Mr. Wu Hongbo Under-Secretary-General for Economic and Social Affairs, Secretary-General for the Third International Conference on Financing for Development
Statement to the Ministerial Meeting of the Group of 24
9 October 2014, Washington D.C.
World economic situation and prospects
In 2015, the international community will seek to adopt an ambitious development agenda. Sustained and inclusive global growth will be necessary to support implementation of the post-2015 development agenda. However, the global economy is currently expanding at a moderate pace, and there is a widening divergence in growth rates among major economies.
According to the United Nations World Economic Situation and Prospects, the world economy is expected to grow by 2.8 per cent in 2014 and 3.2 per cent in 2015. While the US economy has continued to strengthen, European growth has stalled. In Japan, momentum generated by the fiscal stimulus package and monetary easing has faded out.
With projected growth rates of 4.7 per cent and 5.1 per cent for 2014 and 2015 respectively, developing countries as a whole continue to make a significant contribution to global growth. However, on average, developing country growth rates remain markedly below the levels registered for a number of years prior to the global financial and economic crisis. In addition, vulnerabilities remain. Net portfolio inflows to developing countries fell to $116 billion in 2013, from $165 billion in 2012, with high volatility partially driven by unwinding of unconventional monetary policies of advanced economies. Several developing countries are also vulnerable to country-specific challenges, including structural imbalances, infrastructural bottlenecks, increased financial risks and political tensions.
Africa continues to see solid growth in 2014, although political problems in a number of African countries hamper the full realisation of the continent’s growth potential. East and South Asia remain the world’s fastest-growing regions, but the pace of expansion has slowed notably in recent years. In Western Asia, political instabilities and lower oil exports are challenging economic prospects. Growth in Latin America is subdued, with a few large economies falling into recession. The economies in transition are suffering from heightened geopolitical tensions.
Despite improvements in labour markets in some countries, unemployment levels remain a cause of concern, as long-lasting effects from the financial crisis continue to weigh on labour markets in many countries and regions. On a positive note, working poverty has declined in many emerging economies, notably China, although informal employment remains a major obstacle to improving job quality in many countries. Youth unemployment remains a serious problem in developed and developing countries alike.
Across the globe, people living in poverty and vulnerable social groups have been hit particularly hard by the global financial and economic crisis and its aftermath, adding urgency to the need to address inequalities and their consequences. More effective international policy coordination has become imperative. In particular, reducing vulnerabilities and stimulating global demand and output growth should remain an overarching priority at the global level.
The post-2015 development agenda
Against the backdrop of a fragile recovery of the global economy, the world community is formulating an ambitious and transformative post-2015 development agenda. The broad contours of this agenda are becoming clear – a strong commitment to end poverty and ensure sustainable development for all.
The Open Working Group of the General Assembly on Sustainable Development Goals, initiated by the United Nations Conference on Sustainable Development (Rio+20), has put forward a proposed set of 17 goals and 169 associated targets. This proposal reflects consensus among Member States, but is also based on extensive engagement with external stakeholders, including business and civil society.
While poverty eradication will remain at its core, the post-2015 development agenda should balance the economic, social and environmental dimensions of sustainable development. It is generally agreed that the agenda should be firmly anchored in universally accepted values and principles and complete the unfinished business of the Millennium Development Goals, while building upon their strengths.
An ambitious sustainable development agenda will need to be complemented by a comprehensive financing framework to provide its means of implementation. The third International Conference on Financing for Development, to be held in Addis Ababa from 13 to 16 July 2015, is expected to be a milestone in forging consensus on a renewed global partnership for sustainable development, underpinned by a holistic and comprehensive financing framework.
The Conference will build on the Monterrey Consensus and Doha Declaration, while addressing new challenges. The outcome document of the Open Working Group on Sustainable Development Goals, and in particular Goal 17, which calls for strengthening the means of implementation and revitalizing the global partnership for sustainable development, will serve as an important input to the Conference. In addition, the Intergovernmental Committee of Experts on Sustainable Development Financing, established in follow-up to the Rio+20 Conference, has delivered its report proposing options for a sustainable development financing strategy.
