The scale of financing needs for sustainable development estimated by the United Nations exceeds a thousand billion dollars a year. ODA looks like the last coins emptied from a money box in comparison. The conference on financing for development that will be held in Addis Ababa in July must lead to financing options that meet the new challenges and specify the modalities for the mobilization of the complementary billions to ODA. A revolution? The reality could well be that everything will change without anything changing, under the sky of Addis Ababa, like under the skies of Monterrey and Doha during the previous editions.

Siège de l'ONU - © Davide Restivo
Siège de l'ONU - © Davide Restivo
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Iddri 2

Mobilize thousands of billions for development

The Sustainable Development Goals (SDGs) will make a significant change to the international aid agenda. A greater number of themes are addressed than at the time when the Millennium Development Goals (MDGs) were set. The goals are more ambitious – for example, the objectives of “zero poor” and “zero hunger” by 2030, which we will not comment here –, which, in addition, fall within a perspective of universality. The widening and deepening of the development agenda raises specific issues concerning implementation and, especially, financing.

The order of magnitude of annual needs estimated in the literature and compiled by a UN report is, at a minimum, twenty times higher than the annual amounts of ODA. It involves between USD 135bn and USD 195bn a year for the eradication of extreme poverty, 5 to 7 trillion to cover investment needs for infrastructure, with an additional 2.5 to 3.5 trillion for the development of small and medium-sized enterprises, and this is without mentioning climate change adaptation or improving health throughout life.

Where can all this money be found? Preferably from other people. This is what any egoistic and well-informed taxpayer could reply – on the grounds that there is no lack of money and that there are an increasing number of rich people in this world, and I would agree with them on these two points. The world has never been so rich. If we make the calculation, world GDP in purchasing power parity roughly stands at USD 90 trillion, i.e. over USD 10,000 per capita. This “global product” is very poorly distributed, with the richest 1% holding some 20% of it. Global savings stand at USD 20 trillion, financial assets at USD 200 trillion, enough is enough. There is no lack of money – it is mainly held by individuals or private institutions. The mobilization of global savings has become an issue for international cooperation. Why then go to great lengths to increase ODA amounts?

 

Overcome the limits of the accounting approach

Mobilizing financing on all sides to meet the “financing needs” of (sustainable) development is central to the mandate of the Addis Ababa conference. How to mobilize all the private savings for which we have just identified the extravagant amounts? What role can ODA play in mobilizing funds and ensuring that they are fairly and effectively spent, according to the terminology agreed during previous conferences?

Thus formulated, these questions have a technical side, the reason for which Addis Ababa probably only interests the happy few (and you are one of them since you are reading this – try it out and pass this post around, or another, and watch for the reactions). They give rise to questions or measured proposals on the “catalytic” effect of aid and its “leverage” effect, which make it at the same time necessary, ambitious in its impacts and parsimonious in its commitments. This is, in short, consistent with the amounts that are currently allocated to it and which few governments manage to increase. However, these technical issues of leverage, catalysis, and other metaphors taken from physics or chemistry – probably because they apply to flows and masses – mask a question that is much more blunt. In a world of savers and users, who must pay for development?

This question firstly has the merit of obliging us to abandon the accounting and static approach taken by the UN. An accounting approach that aims to place “amounts” opposite “financing needs”. Can you tell me what are Burundi’s financing needs from now until 2030? Hurry up, I have a position paper to draft. The question does not make a great deal of sense, unless you live in a world of perpetual Kantian peace and with the absolute neutrality of populations with regard to the risk and uncertainty in the construction of social choices.

In a dynamic and no longer accounting and static approach, what matters is to answer the question of who ultimately pays: the taxpayer or the user. This question, which is like Russian dolls, contains other questions: the taxpayer from the North or South, the rich taxpayer from the North or the rich from the South, the rich user or the poor user…

The long-term financing of the SDGs can be likened to the issuance of a debt whose subscribers and repayment schedule must immediately be clear, which is not done. The issue of mobilizing domestic resources takes on all its importance and relevance here, not so much for its contribution in a given year to the budget accounting equation, but for the prospects of sustainability that they offer investment projects in the long term.

 

What do we expect of ODA?

Alain Delon, to whom I lent my first name for a film, exclaims in The Leopard to the remark made by his uncle, the highly aristocratic Don Fabrizio, who is surprised to see that he is sensitive to revolutionary arguments: “everything needs to change, so everything can stay the same”. The aim of the SDGs and of the 2°C, the scale of the financing needs estimated with regard to this aim and put forward by the negotiators themselves, the appearance of new financiers and new instruments – real or imagined –, give the Addis Ababa Conference the golden tones of a new world tinted with some shadows cast by the death throes of ODA.

In accounting terms, by considering financing as a whole, it is true that ODA is no longer worth anything – or not very much – except for a few countries among the least developed where it accounts for half of public resources. With the exception also of a few sectors – such as health, education and infrastructure. And if we speak about public financing excluding ODA, i.e. at near market rates, climate change mitigation and adaptation can be included. On balance, this makes a lot of exceptions.

If we cannot do without ODA and public financing, should the most pressing need not be to give ODA objectives not for growth in its amounts, but for an increase in the resources that it will have been able to mobilize – via improved tax collection, equity investments or loan guarantees? What we exactly expect from ODA today would appear to be a much more pressing question than that of its volume – which will need to be raised only after clear responses have been provided to the first question.

 

 

The opinions expressed in this blog post are those of the author and do not necessarily reflect the official position of his/her institution.

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