In 2015, the world community set an ambitious and transformative development agenda and ushered in a new era of global cooperation on climate change. We committed to ending poverty in all its forms everywhere and to ensuring sustainable development for all. Yet, as we begin the implementation phase, economic and geopolitical risks have risen. If we are to live up to our commitment to achieve the Sustainable Development Goals (SDGs) in one generation, it is critical that the global community begin implementation of the 2030 Agenda today.
1. World Economic Situation and Prospects
The world economy continues on a weak growth path. After a tumultuous start in 2016, global financial markets have stabilized. Nevertheless, major uncertainties remain. Growth in developing countries, including China, Russia and Brazil, has slowed. The latest update of the United Nations’ World Economic Situation and Prospects estimated global growth at 2.4 per cent in 2015 and projects the world economy will grow by 2.7 per cent in 2016, with heightened downside risks.
The slowdown in growth reflects several interrelated issues, including the sharp drop in commodity prices, capital outflows, rising corporate debt, increased financial volatility, as well as country-specific factors. Key areas of concern include systemic risks due to deepening financial vulnerabilities and increased risk of debt distress in some developing countries; growing capital account pressures; and escalating geopolitical tensions. Moreover, slow productivity growth and feeble global investment pose structural long-term risks to the global economy.
The volume of world trade grew by just 2.7 per cent in 2015, the lowest rate since the Great Recession. At the same time, net capital outflows from emerging markets reached an estimated $700 billion, which is greater than the capital outflows experienced during the Great Recession. Oil prices plunged to $30 per barrel earlier in 2016, and the outlook for commodity prices remains gloomy, as global commodity demand is not expected to strengthen significantly.
Weak global growth continues to depress labour markets in many economies. Youth unemployment rates are particularly high worldwide. Persistent unemployment, poor job quality and stagnant real wages in some countries also remain pressing issues.
The massive reversal of capital flows experienced by developing countries in 2015 should signal a warning. The Addis Ababa Action Agenda, adopted at the Third International Conference on Financing for Development in July 2015, includes an agreement for countries to use necessary macroeconomic policy adjustment, supported by macro-prudential regulations and capital flow management measures when dealing with risks from large and volatile capital flows. Countries would also benefit from greater coordination, and should be able to count on the cooperation of source countries in relation to both data gathering and enforcement of regulations.
The global economic environment may also make it more difficult for countries with high debt burdens to grow quickly enough to reduce risks of debt distress. To help attenuate risks, Governments can take a number of actions at the domestic level, including enacting macro-prudential policies and strengthening domestic insolvency procedures, as endorsed in the Addis Agenda. Sovereign debt issuers can also explore GDP-linked bonds, commodity-linked bonds, or other warrants that can help attenuate the macroeconomic risks, including in negotiations with official lenders. Official lenders should consider these risk sharing instruments as ways to reduce the risks of default for borrowing countries. At the same time, the international community needs to put in place an effective and credible framework to ensure that creditors and debtors are taking appropriate responsibility for borrowing and lending, as committed to in the Addis Agenda.
Overall, the global economic situation presents a challenge to the implementation of the 2030 Agenda, not only in terms of inadequate economic and financial resources, but also in terms of distracting political will and policy attention away from the much needed focus on sustainable development efforts. In addition the economic situation will directly curtail achievement of some of the agreed global goals. For example, if the current growth pattern continues, the least developed countries will not be able to achieve the target of “at least 7 per cent GDP growth” set in sustainable development goal 8, missing many other goals as well. Taking action on implementation will be crucial to addressing the potential shortfalls. In light of the risks and uncertainties, policymakers can make use of the full gamut of economic policy instruments, including monetary, fiscal and structural measures, to promote financial stability, strengthen demand and boost productivity.
2. The 2030 Agenda for Sustainable Development and the Addis Ababa Action Agenda
The year 2016 marks the start of the implementation of the transformative 2030 Agenda for Sustainable Development. The new Agenda, which the Secretary-General describes as a social contract between the world’s leaders and the people and a to-do list for people and planet, calls on all countries, developing as well as developed, to implement the 17 Sustainable Development Goals (SDGs) over the next 15 years.
The means of implementation of the 2030 Agenda are supported and complemented by the Addis Ababa Action Agenda, which is an integral part of the 2030 Agenda. The Addis Agenda delivered three key outcomes: a cohesive financing framework for sustainable development; concrete deliverables; and a renewed follow-up process.
