Thank you, Your Excellency, Ambassador Thomson, for the invitation to join this important event.
Likewise, thank you, Deputy Secretary General Amina Mohammed for your leadership and your very valuable insights.
We are coming close to the two-year anniversary of the Addis Ababa Action Agenda. A lot has happened in the last two years, and a lot has not happened as well. We can point to some progress, there are also new challenges.
There is a great deal of convergence on ideas on the way to do business, on the goals, on the aspirations, as reflected in the summit in 2015. In 2015 we saw an incredible convergence of aspirations around the world.
There has also been a lot of hard work. Efforts have been made to mobilize more resources and to align a range of financing flows across public and private spheres, with a focus on development priorities. Countries are recognizing the important of coherent implementation frameworks and developing strategic plans which look at the full range of resource mobilization strategies and sources. The multilateral development banks developed the concept of “Billions to Trillions” which relies on leveraging the private sector and the efficient mobilization and spending of public resources.
The risk of “Billions to Millions”
In Addis we presented the “Billions to Trillions” agenda, but today we have to ensure that while we work towards those trillions we do not slip “from billions to millions.”
The billions to trillions story started with good engagement by the UN system, of the development community, including the World Bank Group and the other multilateral development banks (MDBs). In April, 2013, when we gathered to discuss how difficult it is to do business without data, we then started to discuss a memorandum of understanding for reliable data in order to improve project finance.
Then a few months after that, for the first time, all Heads of MDBs signed a joint letter to the Secretary-General identifying the way they could support the process which ultimately led to the SDGs. They emphasized data, finance, and implementation.
For the first time, and again thanks to the UN-led process, we found that the International Financial Institutions (IFIs) were working together, and produced the paper that became the background piece for the billions-to-trillions paper in October 2013. At that time, we prepared a piece on development finance, with inputs from the IMF and the regional development banks.
We said billions to trillions, which assumed, I hope not too generously, that some good things would happen. I assumed that Official Development Assistance (ODA) would not continue to be flat. Unfortunately, based on the recent announcements, it continues to be flat, and under some assumptions and projections could actually be declining in real terms. We agreed from the beginning that ODA would not be enough, but that ODA is important for leveraging finance, and important for fragile and post-conflict areas, as well as the least-developed countries. It’s not a substitute for other finance, but it is one of the main pillars for development.
When we did the billions to trillions paper, we had a good proposal for domestic resource mobilization. We didn’t assume static tax-to-GDP ratios in many developing countries and emerging markets, as we have seen. Reforms are required to promote increases in domestic resource mobilization, not just to the national level, but also at the subnational level. These resources need to be directed toward development purposes through adequate public expenditure reviews and better targeting.
The assumption was that we would have a good response from the private sector with regard to leveraging. However, we have seen some positive developments, with some countries going beyond the traps that we saw in the performance on the Millennium Development Goals (MDGs), and engaging on these issues, including at the High-Level Political Forum last year, and we are expecting some good work this coming July at this year’s HLPF.
The concern of slipping from billions to millions is not just about finance. It is about what we see regarding real-world troubles. This risk is very real. The world is confronted with a number of uncertainties:
- Forced displacement is a global crisis affecting all of us.
- We are confronted with spillovers from conflict.
- Threats from pandemics, famine, and climate change put hard-earned development gains at risk.
- Inequalities are growing within countries.
- We are confronting major demographic changes which can alter the course of development if not dealt with adequately.
- Global economic growth hit a significant low point last year. Investment growth fell to 3.4 percent from 10 percent on average in 2010.
- Despite stimulus in major economies and the beginning of moderate growth in 2017, rising trade protectionist policies increase the risk of undoing these gains.
- There is uncertainty about policy direction in major economies, which can further constrain investment.
While we are seeing billions through better leveraging and adequate support for the financial sector to do a better job in being more inclusive, while providing incentives for the private sector through de-risking, guarantees, we are keen to see better progress in matters related to public finance, especially domestic resource mobilization and ODA.
Confronting these challenges requires prioritization and flexibility to capitalize on opportunities.
While the SDGs provide us with a shared framework, we also need to promote selectivity and focus. This means building buffers to respond to changes in the global landscape and strategic priorities. This is important for both governments and development. Becoming faster and more efficient is critical, and it requires a fundamental shift in behaviors, incentives, and capital.
The Financing Lab
The Labs today hosted by the PGA, as reflected in the rich agenda, are taking a step in the right direction to help identify not only the challenges, but also where the solutions may require a change in approach.
The agenda is an important one that focuses on transformation of markets and policy approaches that can help countries find the right mix of resources to achieve their development objectives. In particular, this provides an opportunity to look at the importance of mobilizing all sources of development finance for international, domestic, public, and private sector actors, as well as civil society and foundations.
I am encouraged by the variety of participants and experts who are here today and look forward to hearing about the practical approaches and strategies that can help widen our toolkit for financing sustainable development.
Inclusive growth, investment in human capital, and building resilience to risk
There are three key pillars that must be considered when facing global uncertainties and determining priorities for racing the SDGs:
First, we must promote sustainable and inclusive growth.
- Along with critical investment in sustainable infrastructure and financial strengthening, this also requires building efficient institutions and effective policies.
- This requires improving cost-effectiveness and impact of spending while focusing on strengthening tax programs (including at the subnational level), stemming illicit financial flows, and mobilizing domestic resources for smart development investments.
Second, we must invest in human capital
- This includes investment in skills, education, life-long learning and training programs, and health. These investments will secure the largest opportunities for countries to grow and compete.
Third, we must focus on fostering resilience to global shocks and threats.
- We cannot let global challenges roll back development gains.
