Presentation is loading. Please wait.

Presentation is loading. Please wait.

The Future of Development Financing: Challenges, Scenarios and Strategic Choices Keith Bezanson Development Centre - OECD 04 February, 2005, Paris Development.

Similar presentations


Presentation on theme: "The Future of Development Financing: Challenges, Scenarios and Strategic Choices Keith Bezanson Development Centre - OECD 04 February, 2005, Paris Development."— Presentation transcript:

1 The Future of Development Financing: Challenges, Scenarios and Strategic Choices Keith Bezanson Development Centre - OECD 04 February, 2005, Paris Development Centre - OECD 04 February, 2005, Paris

2 Background and structure of the presentation Background Background Report on the future of development financing written with F. Sagasti and F. Prada Report on the future of development financing written with F. Sagasti and F. Prada Sponsored by EGDI at the Swedish Ministry for Foreign Affairs Sponsored by EGDI at the Swedish Ministry for Foreign Affairs Final study in a set under the Development Financing 2000 initiative Final study in a set under the Development Financing 2000 initiative Structure of presentation Structure of presentation Brief account of development financing system Brief account of development financing system Scenarios of the development financing system: components; four scenarios for 2015; policy implications Scenarios of the development financing system: components; four scenarios for 2015; policy implications Concluding remarks Concluding remarks

3 The role of financing in development Initial focus: Initial focus: Capital investment and financial resources (big push, priority of capital investment) Capital investment and financial resources (big push, priority of capital investment) Gradual evolution towards: Gradual evolution towards: More complex appreciation of of development process and of the role of finance in relation to other factors (human capital, institutions, governance, knowledge, geography) More complex appreciation of of development process and of the role of finance in relation to other factors (human capital, institutions, governance, knowledge, geography) Current conception: Current conception: Finance is essential but not sufficient for development Finance is essential but not sufficient for development

4 Shift from official (ODA, MDBs) to private sources (FDI, remittances) Shift from official (ODA, MDBs) to private sources (FDI, remittances) Downward trend and higher volatility in net official flows (especially in relation to GDP of donor countries) Downward trend and higher volatility in net official flows (especially in relation to GDP of donor countries) Shift in the type of private financial flows: from commercial bank debt to FDI, bonds and equity Shift in the type of private financial flows: from commercial bank debt to FDI, bonds and equity Structure now skewed in favour of highly concentrated and mobile private flows and less towards long-term development needs Structure now skewed in favour of highly concentrated and mobile private flows and less towards long-term development needs The evolution of international development financing over time

5 Initiatives to reform international development financing United Nations (since 1997: incremental but sustained improvements, financial constraints) United Nations (since 1997: incremental but sustained improvements, financial constraints) International Financial Institutions (changes in IMF, World Bank, larger role of regional and subregional development banks) International Financial Institutions (changes in IMF, World Bank, larger role of regional and subregional development banks) Bilateral agencies (coordination, aid effectiveness, selectivity, focus on poor, tied aid) Bilateral agencies (coordination, aid effectiveness, selectivity, focus on poor, tied aid) European Union (criticisms of aid and trade, EU and national funds, enlargement, fiscal constraints) European Union (criticisms of aid and trade, EU and national funds, enlargement, fiscal constraints) Emerging initiatives (reward performance, enhance private flows, issue-based partnerships, direct budget support, global public goods, International Financing Facility, global taxes?) Emerging initiatives (reward performance, enhance private flows, issue-based partnerships, direct budget support, global public goods, International Financing Facility, global taxes?)

6 Growth in number of institutions has led to a complex and messy array of development assistance organisations Growth in number of institutions has led to a complex and messy array of development assistance organisations Rapid and uncoordinated expansion of private agents and flows Rapid and uncoordinated expansion of private agents and flows Incoherent picture of overlap, duplication and missing entities that can hardly qualify as an international development financing system Incoherent picture of overlap, duplication and missing entities that can hardly qualify as an international development financing system Major shocks have driven change in the past Major shocks have driven change in the past Cumulative unease creates opportunity for fundamental rethinking of development finance Cumulative unease creates opportunity for fundamental rethinking of development finance The international development financing system at the beginning of the 21s century