Member States will need to take ownership of the 2030 Agenda and integrate the SDGs into national policies. Engaging all forms of stakeholders will be integral. Government ministries and departments will need to work together rather than in silos. This is mirrored in the Addis Agenda, which emphasizes the role of cohesive nationally owned sustainable development strategies, supported by integrated national financing frameworks. I encourage Group of 24 Members States to use the Addis Agenda as a guide as they prepare such strategies.
In particular, it is worth drawing attention to the role accorded to national and regional development banks in the Addis Agenda. Well-functioning development banks can play three valuable functions: (i) mobilizing financial resources to support development, including by leveraging private sector resources; (ii) intervening in cases of market failure and in areas where there is a dearth of private long-term financing, such as investments with positive social and environmental externalities; and (iii) providing counter-cyclical finance. The Addis Agenda urges relevant public and private actors to support such banks in developing countries. I encourage Member States to make use of support and guidance that might be available from South-South cooperation partners that have successful institutions of this type.
Given the difficult economic environment, it is welcome that the discussions have begun in several international forums on the adequacy of the global financial safety net. In the Addis Agenda, Member States recognized the importance of strengthening the permanent international financial safety net. As discussions on the adequacy, comprehensiveness and flexibility of safety nets progress, I urge the Group of 24 to ensure a robust assessment of existing mechanisms based on the risks developing countries face given the scale and volatility of capital flows.
Since the last meeting of the Group of 24, a select group of countries have agreed to new international norms on cooperation in tax matters. In an interdependent world with high levels of capital mobility, international tax norms function as a global public good. International rules have important distributional implications, as the structure of tax agreements affects the distribution of resources between corporations and Governments, as well as among Governments. In the Addis Agenda, Member States agreed that “efforts in international tax cooperation should be universal in approach and scope and should fully take into account the different needs and capacities of all countries, in particular least developed countries”.
This week will witness the inaugural Global Infrastructure Forum, an initiative agreed to in the Addis Agenda, to be led by existing and new multilateral development banks (MDBs). The World Bank has successfully guided the preparation of this first meeting, and future sessions will be rotated amongst other MDBs. I encourage all Member States to work closely with the infrastructure forum to improve coordination among all stakeholders; encourage a greater range of voices to be heard, particularly from developing countries; focus on sustainable, clean and resilient infrastructure; and identify and address infrastructure and capacity gaps, including in vulnerable countries and underserved sectors. The Forum should focus on the poorest countries and the poorest members of our societies, with the goal of leaving no one behind. All countries must be able access to the financing and technical expertise necessary to ensure sufficient investment in infrastructure.
3. Policy coherence and global economic governance
In the Addis Agenda, Member States made strong commitments to cooperation, collaboration and coherence. It recognizes that institutional “silos” need to be broken down through cross-fertilization of ideas and more effective coordination of actions, as well as the importance of addressing inconsistencies in the system. The close interlinkages among the economic, social and environmental systems are now recognized. Still, the rules and institutions that govern these systems have not yet adapted.
The Addis Agenda stresses the importance of policy coherence on three levels. First, Member States need to ensure coherence across domestic policies and domestic institutions, for which national sustainable development strategies will be crucial. Second, there needs to be coherence between international agreements and domestic policies. This includes attention to the unintended consequences and spillovers of macroeconomic and financial policies of one country onto other countries. For example, with volatile capital flows responding to macroeconomic, macro-prudential and regulatory policies in both source and destination countries, international coordination of policies is needed. Finally there must be policy coherence at the global level, across international agreements and institutions. Indeed, this is recognised explicitly in the Addis Agenda, with calls for development finance institutions to align their business practices with the 2030 Agenda and for trade and investment agreements to include appropriate safeguards so as not to constrain domestic policies and regulation in the public interest, among other examples. The renewed global partnership for sustainable development will only bear fruit if economic, trade, monetary, and financial systems, environmental rules and frameworks, and social policies and systems are made coherent.
Greater representation of developing countries in global economic decision-making would enhance the effectiveness of the global partnership for sustainable development. The United Nations welcomes the entry into force of the 2010 IMF quota and governance reforms. This now paves the way for additional reforms that were to be negotiated several years ago. In the Addis Agenda, Member States commit to further governance reform in both IMF and the World Bank to adapt to changes in the global economy, and also invite main international regulatory standard-setting bodies to continue efforts to increase the voice of developing countries in norm-setting processes. Given the enhanced global focus on illicit financial flows, developing countries will need to participate equally and more effectively in the development of international tax norms. The United Nations is ready to play an active role in these discussions given its universality and legitimacy.
