KEY FORESIGHT AND PREPAREDNESS FUNCTIONS IN THIS CHAPTER
“The international community will need to mobilize the resources developing countries need to achieve the SDGs. ... Reforms of the international financial architecture are also urgently needed to ensure that the voice of developing countries is fairly represented.”
Li Junhua, Under-Secretary-General for Economic and Social Affairs, High-level Political Forum on Sustainable Development, New York, 10 July 2023
CONTEXT AND CHALLENGES
Multiple crises have continued to exacerbate the development challenge, threatening to further reverse progress on the SDGs. Impacts are most severely felt by vulnerable countries, including many least developed countries (LDCs), African countries and small island developing States (SIDS). A slowdown in the global economy, the war in Ukraine, rising energy and food prices, tightening financial conditions, rapidly rising indebtedness, declining overseas aid, and the devastating impacts of conflict and climate change continue to remain pressing challenges – all of which are competing for scarce public resources. This is giving rise to uneven economic growth, unsustainable patterns of production and consumption, and rising inequality. Without urgent action the poorest and most vulnerable will be left even further behind. Recovery from the pandemic also poses challenges for developing countries that are on the path to graduate from LDC status. Once these countries graduate, they would lose access to concessional finance and to LDC-specific trade preferences.
Overseas Development Assistance (ODA) is not keeping pace with growing need for assistance from poorer countries, and donors often fail collectively to meet ODA commitments of 0.7 per cent of GNI. Borrowing costs for developing countries is high, and tax structures have not kept pace with a changing world. Financial markets and capital flows are volatile, and Foreign Direct Investment (FDI), an important contributor to growth in productive capacity, has fallen following the pandemic. Recovery plans need to be sustainable with its benefits extending to all. However, the distribution of global investment funds is uneven with the bulk likely to go to developed economies and a few large emerging markets. Developing countries may have limited fiscal space and poor policy coherence in channelling finance and investment towards sustainable development, inadequate institutional and absorptive capacity to formulate a pipeline of bankable SDG investment projects, and weak financial, governance and regulatory systems to be able to direct and implement recovery strategies and projects at pace and scale.
FORESIGHT AND PREPAREDNESS FUNCTIONS
1.
Advancing global consensus on financing for development that considers future risks
UN DESA supports high-level forums advancing global consensus on financing for development outcomes that consider future risks and challenges. The development landscape is changing and, as the secretariat for the biennial ECOSOC Development Cooperation Forum (DCF), the Department is working to strengthen the foundation for collective action. UN DESA produces reviews of trends, research and analytical work that informs global actors in balanced and inclusive debates on emerging issues in international development cooperation. Notably, drawing on the work of the Department, the eighth high-level meeting of the DCF in 2023 resulted in a reimagined understanding of development cooperation for the decade of action – informed by risk, designed to build resilience and strongly linked with climate action.
The Department advances policy and action by providing thought leadership and agenda-shaping, promoting multi-stakeholder dialogue, identifying policy options and best practices, and offering strategic advice and support for capacity development. The Under-Secretary-General of UN DESA chairs the Inter-Agency Task Force on Financing for Development (IATF), which is comprised of over 60 United Nations entities and other international institutions. The Department also supports the annual ECOSOC Forum on Financing for Development (FfD Forum), an intergovernmental process established under the Addis Agenda, for inclusive, multi-stakeholder dialogue to address current global challenges and advance policies for financing long-term sustainable development priorities. The outcome of the recent FfD Forums in 2023 and 204 take a foresight approach by calling for an SDG stimulus to address high costs borrowing and rising risks of debt distress, to find urgent solutions to scale up affordable long-term financing for development and to expand contingency financing to countries in need. In 2023 Member States also agreed to hold the fourth International Conference on Financing for Development in 2025, in recognition of the need to adapt and evolve international norms on financing for ongoing changes to technology, industry and the global economy.
In a dynamic global financing landscape, UN DESA helps to shape the conversation on social and economic issues through its cutting-edge analytical products and policy advice. The annual flagship Financing for Sustainable Development Report (FSDR)* plays an important role in advising the intergovernmental process on progress, implementation gaps and recommendations for corrective action. It serves as an important input to the intergovernmental negotiations from the ECOSOC Forum on Financing for Development and the quadrennial General Assembly High Level Dialogue on Financing for Development, as well as to the HLPF. The reports are widely read by government, private sector, civil society, multilaterals, and UN agencies and entities. The 2024 FSDR included new data dashboards to help illustrate progress and prepare Member States for needed actions. It also laid the substantive groundwork for upcoming negotiations at the fourth International Conference on Financing for Development.
