Helen Clark: Opening statement on “Financing the SDGs in the LDCs: Diversifying the Financing Tool-Box and Managing Vulnerability” UNDP-AFD (French Development Agency)May 27, 2016
I welcome you to the launch of UNDP and AFD’s new joint report on “Financing the SDGs in the LDCs: Diversifying the Financing Tool-Box and Managing Vulnerability”.
Our report looks at the important issue of expanding innovative financing to the LDCs and managing their continued vulnerability. It is the product of excellent collaboration between our two organizations over the last six months.
Our work follows last year’s 3rd International Conference on Financing for Development in Addis Ababa, Ethiopia, where the international community adopted a comprehensive framework for financing sustainable development. At the conference, Member States pledged individual and collective actions to mobilize more resources for development; to partner on new initiatives; to spend resources more effectively; and to share experiences. This joint research with AFD was just one of the actions UNDP committed to take at Addis Ababa.
Achieving sustainable development in the LDCs
While achieving the 2030 Agenda will be a challenge for all countries, it will be especially challenging for LDCs where the levels of deprivation are acute, infrastructure is inadequate, economies are vulnerable, and capital is in short supply.
The report recognizes the significant social and economic progress made by many LDCs over recent years: poverty has declined, many more children are now in school, health indicators have improved, and many LDCs have enjoyed sustained periods of unprecedented economic growth.
At the same time, LDCs remain very vulnerable to shocks, such as extreme weather events, fluctuations in commodity prices, and disease outbreaks – as the Ebola crisis demonstrated. All these factors can cause significant development setbacks.
The report recognizes that it can be difficult for LDCs to mobilize domestic resources for development and to attract sustained private investment in their economies because they are seen as a ‘riskier bet’. Many LDCs, therefore, remain heavily dependent on Official Development Assistance (ODA).
Yet domestic resources and ODA combined will be insufficient to finance the 2030 Agenda. LDCs will need to harness and make effective use of a broader suite of financing instruments.
Expanding the Financing Tool-Box
There is a “new age of choice” for development financing. Over the last fifteen years, new public and private development finance providers have emerged; more financial instruments have been developed and piloted; and more partnerships between public and private entities have been established.
The challenge for LDCs is how to harness the opportunities presented by a more diverse and sophisticated development financing landscape, and to do so in ways which maximize sustainable development benefits, build capacity, and minimize the risk of debt distress.
This report looks at how LDCs can make use of recent innovations such as blended finance, green bond financing, guarantee mechanisms, and local currency financing to fund investments in ‘big-ticket’ items and build the capacities of local actors. As well, because LDCs’ economies remain vulnerable, the report also looks at how LDCs could benefit from lending instruments which allow debt service payments to fall – including to zero – when a major shock strikes.
The report shows that there are numerous examples – from both within and beyond LDCs – where innovative financing approaches have been implemented and achieved important sustainable development results.
- Blended financing has been used to catalyze financing for infrastructure investment, biodiversity conservation, and financing for small-scale water and electricity suppliers in Cambodia, Liberia, and other countries.
- Several African LDCs, as well as Bangladesh and Timor-Leste, have made use of various forms of green financing, including green bonds, to fund investments in hydropower and climate resilient infrastructure, such as rural roads.
- Guarantee mechanisms and local currency financing are being used by a number of LDCs, such as Burkina Faso, Mali, and Zambia, to support the development of the local private sector.
The UNDP and AFD research also shows that financial instruments like countercyclical loans and GDP-linked lending by bilateral and multilateral development agencies - are not only a complement to more traditional financing, but an absolute necessity and argues that these approaches could be scaled-up.
The report concludes that there are considerable opportunities to build on and scale up the examples presented, but also emphasizes that no single financing approach represents a ‘silver bullet’ solution; different sources of finance – and different financing instruments – are complementary. As well, different country contexts call for different composition of financing.
The report also stresses that notwithstanding the opportunities presented by a more diverse development financing landscape, these do not diminish the importance of continued efforts by LDCs to strengthen domestic revenue mobilization - and to use these resources more effectively. As well, these opportunities do not detract from the critical importance of aid donors meeting their commitment to allocate between 0.15 and 0.2 percent of GNI to the LDCs as ODA. This will remain critical if we are to remain true to the SDG promise of leaving no one behind.
To conclude, I would like to thank the UNDP and AFD teams for their work on this important think piece. We hope it will stimulate further discussions on financing solutions for the LDCs and, ultimately, serve as a useful input to the LDCs on their IPoA and SDG implementation path.