Indeed, the United Nations remains the only truly universal and inclusive multilateral forum. In the Addis Agenda, Member States committed to make better use of the relevant United Nations forums for promoting universal and holistic coherence and international commitments to sustainable development.
4. The way forward
Robust implementation of the Addis Ababa Action Agenda and the 2030 Agenda for Sustainable Development will require follow-up, to ensure commitments are being met. The Inter-agency Task Force on Financing for Development (the Task Force), mandated in the Addis Agenda and convened by the Secretary-General, has brought together more than 50 international institutions, including the major institutional stakeholders of the Financing for Development process (the World Bank Group, IMF, WTO, UNCTAD and UNDP), to help with this effort. The inaugural report of the Task Force, which focussed on the monitoring framework for the Addis Agenda, will be launched at next week’s Forum on Financing for Development Follow-up. Future editions of the Task Force report will set a baseline for monitoring actions and report on progress achieved.
The Economic and Social Council (ECOSOC) Forum on Financing for Development Follow-up, established by the Addis Agenda, to be held next week in New York, constitutes the centrepiece of a dedicated and strengthened FfD follow-up process. It will be informed by the Task Force report and bring together Member States, the major institutional stakeholders of the FfD process, and representatives of business and civil society, to deliberate on progress in implementation. The Forum will adopt inter-governmentally agreed conclusions and recommendations. I strongly encourage the Group of 24 to send high level representatives, particularly from finance ministries, to this year’s inaugural ECOSOC Forum on FfD Follow-up and to future sessions of the Forum.
In the 2030 Agenda, Member States committed to the systematic follow-up and review of progress on implementation at the national, regional and global levels. While follow-up and review will be centred at the national level, the global review architecture will be centred on the High-Level Political Forum on Sustainable Development (HLPF). The HLPF is expected to take a holistic view of implementation, thus drawing political attention to implementation gaps, and provide political leadership, guidance and recommendations for follow-up to accelerate progress on the most important issues. The next HLPF will meet in mid-July under the auspices of ECOSOC with a theme of “Ensuring that no one is left behind”. I warmly welcome the decision of a number of Group of 24 Member States to conduct national reviews at this year’s HLPF and encourage all Member States to volunteer for these reviews in future sessions of the HLPF.
1. World Economic Situation and Prospects
The world economy continues on a weak growth path. After a tumultuous start in 2016, global financial markets have stabilized. Nevertheless, major uncertainties remain. Growth in developing countries, including China, Russia and Brazil, has slowed. The latest update of the United Nations’ World Economic Situation and Prospects estimated global growth at 2.4 per cent in 2015 and projects the world economy will grow by 2.7 per cent in 2016, with heightened downside risks.
The slowdown in growth reflects several interrelated issues, including the sharp drop in commodity prices, capital outflows, rising corporate debt, increased financial volatility, as well as country-specific factors. Key areas of concern include systemic risks due to deepening financial vulnerabilities and increased risk of debt distress in some developing countries; growing capital account pressures; and escalating geopolitical tensions. Moreover, slow productivity growth and feeble global investment pose structural long-term risks to the global economy.
The volume of world trade grew by just 2.7 per cent in 2015, the lowest rate since the Great Recession. At the same time, net capital outflows from emerging markets reached an estimated $700 billion, which is greater than the capital outflows experienced during the Great Recession. Oil prices plunged to $30 per barrel earlier in 2016, and the outlook for commodity prices remains gloomy, as global commodity demand is not expected to strengthen significantly.
Weak global growth continues to depress labour markets in many economies. Youth unemployment rates are particularly high worldwide. Persistent unemployment, poor job quality and stagnant real wages in some countries also remain pressing issues.
The massive reversal of capital flows experienced by developing countries in 2015 should signal a warning. The Addis Ababa Action Agenda, adopted at the Third International Conference on Financing for Development in July 2015, includes an agreement for countries to use necessary macroeconomic policy adjustment, supported by macro-prudential regulations and capital flow management measures when dealing with risks from large and volatile capital flows. Countries would also benefit from greater coordination, and should be able to count on the cooperation of source countries in relation to both data gathering and enforcement of regulations.