- We know that the challenges of one nation can have serious potential to impact us all.
These three approaches require a fundamental change in the way we do business as a development institution.
At the WBG we are starting with the question “can the private sector finance this on commercial terms?”
Encouraging upstream reforms requires working with governments to support policy regulatory adjustments to make projects commercially viable.
Finally, we look at public or concessional financing to understand how it can be used better to mitigate risk – through blended finance instruments for example.
The IDA18 replenishment represents one of the first concrete measures that have been taken by the international community to respond to the commitments of the Addis Ababa Action Agenda.
- Donors have significantly scaled up the fight against extreme poverty with a record $75 billion commitment for the International Development Association (IDA), the World Bank Group’s fund for the poorest countries.
- The funding will enable greater investments in stability and progress around the world by helping to prevent conflict and violence, investing in the private sector, creating jobs and economic growth, preventing the worst effects of climate change, and promoting gender equality and good governance.
IDA will leverage its equity by blending donor contributions with internal resources and funds raised through debt markets. The financing package offers exceptional value-for-money, with every $1 dollar in partner contributions generating about $3 dollars in spending authority.
We are also working the private sector which plays an important role not only in the financial markets, but also in the development finance landscape. Mobilizing private sector finance can help secure job creation and productivity gains, as well as mobilize needed investment in areas such as infrastructure, inclusive project finance, and agriculture in many countries.
Sustainable financing solutions to development challenges are often dependent on the interaction between private investment and public policy. This includes unlocking finance from pension funds, insurance companies, and sovereign wealth funds. It also includes using resources more effectively through blending instruments and public-private partnerships.
We are building our capacity at IFC, MIGA, and the Bank (IDA & IBRD) to develop integrated policies which can mainstream joint operational responses and lower the perceived risks for investors and make investments more attractive.
Domestic resource policies
Ongoing efforts must be maintained to develop effective and efficient domestic resource mobilization policies to help generate economic growth.
This includes strong taxation and public financial management systems. The World Bank Group, IMF, OECD and UN are working together to develop comprehensive toolkits to promote good practices across a variety of topics, including accessing comparable data for transfer pricing.
Domestic resource mobilization efforts are also often hampered by issues related to corruption and the illicit flow of finances. As noted in the Addis Agenda, governance and the rule of law are critical to tackle these illicit flows. The World Bank Group and the MDBs are supporting work in the area of governance, anti-corruption, and asset recovery, in particular through the partnership with the UN on the Stolen Asset Recovery Initiative (STAR)
Supporting funding in fragile and conflict-affected states for both public and private sectors
Another strategic priority for the development finance landscape and the WBG is to address situations of fragility, conflict and violence, and forced displacement. Increasingly we are engaging earlier to reduce risks.
IDA will double resources to address fragility, conflict and violence, and provide $2 billion dollars to finance projects for refugees and host communities. This includes a provision for greater access to a private sector window for conflict-affected and fragile countries. But we also recognize that middle income countries, who host substantial numbers of refugees, must also be supported with access to finance to meet the costs of their contribution to this global public good.
Our approach also provides additional attention to Small States and lower-middle-income countries which face particular challenges and vulnerabilities -- and are often least able to withstand external shocks.
Private Sector Action
I’m very pleased that the President of the General Assembly (PGA) referred to “the willingness of the private sector to do more and the 60 market opportunities related to delivery on the global goals, noting examples like food and agriculture, reducing food waste, forest ecosystems, and urban agriculture, affordable housing, energy efficiency in buildings, water and sanitation.
The PGA also mentioned energy, and I note the good examples of energy storage systems, carbon capture and storage, green chemicals; for health we are seeing good opportunities in remote patient monitoring, tele-health, and maternal and child health. The private sector, beyond philanthropy and the volunteers of finance, we are seeing them internalize and realize the opportunities of the SDGs in their business plans.
On the financial sector, I’d like to add what the Deputy Secretary-General Amina Mohammed said a moment ago, about the work we did through the World Bank Group Treasury, along with BNP Paribas, launched in March of this year, mobilizing $200 million, with the proceeds of the index-linked bonds to be supporting the SDGs. Its structure is based on three filters. First they are excluding certain companies which are involved in things like armaments and gambling, etc. Second they are investing in SDGs and related activities, and as we saw from the Business and Sustainable Development Commission report, there are many positive examples. Third, they will make sure that the risk and return evaluations are conducted in the right way, and there is liquidity and volatility filtering.
For this and other similar bonds, it’s all about how to get sustainability into the financial system through better regulations, governance, and standardizing the financial transactions at large to support the SDGs. The paper provided by the UN Environment Programme is a practical guide for policy makers, for standard setters, and for regulators, while it is also business-friendly.
Finally, we see the interesting mix between government, the private sector, and civil society, but some countries have special needs. Small Island states require adequate investment especially in the area of climate change adaptation and mitigation. We are concerned about some of the land-locked countries, while others have made themselves land-linked countries. And we are very concerned about situations of fragility, conflict, violence, and forced displacement. We are working with other MDBs and with good support from the UN system to provide adequate funding for fragility, conflict, and violence-affected areas -- including for prevention -- in addition to some innovative finance to help nations hosting refugees and forced migrants as noted in the Global Concessional Finance Facility.
In summary, there is a great convergence of ideas to support the promise of the billions-to-trillions agenda, but the risks of sliding into billions to millions (because of challenges I mentioned earlier) are still there. There are limits to doing more with less. As I mentioned earlier, there are ways for us to fulfill the commitments of the billions-to-trillions agenda, but it will take action from all of the relevant actors very soon if we are to stay on track to achieve the SDGs by 2030.