Development finance impact final project - Catalina Popa - decembre 2015

FINANCING FOR DEVELOPMENT: BILLIONS TO TRILLIONS TO ACTION

QUESTIONS AND ANSWERS

AUTHOR: Cătălina Popa

Romania

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OBJECTIVE This artifact aims to show shortly the main aspects about the types of finance – public, private, domestic, and international – available for sustainable development financing strategy, trends in development finance and the need for innovative solutions to generate the resources required to implement the new global development agenda.

This material is intended for policy maker, student, civil society representative, development professional, or citizen interested in financing for Sustainable Development Goals.

This paper contains questions and answers about: financing for development issue, the role of public sector financing in development, private finance for development, the financing role of the multilateral development banks.

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CONTENT

I. INTRODUCTION TO FINANCING FOR DEVELOPMENT

II. THE ROLE OF PUBLIC SECTOR FINANCING IN DEVELOPMENT

III. PRIVATE FINANCE FOR DEVELOPMENT

IV. THE FINANCING ROLE OF THE MULTILATERAL DEVELOPMENT BANKS

V. CONCLUSION


QUESTION 1:Why is 2015 a pivotal year for development?

ANSWER 1:The international community will adopt new development goals that will replace the MDGs, a framework to finance them, and reach a global agreement on climate, which together will shape development for the coming decades.

I. INTRODUCTION TO FINANCING FOR DEVELOPMENT QUESTION 2:

Which new global development agenda is replacing the MDGs, as of 2016?

ANSWER 2: The Sustainable Development Goals.

QUESTION 3:In what ways are the new goals different from the MDGs?

ANSWER 3: Bottom up process, encompass social, economic and environmental objectives, and target both developing and developed countries.


What is the nature of the Financing for Development challenge that development partners are trying to address globally?

ANSWER 4: There are resources available globally to finance development, but they are not being mobilized and channeled for development.

QUESTION 5:What does the “Billions” and “Trillions” referred to in the “From Billions to Trillions” discussion note refer to?

ANSWER 5:Using billions in Official Development Assistance (ODA) to unlock and mobilize trillions of dollars needed from all sources of finance.


What is the largest pool of resources available to developing countries?

ANSWER 6:Domestic Resource Mobilization.

QUESTION 7:Where does most of the roughly US$135 billion in annual Official Development Assistance (ODA) go?

ANSWER 7:To Least Developed Countries (LDCs).


How do Multilateral Development Banks (MDBs) and the IMF support countries in achieving their goals?

ANSWER 8: By providing financial support, technical assistance and policy advice.

QUESTION 9: What is the most critical source of funding available to least developed, fragile and conflict affected countries?

ANSWER 9: Official Development Assistance (ODA).


QUESTION 10: What lies at the heart of financing for development?

ANSWER 10: A country's ability to mobilize all resources and spend them effectively.


QUESTION 1: Why should developing countries strengthen domestic resource mobilization and public expenditures?

ANSWER 1: To generate and deploy resources for promoting economic development, reducing poverty, and improving equity.To enhance country ownership and public accountability of public policies.


QUESTION 2:Which tax to GDP ratio best defines a lower income country?

ANSWER 2:15-25%

QUESTION 3:A strategy to strengthen DRM would include which issues?

ANSWER 3:Stronger administration, simpler revenue systems, and collective action to address international tax issues and illicit financial flows.

II. THE ROLE OF PUBLIC SECTOR FINANCING IN DEVELOPMENT QUESTION 4:

What is the aim of the Tax Administration Diagnostic Assessment Tool (TADAT) initiative?

ANSWER 4:Asses the tax structure of a country.

QUESTION 5:How do Multilateral and Bilateral donors help countries improve DRM?

ANSWER 5:By providing technical assistance and capacity-building in the areas of tax administration and policy reform.By bringing global experience and support to bear on addressing illicit flows and the international aspects of taxation, and on improving the measurement of DRM gaps and results.


QUESTION 6:What does the “Base Erosion and Profit Shifting” (BEPS) Action Plan address?

ANSWER 6:Tax avoidance activities of international corporations.

QUESTION 7: Which are three critical tasks for an effective tax administration?

ANSWER 7:Facilitate compliance, enforcing tax compliance and improving governance.


QUESTION 8:Why is curbing Illicit Financial Flows important?

ANSWER 8:Helps improve good governance.

QUESTION 9:Who provides ODA?

ANSWER 9:Member countries of the Organization for Economic Co-operation and Development (OECD) - Development Assistance Committee (DAC).


QUESTION 10:What percentage of their Gross National Income have member countries of the Organization for Economic Co-operation and Development (OECD) - Development Assistance Committee (DAC) pledged to commit for development assistance?