7 Key attributes of an effective international development financing system Adequacy (match between development financing and needs of developing countries) Adequacy (match between development financing and needs of developing countries) Predictability (amount, anti-cyclical funds) Predictability (amount, anti-cyclical funds) Responsiveness (balance needs vs. performance) Responsiveness (balance needs vs. performance) Diversity and choice (variety of instruments, institutions and programs) Diversity and choice (variety of instruments, institutions and programs) Capacity to absorb shocks (rapid response) Capacity to absorb shocks (rapid response) Links to domestic resource mobilization (complementarity) Links to domestic resource mobilization (complementarity) Voice, representation and accountability (in the formulation of key policies) Voice, representation and accountability (in the formulation of key policies) Flexibility, adaptation and learning (with the possibility of sunset clauses and mergers) Flexibility, adaptation and learning (with the possibility of sunset clauses and mergers)

8 Scenarios for development financing: components Institutional arrangements (scaffolding to place financial instruments) Institutional arrangements (scaffolding to place financial instruments) Financing instruments (variety of means to channel resources) Financing instruments (variety of means to channel resources) Developing country capacity to mobilize finance (external and domestic sources) Developing country capacity to mobilize finance (external and domestic sources) Political viability (factors affecting reform process) Political viability (factors affecting reform process) Combinations of these components lead to four scenarios (time horizon: 2015) Combinations of these components lead to four scenarios (time horizon: 2015)

9 Scenarios: institutional arrangements Business as usual (BASU). By 2015: Little or no change in organisational structures: conflicts, rivalry and overlap persist (dysfunctional family). Little or no change in organisational structures: conflicts, rivalry and overlap persist (dysfunctional family). Large gap between expectations and results: sense of failure. MDGs remain distant Large gap between expectations and results: sense of failure. MDGs remain distant Leadership failures, missing institutions Leadership failures, missing institutions Comprehensive reforms (CORE). By 2015 Significant changes (incremental but sustained): improved management and accountability, collaboration, better division of labour, synergies Significant changes (incremental but sustained): improved management and accountability, collaboration, better division of labour, synergies Expectations and results more aligned. Advances in reaching MDGs Expectations and results more aligned. Advances in reaching MDGs Combination of forward-looking leadership, innovative and risk-taking approach Combination of forward-looking leadership, innovative and risk-taking approach Broad range of intermediate outcomes

10 Scenarios: financing instruments Eight categories of financial instruments (existing and proposed): Eight categories of financial instruments (existing and proposed): 1. Bilateral aid 2. International organizations and agencies 3. International financial institutions 4. Private sector 5. International capital markets 6. International taxes and fees 7. Creation of international markets 8. Global and regional partnerships

11 Capacity to mobilize financial resources Developing countries have very different capacities to mobilize external and domestic finance Developing countries have very different capacities to mobilize external and domestic finance Current classification schemes focus primarily on categories according to: Current classification schemes focus primarily on categories according to: Income per capita Income per capita Debt service burden Debt service burden Special conditions (e.g. post-conflict) Special conditions (e.g. post-conflict) Great variation within these categories in country capacity to mobilize internal and external resources. Indicators: Great variation within these categories in country capacity to mobilize internal and external resources. Indicators: Domestic savings, fiscal deficit, gross fixed capital formation, bank credit Domestic savings, fiscal deficit, gross fixed capital formation, bank credit Exports, international reserves, direct foreign investment, ODA flows Exports, international reserves, direct foreign investment, ODA flows

12 Capacity to mobilize financial resources Heterogeneity of developing countries: income levels and indicators of capacity to mobilize financial resources

13 Capacity to mobilize financial resources Need for alternative schemes to classify countries (various options explored) Need for alternative schemes to classify countries (various options explored) Adopted a sequential approach to classify countries according to indicators of: Adopted a sequential approach to classify countries according to indicators of: capacity to mobilize external resources (FDI, exports) capacity to mobilize external resources (FDI, exports) capacity to mobilize internal resources (domestic savings, tax revenues) capacity to mobilize internal resources (domestic savings, tax revenues) Result: nine categories of countries: Result: nine categories of countries: Matrix with high, medium and low external and internal resource mobilization (plus four outlier countries) Matrix with high, medium and low external and internal resource mobilization (plus four outlier countries) Shifts in country placements over time Shifts in country placements over time

14 Capacity to mobilize financial resources Category 0 Category ACategory BCategory C Category 1 Category 2 Category 3 Country categorization

15 Capacity to mobilize financial resources Category 0 Category ACategory BCategory C Category 1 Category 2 Category 3 Country changes of category and ranking between 1990- 1996 (blue dot) and 1997- 2002 (green dot)

