TAPPING INNOVATIVE SOURCES OF FINANCE INCLUDING MIGRANT REMITTANCES FOR LDCS DEVELOPMENT Ministerial Meeting on Enhancing the Mobilization of Financial Resources for the Least Developed Countries Development Lisbon, 2-3 October 2010

What is innovative development financing? Innovative finance: mechanisms aimed at generating substantial and stable flows of funds for development a reaction to shortfalls in ODA despite commitments key feature is human solidarity; complementary to ODAs closely linked to the idea of global public goods (to be financed by taxes on global externalities like global warming and exchange rate volatilities) E.g., Tobin tax originally proposed in 1972 Several othe initiatives conceived ranging from government taxes to public-private partnership strong potential to complement traditional development aid US$2.5 billion in additional funding between 2006 and 2008 General Assembly resolution A/64/193 of 21 December 2009: recognized potential of various voluntary innovative sources of financing to supplement and complement traditional sources of financing The BPoA called for: Promoting and encouraging innovative sources of funding and providing technical support through partnerships among LDC and donor Governments, the national and international private sector, and NGOs private and foundations, philantropical organization

Recent developments in raising new finance 1. New taxes at the international level: Taxes on currency transactions or aircraft fuel aimed at reducing the negative effects of speculation or pollution and at the same time make available new funds for development (e.g Tobin tax) 2. Recent proposals: Global carbon taxes, taxes on international transport emissions, taxes on international financial or currency transactions, new allocation of IMF special drawing rights, gold sales or the sale of green bonds in global capital markets 3. Sector-specific mechanisms: Levies and voluntary solidarity contributions (VSC) on airline tickets Estimated to generateUS$1 billion annually worldwide; funds used to support projects on HIV/AIDs, tuberculosis and malaria treatments

Recent developments in raising new finance 3. Sector-specific mechanisms (cont.) International Finance Facility for Immunization (IFFIm) has raised more than US$2 billion through issuance of floating bonds; funds used to support immunization programmes Advance Market Commitments (AMC) established contractual partnerships between donors and pharmaceutical firms - focus on research on neglected diseases and distribute drugs at affordable prices Debt2Health initiative uses debt swaps to convert portions of their old debt claims into new domestic resources for health through the Global Fund. Payment for Environmental Services (PES) allow consumers of public goods to compensate ffor part of the costs borne by those in carge of producing or preserving it Current PES mainly aroun environmental services: water quality and quantity, carbon sequestration and biodiversity conservation

Globalizing Solidarity: The Case for Financial Levies The Report of the Committee of Experts to the Taskforce on International Financial Transactions for Development entitled: Globalizing Solidarity: The Case for Financial Levies: assessed the feasibility of different financing options based on these criteria: sufficiency; market impact; feasibility; and sustainability and suitability analysis includes a financial transactions tax as well as different forms of currency transaction taxes as additional sources of funding a financial transaction tax would be more predictable and stable than traditional ODA as resources not linked to government revenues or political priorities of developed countries

Globalizing Solidarity: The Case for Financial Levies (2) Report concludes: a global currency transaction tax (CTT) – to be applied to foreign exchange transaction on all major currency-markets at the point of settlement IS THE MOST APPROPRIATE option With volume of transaction estimated at US$1 trillion per day, a very small levy on foreign exchange transactions could raise billions without affecting markets Proceeds would be paid into a dedicated fund – the Global Solidarity Fund The fund could provide substantial resources for LDCs development, including for structural transformation

Challenges: There is a wide array of innovative financing proposals Challenge is to identify the most useful and realistic ones One which is quick to implement and generates adequate revenue Once new funds are made available, the other challenge is: governing these funds. LDCs need to have a voice in decision making bodies Accountability mechanisms need to be designed

Private contributions: Remittances Remittances have become an important souce of development finance for LDCs Accounting for 4% of GDP of LDCs in 2007 In Lesotho and Samoa – represent a quarter of the GDP in 2008 Flows to LDCs have increased from US$6.1 billion in 2000 to US$17.5 billion in 2007 and US$23 billion in 2008 Figures are most likely underestimated as many flows remain unregistered Second to ODA, remittance flows to LDCs superseded FDI Remittances represent for LDCs a more stable and countercyclical financial flow compared to ODA and FDI

Private contributions: Remittances Community projects financed through remittances have contributed to develop the local infrastructure in several LDCs To avoid brain drain and maximize the productive uses of remittances, sending and receiving countries are now scaling up efforts to these ends through co- development partnerships Government-to-government efforts Diapora and local communities NGOs

Other Instruments Clean Development Mechanism (CDM) should be made more accessible to LDCs and related investments and technology transfer directed to LDCs GEF and climate funds be augmented and targetted to LDCs

Way Forward Innovative sources of finance necessary to fill the resource gap of LDCs need to be substantial, predictable and disbursed in a manner that respects the priorities and special needs of LDCs; Initial focus was on health issues but should be expanded to other areas such as food security, education and climate change to be provided as budget aid to allow recipeinet to align it with their priorities Additional funds created through the establishment of international currency or financial transaction taxes need to be allocated to LDCs New Funds dedicated to the development of LDCs need to ensure democratic decision-making by stakeholders and that access to the Fund must be procedurally easy

Way Forward Establishment of a crisis mitigation and resilience building fund for LDCs A substantial special SDR allocation should be made for LDCs to provide a liquidity cushion in case of internal and external crisis and shock. Encourage non-DAC providers of aid including global funds, NGOs and private foundations to participate in mutual accountability at the national level

Way Forward Home and host countries to lower transfer costs: through improved technology (mobile phones and e-transfers) changes in regulation – removing restrictions on outward remittances in source countries or removing taxation on remittances repatriated Channel remittances into productive use and private sector development activities Co-development schemes Providing investment information to encourage entrepreneurship Fostering the development of formal financial systems to encourage savings and investment Developing incentive schemes for development projects (e.g., matching grants)