- Q: How will we increase the amount of financing for development from “billions to trillions”?
- A: The World Bank Group, the IMF and multilateral development banks – AfDB, ADB, EBRD, EIB and IDB – are working together to support the financing effort for the post-2015 development agenda (Joint Statement from MDBs and IMF Head on Financing for Development, April 16, 2015). These institutions have outlined their initial commitments to scale up the amount of financing, moving from “billions” in official development assistance to “trillions” in development investments of all kinds: public and private, national and global. This work was shared at a meeting of the World Bank Group-IMF Development Committee on April 18, 2015 (pdf).
A New Vision for Sustainable Development
In 2000, world leaders set eight Millennium Development Goals (MDGs) aimed at ending poverty and hunger, improving education, gender, and health, and promoting sustainable development. With the MDGs set to expire at the end of 2015, a new post-2015 development agenda is being designed. Today’s global realities and development challenges require that the proposed agenda be more ambitious and interconnected than its predecessor, with a more comprehensive vision of development embracing economic, social and environmental dimensions.
The proposed Sustainable Development Goals (SDGs) encourage every country to end poverty and enhance social and economic development in a sustainable manner. These goals will not be achieved with a business-as-usual approach.
- Three summits in 2015 will set the stage for international cooperation over the coming decades:
- July 13-16, 2015: Financing for Development Conference in Addis Ababa
- September 25-27, 2015: UN General Assembly which is set to adopt a new set of SDGs
- November 30 - December 11, 2015: The 21st Conference of the Parties (COP21) of the UN Framework Convention on Climate Change (UNFCCC), which is expected to adopt a binding agreement on the long-term reduction of greenhouse gas emissions.
Financing for Development Post-2015
The Third International Conference on Financing for Development in Addis Ababa in July will be an important milestone in the global effort to achieve universal and sustainable development. The conference underpins the expected adoption of the SDGs at the UN Special Summit for Sustainable Development in New York in September. This trajectory will continue with the World Bank Group—International Monetary Fund Annual Meetings in Lima in October, and with the 21st Conference of the Parties (COP21) to the United Nations Framework Convention on Climate Change in Paris in December, which seeks a new international agreement on climate change. In short, 2015 will create a platform to support global development aspirations for the next 15 years.
Role of the WBG, MDBs and IMF
The multilateral development banks (MDBs) and the IMF have produced a joint discussion note, “From Billions to Trillions: Transforming Development Finance,” (pdf) which proposes a preliminary vision for the collective role of our institutions looking toward the Addis Financing for Development conference and beyond.
- To meet the investment needs of the SDGs, the global community needs a paradigm shift to move the discussion from “billions” in overseas development assistance (ODA) to the “trillions” in investments of all kinds: public and private, national and global, in both capital and capacity.
- Globally, achieving the proposed SDGs will require the best possible use of each available grant dollar, beginning with $135 billion in ODA from governments and also including philanthropy, remittances, South-South flows, other official assistance, and foreign direct investment. To reach the needed trillions, additional flows must come from two main pillars: public domestic resources, where the most substantial development spending happens, and private sector finance and investment, the largest potential source of additional funding.
- This is the trajectory from billions to trillions, which every country and the global community must support together to finance and achieve the transformative vision of the SDGs.
- The joint discussion note was discussed at the Development Committee meeting of the IMF-World Bank Group Spring Meetings on April 18, 2015.
- In parallel, 11 country-at-a-glance notes are being produced to provide an initial picture of the implications of the post-2015 agenda at the country level. A paper describing the framework (pdf) that underlies these assessments is available. The notes for Kyrgyzstan, Nigeria, Pakistan, Philippines, Senegal, and Uganda have been completed. Notes for Jamaica, Liberia, Peru, and Yemen are forthcoming.
MDB financing solutions can be grouped into four broad categories. Each comprises specific approaches and tools that can be customized to the circumstances of a goal or program. There is no one-size-fits-all solution.
- Adding, pooling, enabling (pdf): This category of solutions covers new flows, such as taxes or fees, as well as policy-driven “flows” that are not traditional finance instruments or investments but generate economic or financial value. Policy guidance and lending help strengthen the domestic policy, legal, tax, regulatory and institutional environment, which can increase a country’s available resources and creditworthiness, enhance development impact, and encourage and attract private investment.
- Debt-based/right-timing instruments (pdf): These instruments help provide a steady, predictable stream for development programs. These initiative make public funds available earlier for development via the issuance of bonds on international capital markets.
- Financial risk management mechanisms (pdf): These initiatives leverage public funds to create investment incentives for the private sector through mechanisms that correct market failures, reduce sovereign risk and/or macroeconomic and climate-driven vulnerabilities. Examples of risk management approaches include guarantees, derivatives, blended finance, pooled vehicles and project preparations facilities. These mechanisms provide insurance protection for risk sharing or full risk transfer.
- Results-based financing (pdf): Results-based financing provides funding when desired results are delivered. One benefit of this approach is transferring the risk of success or failure to the entities conducting the work, which helps promote greater accountability and ownership, improved management, and effectiveness of service providers. It also improves the chances to crowd in multiple times the funding toward the development objective.