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«United Nations United Nations Report of the Intergovernmental Committee of Experts on Sustainable Development Financing asdf United Nations New York, ...»

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The estimates presented in our report are indicative, aimed at providing an order of magnitude of financing requirements, rather than precise figures. In addition, we have not attempted to combine the estimates of needs by economic sector, type of demand, or category of country into a global estimate, as such an aggregation exercise does not adequately take into account the synergies and crosscutting nature of sustainable development, among others.

With regard to social needs, a rough estimate of the cost of a global safety net to eradicate extreme poverty in all countries (measured as increasing incomes of the poorest to the $1.25-a-day standard) is about $66 billion annually.9 Large investment requirements are also identified in addressing hunger, health and education needs.10 Ultimately, the eradication of poverty requires sustained and inclusive growth and job creation. In that regard, estimates of annual investment requirements in infrastructure — water, agriculture, telecoms, power, transport, buildings, industrial and forestry sectors — amount to $5 trillion to $7 trillion globally.11 There is evidence that many micro-, small and medium-enterprises, which are often a main provider of employment, have difficulty obtaining financing. The unmet need for credit for small and medium enterprises has been estimated to be up to $2.5 trillion in developing countries and about $3.5 trillion globally.12 There are also vast financing needs for the provision of global public goods.

The order of magnitude of additional investment requirements for “climate-compatible” and “sustainable development” scenarios (which include goals and targets related to climate) are estimated to be of the order of several trillion dollars per year (see Figure II).13 In assessing financing needs, it is pertinent to appreciate that the costs of inaction are even larger than the costs of action, especially for the poorest and in the realm of climate change. For example, delaying mitigation action, particularly for the countries that emit the largest quantities of greenhouse gases, is estimated to significantly increase the cost of transitioning to a lowcarbon economy in the medium and long term.14 See Laurence Chandy and Geoffrey Gertz, “Poverty in Numbers: The Changing State 9 of Global Poverty from 2005 to 2015”, Global Views Series, No. 18 (Washington, D.C., The Brookings Institution, 2011).

Some estimates of these needs include: $50.2 billion annually to eliminate hunger by 10 2025; $37 billion to achieve universal health care; $42 billion to achieve universal primary education and expand access to lower secondary education; see Romilly Greenhill and Ahmed Ali, “Paying for progress: how will emerging post-2015 goals be financed in the new aid landscape?”, Working Paper No. 366 (London, Overseas Development Institute, 2013).

See the United Nations System Task Team on the Post-2015 United Nations Development Agenda, background paper 1; and the report of the Green Growth Action Alliance, “The Green Investment Report: the ways and means to unlock private finance for green growth” (Geneva, World Economic Forum, 2013).

Peer Stein, Tony Goland and Robert Schiff, “Two trillion and counting: assessing the 12 credit gap for micro, small, and medium-sized enterprises in the developing world” (Washington, D.C., International Finance Corporation and McKinsey & Company, 2010).

See United Nations System Task Team on the Post-2015 United Nations Development 13 Agenda, background paper 1.

See the contribution of Working Group III to the Fifth Assessment Report of the 14 Intergovernmental Panel on Climate Change, “Climate Change 2014: Mitigation of Climate Change”, Summary for Policymakers (Cambridge, United Kingdom, Cambridge University Press, 2014).

6 Report of the Intergovernmental Committee of Experts on Sustainable Development Financing

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tries. In many developing countries, particularly in least developed countries, public international finance remains crucial.16 International financial flows to developing countries increased rapidly over the last decade, mainly driven by growth in private capital flows and remittances, though official development assistance (ODA) also strengthened, as depicted in Figure III.