ANSWER 10:0.7%


QUESTION 1: What is the main difference between the private and public sector in terms of how their investment decisions are driven?

ANSWER 1: Private sector is driven by risk/return considerations.

III. PRIVATE FINANCE FOR DEVELOPMENT QUESTION 2:

Which is the largest source of external private finance for developing countries?

ANSWER 2:Foreign Direct Investment.

QUESTION 3:What is commercial finance?

ANSWER 3:Commercial finance is a source of public finance with the same risk/return objectives as the private sector.

III. PRIVATE FINANCE FOR DEVELOPMENTQUESTION 4:

How does private philanthropy add value to development finance?

ANSWER 4:By taking on riskier or not profitable aspects of a development project in which to unlock other sources of finance.

QUESTION 5:What is the infrastructure finance paradox?

ANSWER 5:Although the need for infrastructure investments is huge and private investors with record amounts of savings need long-term investments, not enough investments are directed towards infrastructure.


What are institutional investors looking for while investing in developing countries?

ANSWER 6:High returns and diversification.

QUESTION 7:What is blended finance?

ANSWER 7:Blended finance is combining the public sector’s social return objectives and private sector’s financial return objectives through risk mitigation by the public sector in a manner that induces the private sector to participate.


Which of the below sectors dominates domestic private finance?

ANSWER 8:Banking.

QUESTION 9:What is an important area that the international community is working to address with regard to remittances?

ANSWER 9:Bringing the global average cost of transactions for remittances from 9% currently down to 5%.


QUESTION 10:Which of the below is an innovative development finance instrument related to remittances?

ANSWER 10:Diaspora bonds.


QUESTION 1:What does “financing for development” mean?

ANSWER 1:Providing funds for development activities.Managing the spending and use of funds for development activities.


QUESTION 2:Who are the shareholders of Multilateral Development Banks?

ANSWER 2:Member countries.

QUESTION 3:Which financial instruments do MDBs offer their clients?

ANSWER 3:Investment and project loans.Equity investments.Risk guarantees.


QUESTION 4:In addition to providing direct financial assistance, what other role do the MDBs and IMF play that is important to the financing for development agenda?

ANSWER 4:Using their financial assistance to mobilize and crowd in both public and private resources of funds for development.

QUESTION 5:What is the significance of the “multiplier effect” of MDB financing?

ANSWER 5:It is estimated that for every one US dollar invested directly by MDBs in private sector operations, about two to five US dollars are mobilized in additional private investment.


QUESTION 6:What are the International Monetary Fund’s principal activities?

ANSWER 6:Promoting global economic and financial stability and focusing on macroeconomic and financial issues, working with member countries to support their development efforts.

QUESTION 7:What is the purpose of the proposed Pandemic Emergency Financing Facility?

ANSWER 7:To provide financial resources supporting a more agile and effective system for responding to future global health emergencies, to prevent their becoming pandemics.


QUESTION 8:According to the President of the European Bank for Reconstruction and Development, the “big task” of getting long-term capital into equity investments in poor countries involves what action?

ANSWER 8:Attracting newer sources of finance in developing countries, such as sovereign wealth and pension funds.

QUESTION 9:What is the Adaptation Fund?

ANSWER 9:A fund created by the international community to fund climate adaptation projects and programs.


QUESTION 10:Which activities do MDBs engage in to promote local capital markets?

ANSWER 10:Directly providing local currency finance, including through issuance of local currency bonds or through swap markets.Providing technical and policy advice on institutions and regulations.Providing credit enhancement, structured finance and hedging options to increase the attractiveness of bond offerings.

V. CONCLUSION

How will all the needed development finance be mobilized? Each country will be responsible for its own development – mobilizing the necessary resources – while the international community is responsible for providing the enabling support. Within this context, a variety of creative and innovative approaches will be necessary. A “paradigm shift” in the use of available financing will be needed to finance the SDGs. The world will need intelligent development finance that goes well beyond filling financing gaps and that can be used strategically to unlock, leverage, and catalyze private flows and domestic resources.

V. CONCLUSION

Effective and sustainable financing for development requires attempting to make optimal use of available resources from all sources. That requires drawing in and increasing available public resources as well as private sector finance and investment, surpassing the current capacities of governments and international donors that have been the traditional anchors of development finance. Increasing the resource envelope also will require new approaches to draw upon the pools of remittances, sovereign wealth, and pension funds that have not until now been viewed as traditional sources of development finance. Bibliography: https://class.coursera.org/fin4devmooc-001/wiki/Welcome

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FINANCING FOR DEVELOPMENT IS WHAT HAPPENED BETWEEN QUESTION AND ANSWER...

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Development finance impact final project - Catalina Popa - decembre 2015