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Countdown to the 2017 UN Financing for Development Forum

Added 04 May 2017
In less than three weeks, governments, CSOs and international organizations gather at the UN in New York for the Financing for Development Forum. The forum takes place in crucial times as the implementation of the Sustainable Development Goals faces severe financial constraints. Governments’ self-inflicted inability to raise sufficient taxes paired with rich countries’ unwillingness to provide sufficient aid means that development is all too often financed by borrowed money, a dilemma that is aggravated by new donor initiatives that even turn the limited grants into new debt, through blending facilities. In the meantime, developing countries’ shouts for debt relief are getting ever louder. This Financing for Development Forum promises to be very interesting. 
 
What’s at stake? 

The upcoming Financing for Development Forum is the second such event in the follow-up process to the 2015 Summit that took place in the Ethiopian capital Addis Ababa. This Summit through the Addis Ababa Action Agenda (AAAA) agreed on a strengthened follow-up process, meaning annual forums at UN headquarters, at ministerial level, leading to a negotiated outcome. The FfD Forums are supposed to check progress on past implementation, drive further implementation, and develop the FfD agenda further. 

Last year that didn’t work so well. The common ground was so narrow that the draft of the ‘negotiated outcome’ – the version that had some policy substance – got scrapped, and eventually replaced by a two-pager that dealt with process issues only. The plenary debates definitely had lots up upward potential, at least the CSOs were able to enrich the policy discussion. And to provide a framework programme of spectacular actions, as we were sending our ‘global tax body’ to UN headquarters - where it belongs but is not yet found - and our ‘vultures’ to Wall Street, where they continue to be found but do not belong. So much for the dire state of global economic governance reform. 

This year must do better, and the stakes are high. In Washington and Brussels, a dangerous new development finance paradigm is emerging that would secure many investment opportunities for the North’s investment firms and ageing rentier societies, and many jobs at IFC and EIB headquarters. But offer more risks than opportunities when it comes to financing the SDGs. The trend to rely more and more on the for-profit private sector to finance development is seen with mixed feelings by developing countries. While investment is mostly welcome and needed, including foreign private investment, the debt that comes along is not. As the UN is neither a bank nor a fund, it is much less self-interest driven, and obviously the best place to discuss and embed finance in a development and human rights framework. 
 
What way forward for development finance? 

The Financing for Development Agenda goes beyond official development assistance to encompass all sorts of finance, private and public, foreign and domestic. The question of what different types of finance could contribute were the centre of debate at the first and second sessions of the informal negotiations leading to the forum. They were building on the 2017 report of the Inter-Agency Task Force (IATF) on Financing for Development, which includes several UN organizations, IMF and World Bank.

While Domestic Resource Mobilization (DRM), i.e. mainly tax income, matters for many, not everyone drew the necessary conclusions in terms of institutional reforms needed to make it happen. But it was the Group of 77, which represents developing countries and thus the majority of UN Member States, that asked for an intergovernmental tax body to be established under the UN, while the EU was still reluctant.

The African Group as well as the Least Developed Countries Group argued that while DRM matters, the debate should not distract from the fact that developed countries must honour their commitments to provide ODA. They also criticized donors for reporting highly inflated ODA figures which have been picked up by the IATF Report. This lead, according to the African group, to the “assertion by the report that public finance is on the increase when our experience is that it has been on the decline”. 

While the AAAA commits to hold inclusive discussion on the guidelines for public-private partnerships (PPPs), the EU finds that the 193 Member States of the UN should not duplicate work that has been done by the 35 members of the OECD. The European Union also continues to be excited about blended financing instruments, and their potential to leverage large amounts of private finance with small inputs of ODA. This is perhaps not surprising as the EU’s own new European External Investment Plan builds on such instruments. But on the other hand, a recent evaluation of EU blending facilities found limited support for the development needs of low income countries. A second evaluation of the EU’s External Financing Instruments found that their “governance structure leaves little room to apply the principles of partnership and ownership“. It also warned about the debt burdens they create and concluded that “the instrument might not be adequate for low-income countries where repayment capacity is low or for countries with a high debt ratio”. 

From billions to trillions to the next crash? 

Ever higher debt ratios, and the question of what to do about it, emerge as a key issue for this year’s Financing for Development Forum. The financing strategy to use public guarantees and billions of public grants to mobilize trillions in private debt is getting headwind. There are increasing signs that unsustainable finance would not finance sustainable development but would just cause the next big crash.

The G77 flagged that debt levels have reached record highs and started to “limit fiscal space and capacity to support social protection and investments in infrastructure”. The Least Developed Countries missed a “due focus on debt relief for the debt distressed countries” in the IATF report. Both CARICOM and the group of Small Island States (SIDS) stress that debt relief and their limited access to concessional financing are priority issues that the Financing for Development Forum must discuss. Egypt seconded, by welcoming the substantial comments on debt and debt sustainability that the CSO FfD Group submitted, which were in many areas the most substantial. The EU however, still eager to advocate the high-leverage and debt-based development financing strategies for poorer regions that failed so spectacularly at home, is hesitant to reopen what they call unhelpful discussions.

Never miss a good crisis

That picture given, the upcoming Financing for Development Forum promises to be very interesting. The international community should not miss this chance to move on from the political commitments made in the AAAA towards actual reforms steps, may this be in setting up a fully inclusive global tax body, an effective debt workout mechanism, guidelines for public-private partnerships that mitigate their fiscal risks, to name just a few areas that must be addressed if we are to achieve the SDGs.

CSOs can still register to participate, and usually the plenary sessions will be broadcasted through UN Web TV. In the run-up to the actual FfD Forum on May 20-25, the discussions will continue on basis of the draft outcome document, which has just been released.