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Public domestic resource mobilization Public domestic finance in developing countries more than doubled between 2002 and 2011, increasing from $838 billion to $1.86 trillion.17 In absolute terms, this growth for the most part reflects developments in middle-income countries. Domestic public finance also doubled in low-income countries, although it remains insufficient to meet sustainable development needs. Tax revenues account for about 10-14 per cent of GDP in low-income countries, which is about one third less than in middle-income countries, and significantly less than in high-income countries, which achieve tax to GDP ratios of 20-30 per cent.18 In many countries, tax evasion and avoidance hinder domestic resource mobilization. In addition, illicit financial outflows, including tax evasion across borders, have undermined tax collection. Estimates of illicit financial flows, by nature clandestine, vary widely, but point to substantial numbers.19 Domestic public resources are also impacted by subsidies. For example, in 2011 pre-tax energy subsidies amounted to $480 billion, primarily in developing countries, and post-tax energy subsidies amounted to $1.9 trillion, primarily See United Nations System Task Team on the Post-2015 United Nations Development 16 Agenda, background papers 2 and 3 and summaries of regional outreach events of the Committee, available at sustainabledevelopment.un.org/index.php?menu=1558.

See the data on financing for development available from http://capacity4dev.ec.europa.

17 eu/ffd/ document/data-2000-2012-delinked.

World Bank, Financing for Development Post-2015, 2013.

18 United Nations System Task Team on the Post-2015 United Nations Development 19 Agenda, background paper 2.

8 Report of the Intergovernmental Committee of Experts on Sustainable Development Financing in developed countries.20 Similarly, in agriculture, producer support subsidies among OECD members total $259 billion in 2012.21 Eliminating these would allow public resources to be redirected to other priorities. In all subsidy decisions, however, any adverse impacts on the poor and the environment need to be addressed, either through appropriate compensating policies or through better targeting.

There has been considerable change in the landscape of sovereign debt of developing countries since the Millennium Declaration. External debt amounted to 22.6 per cent of GDP in developing countries in 2013, as compared to 33.5 per cent a decade earlier.22 The debt difficulties of heavily indebted poor countries (HIPCs) have largely been addressed under the terms of the HIPC Initiative and the Multilateral Debt Relief Initiative.

Some countries covered under HIPC have begun to issue debt on international markets, facilitated by a low interest rate environment. The issuance of public debt in domestic currencies (which, unlike external debt, does not subject the issuing country to foreign exchange risk) has also grown, reflecting the development of local capital markets. For example, local currency government debt in sub-Saharan Africa increased from $11 billion in 2005 to $31 billion in

2012.23 However, much of this increased issuance is short-term. Excessive growth in both domestic and international debt poses risks to economic sustainability, underscoring the need for prudent debt management.

Nonetheless, the aggregate picture masks growing debt problems in some countries. Currently, 2 low-income countries are considered to be in debt distress, with 14 at high risk and 28 at moderate risk of distress.24 Debt sustainability is particularly problematic in some small States. In 2013, the average ratio of public debt to GDP of small developing countries amounted to 107.7 per cent, compared to 26.4 per cent for developing countries as a whole.22 At the same time, a few developed countries have also experienced sovereign debt distress.

Domestic private finance Financial systems in many developing countries rely primarily on the banking sector. Although domestic credit has grown substantially over the past decade, in many countries, banking sector credit is primarily short term. For example, in some countries in Africa, short-term credit accounts for up to 90 per cent of bank

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financing,25 compared to 50-60 per cent for developing countries as a whole.26 In addition, gross domestic savings rates in many least developed countries remain significantly below the amount necessary to drive sustained domestic investment.

Domestic bond markets have also grown substantially, driven primarily by sovereign debt issues. Corporate bond markets, though growing, remain small.

On average, private debt securities were only 5 per cent of GDP in middleincome countries, compared to 34 per cent in high-income countries in 2010.

The lack of long-term bond markets limits the availability of long-term financing in many countries. Similarly, the depth of equity markets stood at nearly 60 per cent of GDP in high-income countries; in low- and middle-income countries it amounted to only 20 per cent and 28 per cent, respectively.19 The presence of institutional investors in developing countries has, however, been growing, and could potentially increase resources available for long-term investment in sustainable development. Emerging market pension funds are estimated to manage $2.5 trillion in assets, and are expected to increase significantly.27 A sizeable portion of these portfolios is invested in domestic sovereign debt.