The global economic environment may also make it more difficult for countries with high debt burdens to grow quickly enough to reduce risks of debt distress. To help attenuate risks, Governments can take a number of actions at the domestic level, including enacting macro-prudential policies and strengthening domestic insolvency procedures, as endorsed in the Addis Agenda. Sovereign debt issuers can also explore GDP-linked bonds, commodity-linked bonds, or other warrants that can help attenuate the macroeconomic risks, including in negotiations with official lenders. Official lenders should consider these risk sharing instruments as ways to reduce the risks of default for borrowing countries. At the same time, the international community needs to put in place an effective and credible framework to ensure that creditors and debtors are taking appropriate responsibility for borrowing and lending, as committed to in the Addis Agenda.
Overall, the global economic situation presents a challenge to the implementation of the 2030 Agenda, not only in terms of inadequate economic and financial resources, but also in terms of distracting political will and policy attention away from the much needed focus on sustainable development efforts. In addition the economic situation will directly curtail achievement of some of the agreed global goals. For example, if the current growth pattern continues, the least developed countries will not be able to achieve the target of “at least 7 per cent GDP growth” set in sustainable development goal 8, missing many other goals as well. Taking action on implementation will be crucial to addressing the potential shortfalls. In light of the risks and uncertainties, policymakers can make use of the full gamut of economic policy instruments, including monetary, fiscal and structural measures, to promote financial stability, strengthen demand and boost productivity.
2. The 2030 Agenda for Sustainable Development and the Addis Ababa Action Agenda
The year 2016 marks the start of the implementation of the transformative 2030 Agenda for Sustainable Development. The new Agenda, which the Secretary-General describes as a social contract between the world’s leaders and the people and a to-do list for people and planet, calls on all countries, developing as well as developed, to implement the 17 Sustainable Development Goals (SDGs) over the next 15 years.
The means of implementation of the 2030 Agenda are supported and complemented by the Addis Ababa Action Agenda, which is an integral part of the 2030 Agenda. The Addis Agenda delivered three key outcomes: a cohesive financing framework for sustainable development; concrete deliverables; and a renewed follow-up process.
Member States will need to take ownership of the 2030 Agenda and integrate the SDGs into national policies. Engaging all forms of stakeholders will be integral. Government ministries and departments will need to work together rather than in silos. This is mirrored in the Addis Agenda, which emphasizes the role of cohesive nationally owned sustainable development strategies, supported by integrated national financing frameworks. I encourage Group of 24 Members States to use the Addis Agenda as a guide as they prepare such strategies.
In particular, it is worth drawing attention to the role accorded to national and regional development banks in the Addis Agenda. Well-functioning development banks can play three valuable functions: (i) mobilizing financial resources to support development, including by leveraging private sector resources; (ii) intervening in cases of market failure and in areas where there is a dearth of private long-term financing, such as investments with positive social and environmental externalities; and (iii) providing counter-cyclical finance. The Addis Agenda urges relevant public and private actors to support such banks in developing countries. I encourage Member States to make use of support and guidance that might be available from South-South cooperation partners that have successful institutions of this type.
Given the difficult economic environment, it is welcome that the discussions have begun in several international forums on the adequacy of the global financial safety net. In the Addis Agenda, Member States recognized the importance of strengthening the permanent international financial safety net. As discussions on the adequacy, comprehensiveness and flexibility of safety nets progress, I urge the Group of 24 to ensure a robust assessment of existing mechanisms based on the risks developing countries face given the scale and volatility of capital flows.
Since the last meeting of the Group of 24, a select group of countries have agreed to new international norms on cooperation in tax matters. In an interdependent world with high levels of capital mobility, international tax norms function as a global public good. International rules have important distributional implications, as the structure of tax agreements affects the distribution of resources between corporations and Governments, as well as among Governments. In the Addis Agenda, Member States agreed that “efforts in international tax cooperation should be universal in approach and scope and should fully take into account the different needs and capacities of all countries, in particular least developed countries”.
This week will witness the inaugural Global Infrastructure Forum, an initiative agreed to in the Addis Agenda, to be led by existing and new multilateral development banks (MDBs). The World Bank has successfully guided the preparation of this first meeting, and future sessions will be rotated amongst other MDBs. I encourage all Member States to work closely with the infrastructure forum to improve coordination among all stakeholders; encourage a greater range of voices to be heard, particularly from developing countries; focus on sustainable, clean and resilient infrastructure; and identify and address infrastructure and capacity gaps, including in vulnerable countries and underserved sectors. The Forum should focus on the poorest countries and the poorest members of our societies, with the goal of leaving no one behind. All countries must be able access to the financing and technical expertise necessary to ensure sufficient investment in infrastructure.