Financing for sustainable development
The report of the Intergovernmental Committee of Experts on Sustainable Development Financing makes three major contributions: it develops an analytical framework for financing sustainable development; it proposes a basket of over 115 policy options for countries to choose; and it suggests areas for advancement of the global partnership for sustainable development.
Building on the Monterrey Consensus, the report adds important new elements. It incorporates global challenges, such as combatting climate change, into the conceptual framework. Relatedly, it addresses the economic, social and environmental dimensions of sustainable development in an integrated manner. In addition, by treating different financing sources – public, private, domestic and international – as complements, not substitutes, and analysing the underlying mandates and incentives of different financial intermediaries, it sheds light on how to design new policies to incentivize investments in the three dimensions of sustainable development.
It finds that countries will need to develop integrated financing strategies. While all sources of financing are necessary, public policies and public funds will be the linchpin of a successful financing strategy. Financing strategies should be country-led. While each country is responsible for its own development, the international community should provide an enabling environment and support. Resource mobilization has to be complemented by a revitalized global partnership for sustainable development that addresses systemic issues in the global economy.
Official Development Assistance (ODA) will remain central, particularly for those countries most in need. ODA flows have rebounded by 6.0 per cent in 2013 from the decline in 2011 and 2012, reaching a record level, but are still far below the United Nations target of 0.7 per cent of gross national income. Development partners should ensure that sufficient external resources are available to developing countries, particularly to the least developed countries.
One recommendation is that the level of concessionality of aid flows should be matched with the type of investment and level of development. This would ensure that basic public services are sufficiently supported in those countries most in need, while assistance would still be available for infrastructure projects, climate financing and other areas of need. The report underlines the importance of increasing the effectiveness of development cooperation, including for example by reducing the fragmentation of the aid landscape.
Greater long-term investment in sustainable development, including in infrastructure, is needed to reach poverty reduction goals. This includes policies aimed at aligning investment with sustainability considerations and labour standards. Though deeper capital markets should provide a conduit for the long-term investment, there is a risk that they will attract speculative capital. It is therefore important to design a strong regulatory framework, potentially including capital account management tools. Given the cross-border spillover effect of monetary policy decisions, better international coordination of monetary policies and better management of global liquidity are needed to reduce global risks.
Public-private partnerships (PPPs), and other forms of blended finance, have been increasingly looked at to leverage private financing. Such risk-sharing mechanisms can help overcome financing constraints; however, it is important that such mechanisms learn from success and failures of the past. Poorly designed PPPs and other blended structures can lead to high returns for the private partner, while the public partner retains all the risks. To be effective, the use and design of mechanisms needs to be based on a deeper understanding of the underlying incentives of the private partner as well as the risks of the projects. Transparency and accountability, as well as a multi-stakeholder inclusive approach must underpin all financing to enhance legitimacy and effectiveness.
Progress continues to be made on international cooperation in tax matters. There is important ongoing work in this area in several international forums, including the OECD, G20 and the United Nations system. Some steps have been taken, for example, against base erosion and profit shifting (BEPS) and towards developing a widely applicable system of automatic exchange of tax information between countries. In all areas of international tax cooperation, it will be critically important to ensure that the developing world, and in particular the poorest countries, are able to participate in, and benefit from, new developments. Domestic resource mobilization will be central to raising resources to finance sustainable development. Measures which aim to support the developing world to mobilise more domestic resources for development, such as through capacity building, are critically important and have high development pay-backs.