16 International political economy and political viability Changes in international power relations Changes in international power relations Uneasy coexistence of: unilateralism, bilateralism, regionalism, multilateralism, public-private and private regimes, emergence of global concerns Uneasy coexistence of: unilateralism, bilateralism, regionalism, multilateralism, public-private and private regimes, emergence of global concerns Large economic and demographic imbalances Large economic and demographic imbalances Fiscal constraints in donor countries Fiscal constraints in donor countries Concerns about migration Concerns about migration New situations and key actors New situations and key actors US, Japan, EU US, Japan, EU Brazil, Russia, India, China Brazil, Russia, India, China Multilateral institutions (IMF, WB, RDBs and SRDBs) Multilateral institutions (IMF, WB, RDBs and SRDBs) From G7-G8 to G20? From G7-G8 to G20? G77 and developing country groups G77 and developing country groups Uncertainty, but also window of opportunity Uncertainty, but also window of opportunity

17 Interactions between scenario components Linkages between institutional arrangements and financing instruments Linkages between institutional arrangements and financing instruments Correspondence between financing instruments and country categories Correspondence between financing instruments and country categories Degree of utilization of financial instruments Degree of utilization of financial instruments Appreciation of: Appreciation of: Overlap and duplication, division of labour, consolidation Overlap and duplication, division of labour, consolidation Missing institutions and instruments Missing institutions and instruments Potential for expanding use of financing instruments Potential for expanding use of financing instruments Limitations of classification criteria based on income per capital levels Limitations of classification criteria based on income per capital levels Construction of scenarios Construction of scenarios

18 Financial instruments and country categories CATEGORY A CATEGORY B CATEGORY C CATEGORY 1 CATEGORY 2 CATEGORY 3 High capacity Low capacity High capacity Low capacity MDBs and bilateral guarantees to attract private flows Contingent credit lines CACs Guarantees to catalyze external resources mobilization Domestic currency bonds Smooth debt service instruments MDB and bilateral regular and blend loans MDBs and bilateral soft loans Bilateral-private investment funds Debt reduction instruments Remittances MDBs and bilateral soft and blend loans Technical assistance to improve policy environment Grants: Budget support, debt cancellation

19 Scenarios for the international development financing system (a) Institutional arrangements (b) Financing instruments (c) Types of countries (d) Political viability IIIIII …… IXIX 1122 33 44 55 66 77 88 BASU CORE InertiaInertiaMajorreformsMajorreforms TransformationTransformation LimitedreformsLimitedreforms PowerrelationsPowerrelations

20 Scenarios for the international development financing system Inertia: Inertia: Business as usual, possible deterioration of institutional arrangements, no increase in flows or change in financing instruments, mismatch with country types. Business as usual, possible deterioration of institutional arrangements, no increase in flows or change in financing instruments, mismatch with country types. Limited Reforms: Minor changes and disconnected improvements in institutions, modest increases and improvements in financial instruments, focused almost exclusively on poorest countries. Minor changes and disconnected improvements in institutions, modest increases and improvements in financial instruments, focused almost exclusively on poorest countries. Major Reforms: Widespread institutional reforms, significant increases in financial flows and broader range of instruments, better balance between country types. Widespread institutional reforms, significant increases in financial flows and broader range of instruments, better balance between country types.Transformation: Comprehensive reforms in institutions, full range of financial instruments (some automatic) available to all types of countries. Comprehensive reforms in institutions, full range of financial instruments (some automatic) available to all types of countries.

21 Policy implications of the scenarios A framework for strategic choices: How to move from Inertia towards Transformation? How to move from Inertia towards Transformation? Rich menu of possibilities regarding institutional arrangements, financing instruments, country classification schemes and political viability Rich menu of possibilities regarding institutional arrangements, financing instruments, country classification schemes and political viability Identification of main issues in each of the four components of the scenarios Identification of main issues in each of the four components of the scenarios

22 Policy implications of the scenarios ( institutional arrangements) Main issues: Support current reform momentum and press for further reforms in international organizations Support current reform momentum and press for further reforms in international organizations Devise and put in place institutions to deal with global and regional public goods Devise and put in place institutions to deal with global and regional public goods Establish the G20 at the heads of state level Establish the G20 at the heads of state level Explore innovative institutional arrangements to deal with special problems Explore innovative institutional arrangements to deal with special problems

