WESS 2012 - In Search of New Development Finance

Seeking new ways to finance development

The financial needs of developing countries have long outstripped the willingness and ability of donors to provide aid. In 2011, aid flows declined in real terms for the first time in many years. With a focus on new and innovative ways to finance development and address this challenge, the “World Economic and Social Survey 2012”, will be launched on 5 July at 11 am EST.

This year’s edition of the World Economic and Social Survey (WESS), titled “In Search of New Development Finance”, analyses current and proposed mechanisms for innovative development finance and highlights mechanisms that can 1) increase the scale of development financing available and 2) provide stable and predictable financing to enhance sustainable development.

Such innovative sources should be complements to, not substitutes for, traditional forms of development aid. The report finds that new sources of financing are technically feasible and could raise significant resources for development. To realize the potential of these new development financing mechanisms, however, greater political will and an international agreement are needed. The report also stresses that how the money is allocated is as important as how it is raised.

Innovations in financing for health

The report searches for new sources as a complement to aid and also notes that a number of innovative initiatives have been launched during the past decade, most of which have been used to fund global health programmes aimed at providing immunizations and AIDS and tuberculosis treatments to millions of people in the developing world.

It finds that while these initiatives have successfully used new methods to channel development financing to combat diseases, they have hardly yielded any additional funding on top of traditional development assistance. The report also warns that in some cases these global funds have bypassed broader national health priorities in developing countries and contributed to the fragmentation of international support to health systems in low-income countries.

In the area of health, the report concludes that instead of an array of disease-specific funds, it would be better to focus on finding new resources for more general budget support for health systems in developing countries in need and to consolidate the existing disease-specific disbursement mechanisms into a single “global fund for health”.

Climate change generates new mechanisms

According to the report, the potential for innovative development finance is particularly high in the area of fighting climate change. Innovative development finance mechanisms have raised about $1 billion for climate change, and has the potential to increase substantially in the coming years. For example, the European Union will be shifting to auctioning emissions allocations, potentially generating some $20-35 billion in annual revenues. However, with the exception of Germany, European Union members have so far been unwilling to commit to allocating a specified proportion of these revenues to international programmes, in part due to domestic financial pressures. $3-5 billion per year could be raised if other countries were to match Germany’s commitment. Other mechanisms with the potential to raise more substantial resources are discussed below.

Increasing finance for climate change-related issues in recent years has given rise to a proliferation of separate climate funds, with limited coordination among them. The WESS stresses that it is important to avoid further fragmentation as traditional and innovative financing increase.

As in the case of health, a more effective approach would be to consolidate disbursement mechanisms. The report concludes that the international agreement to establish the Green Climate Fund could serve as the starting point for such a consolidation.

New funding options identified

The report also highlights a number of technically feasible and economically sensible options to obtain considerable new funding, all which will be revealed at the launch of the report on 5 July at 11 am EST.

Without disclosing any of the details, Rob Vos, Director of UN DESA’s Division for Development Policy and Analysis and the lead author of the report, says, “Realizing the potential of these mechanisms will require international agreement and corresponding political will, both to tap sources as well as to ensure allocation of revenues for development.”

The WESS sums up that the design of appropriate governance and allocation mechanisms is crucial for innovative financing to ultimately meet development needs and contribute to financing the post-2015 development agenda. It also concludes that realizing this potential requires strong political will to follow through on available proposals as well as transparency in the allocation and management of those resources.

The WESS 2012 will be featured in a panel discussion arranged as one of the side events of the Development Cooperation Forum on 5 July.

For more information:

Live webcast from official launch of the WESS 2012 on 5 July at 11 am EST

World Economic and Social Survey 2012: In Search of New Development Finance

Development Cooperation Forum