Questions related to sovereign debt are once again at the forefront of policy discussions. The UN Third International Conference on Small Island Developing States (SIDS) drew attention to the problem of severe public indebtedness affecting some small island economies. Debt crisis management entails a heavy burden on the resources of the official sector. Enhanced approaches to both debt management and sovereign debt restructuring are needed to reduce this burden. There is now heightened concern among Member States in light of recent creditor litigation against a number of developing countries. In its resolution 68/304 of 9 September 2014, the UN General Assembly decided “to elaborate and adopt through a process of intergovernmental negotiations … a multilateral legal framework for sovereign debt restructuring processes …”
The international community has also taken important steps to strengthen the resilience of the financial sector through regulatory reform. These reforms attempt to reduce the risk of future crises, but should balance the need for greater stability with ensuring sufficient access to financing, particularly for sustainable development. To date, reforms have focused on regulation of the banking sector. Further progress is needed in other aspects of the international regulatory agenda, including addressing shadow banking and systemically important institutions that are considered “too big to fail”. There is also a need for stronger cross-border resolution regimes with fair burden sharing. The development and implementation of international financial regulation would also benefit from greater representation of and participation by developing countries.
Climate change
Last month, the UN Secretary-General hosted a Climate Summit in New York, which helped lay the groundwork for securing a universal, ambitious and binding climate agreement in 2015. A key obstacle in combatting climate change has been the level of financing required. The Climate Summit saw billions of dollars’ worth of new commitments to the Green Climate Fund.
In 2009, developed countries agreed to the joint mobilization of $100 billion annually by 2020 to address the needs of developing countries. A preliminary assessment of “fast-start finance” finds that $35 billion were mobilized between 2010 and 2012. Eighty per cent of these flows were also counted as ODA, and were paid out with similar modalities. While there are large overlaps between traditional development cooperation and climate financing, there are also important differences. Financing for climate change mitigation and adaptation should not come at the expense of countries meeting their commitments for providing overseas development assistance.
Pricing of carbon can help combat climate change by altering production and consumption patterns. Many leaders endorsed efforts to put a price on carbon during the Summit. However, research shows that carbon pricing alone will not be sufficient. Efforts should be complemented with other actions on regulation and incentives.
Action to address climate change can be complementary to promoting economic stability and growth. Tackling climate change offers enormous investment opportunities, but the right national and international policies and frameworks must be in place.
Global economic governance
In order to strengthen the international community’s ability to tackle global challenges, which are increasingly interconnected, stronger commitments to collective action and policy coherence are needed.
Effective global economic governance remains critical to supporting implementation of the new universal sustainable development framework being developed. The increasing weight of emerging economies and developing countries must be reflected in the decision-making processes of International Financial Institutions, the Financial Stability Board and other standard-setting bodies.
Timely implementation of the 2010 IMF quota and governance reform would have been an important first step towards bolstering the credibility, legitimacy and effectiveness of the institution. Rapid adoption of the 2010 IMF reforms will pave the way for the next round of quota and voice reforms. Successful completion of further reforms will boost the coherence and stability of the global financial system. Additionally, Member States agreed in April 2010 that the next round of World Bank governance reforms in 2015 should move the institution over time towards equitable voting power and protect the voting power of the smallest poor countries. Agreement should be reached on these reforms in a timely fashion.
Meanwhile, the United Nations system needs to become “fit for purpose” for achieving sustainable development. The United Nations is undertaking internal reflection, an exercise aimed at promoting coherence, coordinated and integrated system-wide approaches and a collaborative culture. It will also look at the specific implications of the post-2015 development agenda for institutional, financial and governance arrangements. This is a new challenge for the United Nations system.
The way forward
By the end of 2014, the UN Secretary-General will issue a synthesis report, which will take stock of the ongoing work on the post-2015 development agenda, drawing on the work of the Open Working Group on Sustainable Development Goals, the Intergovernmental Committee of Experts on Sustainable Development Financing, the high-level political forum on sustainable development, the Economic and Social Council, and other contributions. The synthesis report will be an additional input to the intergovernmental negotiations of Member States on the post-2015 development agenda and to the third International Conference on Financing for Development. A successful outcome of the Conference is essential to ensuring an ambitious post-2015 development agenda. The engagement of G24 finance ministers in the preparatory process and the Conference will be critical to its success. We look forward to working together with you in this important endeavour.