3. Policy coherence and global economic governance
In the Addis Agenda, Member States made strong commitments to cooperation, collaboration and coherence. It recognizes that institutional “silos” need to be broken down through cross-fertilization of ideas and more effective coordination of actions, as well as the importance of addressing inconsistencies in the system. The close interlinkages among the economic, social and environmental systems are now recognized. Still, the rules and institutions that govern these systems have not yet adapted.
The Addis Agenda stresses the importance of policy coherence on three levels. First, Member States need to ensure coherence across domestic policies and domestic institutions, for which national sustainable development strategies will be crucial. Second, there needs to be coherence between international agreements and domestic policies. This includes attention to the unintended consequences and spillovers of macroeconomic and financial policies of one country onto other countries. For example, with volatile capital flows responding to macroeconomic, macro-prudential and regulatory policies in both source and destination countries, international coordination of policies is needed. Finally there must be policy coherence at the global level, across international agreements and institutions. Indeed, this is recognised explicitly in the Addis Agenda, with calls for development finance institutions to align their business practices with the 2030 Agenda and for trade and investment agreements to include appropriate safeguards so as not to constrain domestic policies and regulation in the public interest, among other examples. The renewed global partnership for sustainable development will only bear fruit if economic, trade, monetary, and financial systems, environmental rules and frameworks, and social policies and systems are made coherent.
Greater representation of developing countries in global economic decision-making would enhance the effectiveness of the global partnership for sustainable development. The United Nations welcomes the entry into force of the 2010 IMF quota and governance reforms. This now paves the way for additional reforms that were to be negotiated several years ago. In the Addis Agenda, Member States commit to further governance reform in both IMF and the World Bank to adapt to changes in the global economy, and also invite main international regulatory standard-setting bodies to continue efforts to increase the voice of developing countries in norm-setting processes. Given the enhanced global focus on illicit financial flows, developing countries will need to participate equally and more effectively in the development of international tax norms. The United Nations is ready to play an active role in these discussions given its universality and legitimacy.
Indeed, the United Nations remains the only truly universal and inclusive multilateral forum. In the Addis Agenda, Member States committed to make better use of the relevant United Nations forums for promoting universal and holistic coherence and international commitments to sustainable development.
4. The way forward
Robust implementation of the Addis Ababa Action Agenda and the 2030 Agenda for Sustainable Development will require follow-up, to ensure commitments are being met. The Inter-agency Task Force on Financing for Development (the Task Force), mandated in the Addis Agenda and convened by the Secretary-General, has brought together more than 50 international institutions, including the major institutional stakeholders of the Financing for Development process (the World Bank Group, IMF, WTO, UNCTAD and UNDP), to help with this effort. The inaugural report of the Task Force, which focussed on the monitoring framework for the Addis Agenda, will be launched at next week’s Forum on Financing for Development Follow-up. Future editions of the Task Force report will set a baseline for monitoring actions and report on progress achieved.
The Economic and Social Council (ECOSOC) Forum on Financing for Development Follow-up, established by the Addis Agenda, to be held next week in New York, constitutes the centrepiece of a dedicated and strengthened FfD follow-up process. It will be informed by the Task Force report and bring together Member States, the major institutional stakeholders of the FfD process, and representatives of business and civil society, to deliberate on progress in implementation. The Forum will adopt inter-governmentally agreed conclusions and recommendations. I strongly encourage the Group of 24 to send high level representatives, particularly from finance ministries, to this year’s inaugural ECOSOC Forum on FfD Follow-up and to future sessions of the Forum.
In the 2030 Agenda, Member States committed to the systematic follow-up and review of progress on implementation at the national, regional and global levels. While follow-up and review will be centred at the national level, the global review architecture will be centred on the High-Level Political Forum on Sustainable Development (HLPF). The HLPF is expected to take a holistic view of implementation, thus drawing political attention to implementation gaps, and provide political leadership, guidance and recommendations for follow-up to accelerate progress on the most important issues. The next HLPF will meet in mid-July under the auspices of ECOSOC with a theme of “Ensuring that no one is left behind”. I warmly welcome the decision of a number of Group of 24 Member States to conduct national reviews at this year’s HLPF and encourage all Member States to volunteer for these reviews in future sessions of the HLPF.
File date:
Thursday, April 14, 2016