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Development financing - innovative or not, the numbers must add up

Source: Fri, 27 Sep 2013 19:20 GMT
Author: Steve Lewis
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Street children sleep under a bridge in Paranaque city, metro Manila, Philippines, July 18, 2013. REUTERS/Romeo Ranoco
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There are two major questions being asked in New York this week as hundreds of diplomats and officials debate the Millennium Development Goals (MDGs) and what will come next in the new development framework. The first is what should be the areas to focus on (health, education, equality etc). The second, more complex, question is how can this crucial work be paid for.

There are two currents of debate on this. The first approach says that there is not enough funding available from International Aid It will cost between $120-180 billion per year to fund the completion of the MDGs¹. Therefore it will be crucial to find new ‘Innovative Financing’ between now and 2030, the date by which the World Bank has declared that extreme poverty can be ended.

France is one of the key proponents of Innovative Financing for development and this week the French delegation to the UN have tried to publicise some of the mechanisms that are in place or being developed. In a session on Tuesday, Philippe Douse Blazy (UN Under Secretary in charge of Innovative Financing for Development) said, “We need to go beyond old definitions of progress and look to innovation. Wealth is being created every day – but only heads of states can move some of this wealth to the poorest. We need globalisation that is in solidarity with the poorest of humanity”.

Innovative Financing options include:

  • Solidarity Airline tax:  a small levy on departing flight tickets. It was first established by France in 2006 and has now been adopted by many other countries including some low-income countries. By January 2013 the airline tax had raised $1billion, of which most is channelled to UNITAID.UNITAID is a global health funding initiative which provides sustainable funding in order to tackle inefficiencies in markets for medicines, diagnostics and prevention for poverty-related diseases. This week France is announcing a 12% increase in the value of the Airline tax.
  • Financial Transaction Tax. The FTT is a much more ambitious small tax on financial transactions such as the sale of shares. President Hollande announced to the UN General Assembly in 2012 that he would implement this and it was intended to raise $0.5 billion per year. Speaking this week Mr Pascal Canfin (Minister for Development for France) said, “Tax is never popular but this is the most popular tax in history.  It is supported by 63% of Euro citizens. We are pleased to announce now that eleven European countries are discussing how to establish a Europe-wide FTT”. The Europe-wide FTT could potentially raise $30 billion a year..  The UK government, and especially the Conservative Party, is opposed to any FTT and has refused to be part of its establishment.
  • Forward Funding for Development: These are mechanisms to raise significant resources now by selling bonds on the capital market, which are guaranteed by government and paid back over a long period, typically 20 years. They provide resources in the present to ‘frontload’ impact on the MDGs, paying this off with future funding. The ‘International Finance Facility for Immunisation’ (IFFIm), was a mechanism designed by Gordon Brown. Established in 2006, IFFIm was initiated to rapidly accelerate the availability and predictability of funds for immunisation. IFFIm sells Vaccine Bonds to raise funds for the GAVI Alliance, a public-private partnership that works to save children’s lives by increasing vaccination in developing countries. IFFIm has to date raised US$4.5 billion (July 2013) on the world’s capital markets which has allowed GAVI to nearly double its expenditures for vaccine purchase and delivery for 70 developing countries.
  • Reducing the cost of Remittances:  Money sent home by migrants amounted to around $400 billion in 2012, which dwarfs international aid. In 2008 in L’Aquila in Italy the G8 agreed to try to reduce the cost of sending remittances from an average of 10% to 5%. This will bring an extra $15 to $20 bn to poor countries. This week in UNGA the Italian delegation reiterated their commitment to this effort. “The beauty of this scheme is that it directly puts more money in people’s pockets, which is always popular”, said Development minister Lapo Pistelli.

There are more Innovative Financing ideas on the table. However a second set of analysts believe that the search for Innovative Financing is a red herring that distracts us from focussing on the responsibilities of rich nations. Aid from developed nations has fallen over the last two years, for the first time ever, which shows a shocking lack of commitment to the 2 billion people who still live in poverty.

A spokesman from Norway told the UN that his country now gives 1% of GNI in aid. “There are many rich countries represented in this room that could give more aid than they do now” he said pointedly. Only five countries in the world at present give the UN target amount of 0.7% of GNI. This number will climb to six if the UK meets its new budget targets of 0.7% by the end of this year.  But even the UK has not enshrined 0.7% in law, so a future government could cut the Aid percentage in the future.

It will take an enormous effort to find the funds available to achieve the MDGs by 2015 and eliminate extreme poverty by 2030. There are innovative sources of funds available, but this cannot take away the responsibility of rich countries to dig into their own pockets. Forty years ago all world leaders agreed to give 0.7% of GNI to development. That only a handful of countries have met that promise is a stain on our collective global citizenship, and a failure of leadership to prioritise what is surely the greatest challenge of our day: the end of poverty. We can, and should, do better.

¹http://www.oecd.org/social/poverty/50463407.pdf 

Steve Lewis is Head of Global Health Advocacy, RESULTS UK

 

 

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