UN DESA continues to support the Secretary-General’s vision for reform of the international financial architecture to support new and emerging global needs. The Department’s “Policy brief no. 98: Risk-informed Finance” sheds new light on the inter-linkages between risk and resilience and advocates for a risk-informed approach to financing for development which will be critical for the future. “Policy Brief No. 138: Improving the Criteria to Access Aid for Countries That Need It the Most” draws attention to donors failing to meet ODA commitments. It envisions the use of ‘multidimensional vulnerability criteria’ in donor resource allocation decision particularly in the context of escalating risks and future crises
*The report is a product of the UN Inter-agency Task Force on Financing for Development and is coordinated and edited by UN DESA.
“I encourage the G-24 finance ministers and central bank governors to make use of the analysis and recommendations of the 2023 Financing for Sustainable Development Report. It is my hope that this analytical work, which is supported by the entire international system, can help to bolster the evidence base for your decision making.”
UN Under-Secretary-General Li Junhua at the Ministerial Meeting of the Group of 24, Washington, DC, 11 April 2023
UN DESA’s series of policy briefs continue to amplify the key recommendations from the FSDR and cover wide ranging frontier issues including on the cost of borrowing, crypto currencies, and complementary measures to GDP for access to concessional finance. For instance, UN DESA’s “Policy Brief No. 134: The Great Finance Divide” highlights the need to increase access to long-term, affordable and stable financing, and to use proceeds productively so that public policy goals are achieved, and fiscal capacity is enhanced, while addressing debt distress when necessary. UN DESA’s “Policy Brief No. 135: Cryptoassets and So-called “Stablecoins”: Where Do We Go From Here?” pointed to both the high risks and potential of cryptoassets, and provides four policy solutions for strengthening regulation, harnessing technology, strengthening cooperation across sectors and jurisdictions, and addressing underlying domestic macroeconomic and structural challenges.
2.
Future-proofing financing and debt
The annual Financing for Sustainable Development Report provides early warning to countries on rising and unsustainable debt – which remains a key risk to progress on the SDGs particularly in the context of global shocks, contracting economies and widening fiscal deficits. The report’s also go a step further by providing policy solutions and recommendations such as highlighting the need for effective public management and debt management strategies, shared responsibilities between creditors and borrowers, the use of innovative financing instruments such as debt for climate swaps, and stronger mechanisms for debt crisis resolution.
UN DESA’s convening efforts and analysis have highlighted the important role of credit ratings on debt sustainability and stability, particularly in relation to international capital markets. Credit ratings provide creditors with assessments of a debtor’s relative risk of default and inaccurate ratings can impact the cost of borrowing and the stability of the international financial system, as demonstrated during the 2008 global financial crisis. In a response to a call from Member States, UN DESA organized a High-level Meeting in March 2022, to discuss how credit ratings and other sources of improved information could better contribute to financing for sustainable development and the stability of the international financial system. UN DESA will continue to support Member States and engage all relevant stakeholders to advance these recommendations in relevant platforms.
The Department is using multiple routes to engage private finance and investment to meet future financing needs for the SDGs. The Global Investors for Sustainable Development (GISD) Alliance, comprising representative members from among the world’s largest investors and financial institutions, was convened by the UN Secretary-General in October 2019 to leverage the insights of private sector leaders and advocate for and scale up resources for sustainable finance to achieve the SDGs. UN DESA assists the GISD Alliance in implementing four priority areas: catalyse finance and investment; align finance and investment; promote long-terminism; develop instruments and platforms. Investors find it useful to have a common definition of Sustainable Development Investing (SDI) and standardized sector-specific metrics for measuring the degree of SDG-alignment of investments and draw on the GISD Navigator toolbox to rethink their business model towards the SDGs.
UN DESA’s support to the SDG Investment Fair is helping to mobilize private finance by connecting the private sector with impactful and responsible sustainable development investment opportunities in emerging and frontier markets. High demand for the Fair has led to its transition from an annual event to a year-round program. Since 2018, seven SDG Investment Fairs have been held, showcasing 22 countries, and with over US $11 billion worth of project investments.