In some developing countries national pension funds have also been investing directly in national or regional infrastructure, including in South Africa, Ghana, Chile, Mexico and Peru.

There is also a growing emphasis on the environmental, social and governance impacts of investments. An increasing number of companies are reporting on these factors (referred to as ESG reporting) and have signed on to initiatives such as the Principles for Responsible Investment and the United Nations Global Compact. Nonetheless, the share of investment subject to ESG considerations remains small relative to global capital markets, at 7 per cent or $611 trillion of investments in the $12,143 trillion global capital market in 2010.28 International public finance The development contribution of ODA improved in the wake of the adoption of the Monterrey Consensus in 2002, with increased attention paid to making ODA more effective while increasing its volume. ODA reached an all-time high of $134.8 billion in net terms in 2013, after falling in 2011 and 2012.29 Nonetheless, only five OECD DAC donors reached the 0.7 per cent of gross national income target.

ODA continues to provide essential financial and technical cooperation to many developing countries (see figure III), including least developed counKangni Kpodar and Kodzo Gbenyo, “Short- Versus Long-Term Credit and Economic 25 Performance: Evidence from the WAEMU”, Working Paper No. WP/10/115 (Washington, D.C., IMF, May 2010).

Bank for International Settlements database, available at www.bis.org/statistics/.

26 Georg Inderst and Fiona Stewart, “Institutional Investment in Infrastructure in Developing Countries: Introduction to Potential Models”, Policy Research Working Paper No. 6780 (Washington, D.C., World Bank, 2014).

The Principles for Responsible Investment is an investor initiative in partnership with 28 the United Nations Environment Programme Finance Initiative and the United Nations Global Compact; figures according to the Principles for Responsible Investment, Report on Progress 2011.

OECD, “Aid to developing countries rebounds in 2013 to reach an all-time high”, 2014.

29 Available from www.oecd.org (accessed 15 August 2014).

10 Report of the Intergovernmental Committee of Experts on Sustainable Development Financing tries and many African countries, landlocked developing countries, small island developing States, and countries affected by conflict. In most countries with government spending of less than PPP$ 500 per person per year, ODA accounts for an average of more than two thirds of international resource flows, and about one third of government revenues.30 About 40 per cent of ODA currently benefits least developed countries.31 However, ODA to least developed countries, particularly in sub-Saharan Africa, has fallen in recent years, and according to preliminary results from donor surveys this trend is likely to persist.

The Leading Group on Innovative Financing for Development has pioneered on a voluntary basis a number of fundraising mechanisms to raise additional resources, including the international solidarity levy on air tickets,32 the funds from which are contributed to UNITAID to help purchase drugs for developing countries. Eleven countries using the euro currency are currently envisioning a financial transaction tax from 2016, albeit without earmarking funds for development or financing of global public goods as of yet. Some countries (e.g., France) have, at the national level, put in place a financial transaction tax, with part of the proceeds used to finance ODA programmes.33 There has also been a proliferation of sustainable development-related international funds and delivery channels. These include global sector funds, premised on multi-stakeholder partnerships that bring together Governments, private sector, civil society, as well as traditional and emerging donors, such as the Global Fund to Fight AIDS, Tuberculosis and Malaria, the GAVI Alliance, and the Global Partnership for Education.

Only 10 years ago, multilateral climate finance was provided by a small number of large funds, which were associated with the United Nations Framework Convention on Climate Change. There are now over 50 international public funds. Over this period, Governments designed and reformed institutions such as the Global Environment Facility (GEF), the Adaptation Fund, the Climate Investment Funds, and most recently the Green Climate Fund, and new evolving financial instruments such as performance-based payments for reducing emissions from deforestation, degradation and forest conservation. Nonetheless, there remains a large gap between climate finance needs and resources. In particular, progress towards implementing the financial commitments under the United Nations Framework Convention on Climate Change has been slow.

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