for infrastructure is a challenge of the future • Meeting developing countries’ cumulative infrastructure financing needs will require an enormous mobilization of private financing. • Attracting private financing to infrastructure has been a challenge. Key areas of work include: • Put in place an adequate legal and regulatory framework • Support project preparation for quality project • Mainstream use of risk sharing mechanisms with support from multilateral financial institutions • Have appropriate financial regulation • Develop domestic capital markets. • Strengthen catalytic role of the public sector.

  12. Leverage the private sectorWell-structured initiatives with a diverse range of partners help governments raise the large sums of capital required to meet infrastructure needs Emerging Partnerships Source: Emerging Partnerships, IFC, 2013 and World Bank, Africa Region

  13. Private sector and aid • Available estimates for private aid to developing countries in 2009 range from about US$ 20 to US$ 60 billion. • Low estimate is equivalent to about 16 percent of ODA from all donors in the same year, and up from 2005 (12 percent of ODA) • Private philanthropy to fragile states increasing in recent years • South-South philanthropy also on the rise, especially in the Arab world

  14. Innovative sources of finance Examples of advance market commitments:Innovative, results-based mechanisms can link spending to development outcomes AgResults Initiative International Finance Facility for Immunization (IFFIm)

  15. Examples of innovations on financing • Global Funds that pool resources for specific issues of global importance, e.g., • GAVI Alliance (formerly the Global Alliance for Vaccine and Immunization) • Global Fund to Fight AIDS, Tuberculosis and Malaria (GFATM) • Global Partnership for Education • Global Environment Fund (GEF) • Carbon markets • Diaspora (remittance) bonds • Remittances are expected to reach US$ 414 billion in 2013. • There is scope to further reduce the costs of remittances. • Diaspora bonds could be a means to leverage the flow of remittances for investment needs.

  16. Concluding remarks • A post-2015 financing framework needs to emphasize domestic resource mobilization, leveraging of new donors and the private sector, and innovations on financing instruments. • The relative significance of each source of financing will differ among countries, depending in part on market access. • Policies and the capacity to implement them will lead to more effective use of existing resources and will build an enabling environment to leverage additional resources. • Strengthening partnerships to support countries in these areas needs to be a core part of the post 2015 development financing framework. • ODA, private aid, and multilateral financial institutions will need to explore more and innovative ways to catalyze financing from the private sectorfor financing country level investments and global public goods.

  17. Thank you for your attention MarilouUy Senior Adviser The World Bank muy@worldbank.org

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