SDG Investment Fairs link countries and investors
The SDG Investment Fairs provide the opportunity for countries to pitch their SDG investment opportunities, supports investor networking and peer learning. Consequently, over 19 countries have been showcased as SDG investment destinations. Member States are also building critical knowledge and skills to prepare bankable SDG investments.
In 2021, Kenya, Jamaica, Ghana, Pakistan, Rwanda, Dominican Republic, Namibia, and Ukraine presented over $10 billion in investment opportunities to financial institutions and companies. In 2022, Colombia, Equatorial Guinea, El Salvador, Guatemala, Nigeria, and Malawi presented opportunities in a range of sectors including sustainable infrastructure, healthcare, manufacturing, green energy, and agri-business. In April 2022, a special investor matchmaking event at the Permanent Mission of Namibia to the United Nations successfully facilitated interactions between new investors and technology partners to support Namibia’s strategic SDG investments. In April 2023, the Fair took place alongside the ECOSOC Financing for Development Forum and showcased a range of SDG-aligned sustainable investment opportunities in diverse sectors.
The Department’s policy and knowledge resources emphasize the importance of increasing future domestic tax resources for countries to finance sustainable development. While it is widely known that tax systems and public spending are powerful instruments to incentivize and support sustainable development, countries face several challenges in developing and implementing policies that are suited to their local contexts. UN DESA outlines policy options including through aligning budgets and tax policies with sustainable development priorities and policy coherence and through the use of integrated national financing frameworks (INFFs).
UN expert guidance on tax matters: offering countries practical tools and solutions to strengthen domestic tax systems amid the evolving international tax and sustainable development landscape
A Handbook on Carbon Taxation for Developing Countries (October 2021) outlines policy options for curbing carbon-based emissions responsible for climate change, in line with commitments under the Paris Agreement.
The UN Model Double Taxation Convention between Developed and Developing Countries (September 2021) brings to the fore issues on double taxation rights and reflects on differences between UN Model Taxation Convention which developing countries rely upon more and OECD Model Tax Convention on Income and on Capital.
The Handbook on Dispute Avoidance and Resolution (May 2021) focuses on the application of income tax laws in achieving the right balance between raising domestic revenues and attracting Foreign Direct Investment (FDI).
A Practical Manual on Transfer Pricing (May 2021) focuses on the transfer of goods, services and intangibles between enterprises of the multinational groups and highlights the need for adhering to the internationally agreed arm’s length principle, so that profits are appropriately taxed.
UN Guidelines on the Tax Treatment of Government-to-Government Aid Projects (April 2021) reflects on the proliferation of special tax exemptions as an obstacle to developing country efforts to broaden their tax base. The UN Manual for the Negotiation of Bilateral Tax Treaties between Developed and Developing Countries (June 2019) is a compact training tool that provides practical guidance to developing country officials. It focuses on the unique realities and stages of capacity development in these countries, providing essential insights into negotiating tax treaties effectively.
UN DESA supports the new intergovernmental process on tax and delivers policy and knowledge products to enhance intergovernmental deliberations on emerging issues and future directions on international and domestic tax policies. For instance, the Department provided the Secretariat to the ad hoc intergovernmental committee established by GA resolution 78/230 to draft terms of reference for a United Nations framework convention on international tax cooperation by August 2024. The ToR outline a plan for a new UN framework convention aimed at creating a more adaptable and inclusive international tax system. Emphasis is on building a flexible and resilient approach to international tax cooperation that can evolve alongside rapid changes in technology, business models and global economic landscapes. By establishing principles that prioritize inclusivity, agility and adaptability, while balancing economic, social, and environmental concerns, the framework convention and early protocols to be negotiated over the next few years aim to help all countries better prepare for and respond to current and future tax-related challenges in an increasingly digitalized and globalized world.
UN DESA delivers the UN Committee of Experts on International Cooperation in Tax Matters (UN Tax Committee), which promotes international tax cooperation and makes practical recommendations on domestic and international tax matters and on actions to strengthen capacity building and provision of technical expertise to developing countries. UN DESA is helping to broaden discussions to include taxing the digitalized and globalized economy, tax treaties, environmental taxes, health taxes, wealth taxes, extractive industries taxation, and transfer pricing, among others.