23 Main issues Bilateral instruments: Bilateral instruments: Increase ODA in a sustainable manner and significantly reduce bilateral debt Increase ODA in a sustainable manner and significantly reduce bilateral debt Clarify the relation between the EU development budget, the European Development Fund and European bilateral aid Clarify the relation between the EU development budget, the European Development Fund and European bilateral aid Reduce bilateralization of multilateral aid Reduce bilateralization of multilateral aid Revamp technical assistance Revamp technical assistance International organizations and agencies International organizations and agencies Funding patterns of international organizations: core vs. non core, voluntary vs. replenishments Funding patterns of international organizations: core vs. non core, voluntary vs. replenishments Consolidation of lines of work, programs and projects (merge some programs and institutions) Consolidation of lines of work, programs and projects (merge some programs and institutions) Policy implications of the scenarios (financing instruments)

24 International financial institutions International financial institutions A systemic perspective of the multilateral development banks and the role of the World Bank A systemic perspective of the multilateral development banks and the role of the World Bank Creation of sub-regional development banks Creation of sub-regional development banks Multilateral debt reduction and IDA grants Multilateral debt reduction and IDA grants Exploring greater voice and representation of developing countries in IFIs (voting power) Exploring greater voice and representation of developing countries in IFIs (voting power) Private sources Private sources Enhancing private foreign investment for infrastructure: Measures to promote FDI in poor countries Enhancing private foreign investment for infrastructure: Measures to promote FDI in poor countries Remittances and their possible link to the provision of local public goods Remittances and their possible link to the provision of local public goods Avoiding a race to the bottom to attract external capital Avoiding a race to the bottom to attract external capital Possible impact of Basle II over commercial banks Possible impact of Basle II over commercial banks Policy implications of the scenarios (financing instruments)

25 International capital markets International capital markets Expand existing and create new guarantee mechanisms to stimulate appetite for relative more risky financial assets Expand existing and create new guarantee mechanisms to stimulate appetite for relative more risky financial assets Promote and expand access by developing countries (special investment funds, provision of credit ratings, financial engineering to mitigate risks) Promote and expand access by developing countries (special investment funds, provision of credit ratings, financial engineering to mitigate risks) International taxes, fees and charges International taxes, fees and charges Explore possibility carbon tax when energy prices begin to diminish. Other proposals are less likely to succeed. Explore possibility carbon tax when energy prices begin to diminish. Other proposals are less likely to succeed. Policy implications of the scenarios (financing instruments)

26 Market creation Market creation Emissions trading (Kyoto Protocol, EU) Emissions trading (Kyoto Protocol, EU) Explore post-Kyoto Protocol options Explore post-Kyoto Protocol options Create public markets for key international public goods Create public markets for key international public goods Global and regional partnerships Global and regional partnerships Consolidate special purpose global funds Consolidate special purpose global funds Promote regional and local partnerships to address specific problems (e.g. conservation and natural parks) Promote regional and local partnerships to address specific problems (e.g. conservation and natural parks) Support the International Financing Facility, but be prepared to advance variants Support the International Financing Facility, but be prepared to advance variants Policy implications of the scenarios (financing instruments)

27 Main issues Explore alternative classification schemes for developing countries Explore alternative classification schemes for developing countries Gradation instead of graduation Gradation instead of graduation Go beyond performance vs. needs arguments for the allocation of development assistance Go beyond performance vs. needs arguments for the allocation of development assistance Dealing with changes over time in country capacity to mobilize external and domestic resources Dealing with changes over time in country capacity to mobilize external and domestic resources Policy implications of the scenarios (types of countries)

28 Concluding remarks Determined leadership required to move from Inertia through Limited Reforms and Major Reforms to Transformation. Determined leadership required to move from Inertia through Limited Reforms and Major Reforms to Transformation. Crises have driven structural reforms in the past Crises have driven structural reforms in the past Fundamental shift in international development finance required Fundamental shift in international development finance required Radical incrementalism may be best approach to advance towards Transformation: Radical incrementalism may be best approach to advance towards Transformation: Articulation of radical shared vision of the future. Articulation of radical shared vision of the future. Pragmatic, down-to-earth incremental steps to achieve it Pragmatic, down-to-earth incremental steps to achieve it Do not wait for major tragedies and catastrophes to steel political resolve and catalyze action Do not wait for major tragedies and catastrophes to steel political resolve and catalyze action


Download ppt "The Future of Development Financing: Challenges, Scenarios and Strategic Choices Keith Bezanson Development Centre - OECD 04 February, 2005, Paris Development."

Similar presentations


Ads by Google