UN DESA also supports the annual ECOSOC Special Meeting on International Cooperation in Tax Matters which offers opportunities to advance intergovernmental cooperation on international tax for example, by setting tax norms, by reducing tax avoidance and abuse, tackling tax-related illicit financial flows and harmful global tax competition, as well as supporting the use of tax policies by countries to achieve the SDGs. The Special Meeting in March 2024 provided a platform for multistakeholder discussions on promoting inclusive and effective international tax cooperation at the United Nations, pursuant to GA resolution 78/230, and exploring the role of net wealth taxes in fostering equality and financing the SDGs.
Since 2016, UN DESA represents the UN in the Platform for Collaboration on Tax (PCT), which brings together international organisations to work collaboratively on tax issues. This includes matters related to the design and implementation of standards for international tax matters, identifying capacity-building support to developing countries, and helping to deliver capacity-building tools. For example, the PCT’s Toolkit on the Taxation of Offshore Indirect Transfers (OIT), launched in 2020, navigates the tricky ground between international and domestic tax law, and has the potential to plug loopholes, which deprive developing countries of billions of dollars each year. PCT is currently working on updating its toolkit on tax incentives to ensure continued relevance in helping developing countries address tax and domestic resource mobilization challenges, including the design and administration of tax incentives.
3.
Building national capacities to expand future access to finance
UN DESA has taken a regional approach to capacity development for developing countries future financing needs. It has worked to design risk-informed and data driven development cooperation strategies and policies to address short-term crises and build long-term resilience. In 2022 and 2023, three regional peer learning events were held in the Asia-Pacific and African and Latin American and Carribean regions regions respectively. In Africa and Latin America, the events focused on leveraging enablers of effective development cooperation to enhance support by development partners for climate adaptation needs. In the Asia-Pacific, the workshop provided hands-on training and guidance on the collection and effective use of accurate, relevant, comprehensive, and timely data for more effective development cooperation. In response to growing demand from countries, a DCF Digital Knowledge Centre was launched in 2023. This serves as a digital knowledge-management portal that collects good practices in designing, implementing and updating national development cooperation policies and strategies, as well as facilitating interactive online discussion among development cooperation focal points for peer learning and networking.
UN DESA is working with Member States to build capacity in dealing with complex tax issues and build the domestic resource base essential for future SDG progress. UN DESA’s integrated capacity development programme in tax and domestic resource mobilization strengthens the capacities of developing country tax officials to address complex tax issues that pose revenue leakage risks. The programme supports the adoption and effective use of practical guidance developed by the UN Tax Committee on key tax policy and administration issues for sustainable development. It also assists countries in addressing tax avoidance, tax-related illicit financial flows, and the complex taxation of services, dispute avoidance and resolution, among other key topics. UN DESA is currently implementing a four-year project under the Development Account tranche 16, aimed at creating a risk assessment tool to help countries identify and address their vulnerabilities to aggressive tax avoidance.
The programme offers workshops at regional and global levels, online courses, and technical assistance a country level, all tailored to developing countries, including LDCs, LLDCs, and SIDS. Practical guidance from the UN Tax Committee is freely available on the UN DESA website. An example of one of UN DESA’s in-person workshops on tax in 2024 is provided below.
UN DESA supports developing country officials in enhancing their tax treaty negotiation skills
The Department, in collaboration with the Organisation for Economic Co-operation and Development (OECD), successfully delivered the 7th Practical Workshop on Negotiation of Tax Treaties at the OECD Multilateral Tax Center in Vienna, Austria, from 22 to 26 July 2024. This five-day event featured a comprehensive simulated negotiation exercise, where participants engaged in negotiating all provisions of a tax treaty between a developed and a developing country. This hands-on experience not only enhanced participants’ practical skills in treaty negotiation but also deepened their understanding of the substantive differences between the United Nations and OECD Models Tax Conventions.
The workshop brought together thirty-two participants from twenty-seven countries across Africa, Asia, Europe, and Latin America and the Caribbean, with a balanced representation of eighteen women and fourteen men. This diverse group benefited from the collaborative and interactive format, which reinforced the critical aspects of international tax cooperation and treaty negotiation.
