World ‘Not Keeping Pace’ in Implementing Sustainable Development Goals, Secretary-General Stresses, as Development Financing Forum Begins
Citing a fragile world economy and unravelling multilateral alignments, delegates at the Economic and Social Council’s 2019 forum on financing for development follow-up today also spotlighted a crucial window of opportunity to render the global financial system fairer and more fit for purpose.
Officials from Governments around the world joined academic experts and private sector leaders on the annual forum’s opening day. Many called for an overhaul of the planet’s trading system, energy pricing schemes, debt structures and fiscal policies. Meanwhile, speakers deliberated ways to turn emerging challenges — from dwindling trust in institutions to rising sea levels — into reforms that will help countries around the globe achieve the 2030 Agenda for Sustainable Development.
“Simply put, we need more money to implement the Sustainable Development Goals,” said Secretary-General António Guterres in opening remarks. Noting that 2019 is a defining year, he emphasized that “so far, we are not keeping pace”. Spotlighting the threats posed by heightened global trade tensions, possible economic challenges and rising greenhouse‑gas emissions, he added that many people live in countries where inequalities and gender gaps are still widening. International assistance, domestic tax revenue and efforts to combat illicit financial flows should all be increased, he said.
Inga Rhonda King (Saint Vincent and the Grenadines), President of the Economic and Social Council, agreed that the world has not yet seen the broad transformation needed to achieve the Sustainable Development Goals by their 2030 deadline. Warning that global risks are increasingly threatening common aspirations, she said climate change — from the Caribbean to the Sahel — has reversed development gains, while trade tensions are dampening growth and rising debt levels and vulnerability are stifling investment in developing countries.
Echoing such concerns, María Fernanda Espinosa Garcés (Ecuador), President of the General Assembly, said there is still time to close finance gaps. Pressing countries that have made official development assistance (ODA) commitments to keep them, she called for stronger political will, renewed efforts to create 600 million new decent jobs by 2030 and reforms of the world’s normative financial frameworks. Meanwhile, she said, fiscal policies must be redistributive, allowing Governments to address tax evasion and avoidance and contributing to a fairer economic order.
Tim Yeend, Chef de Cabinet and Principal Adviser to the Director-General of the World Trade Organization (WTO), cited evidence of the importance of trade in helping countries harness growth for development. The integration of developing countries into the multilateral trade system, by providing access to new technologies and investments, has catalysed a “take-off”, he stressed, noting the importance of ensuring that such gains are not undone by today’s challenges. Economic uncertainty will likely persist until tensions among the largest countries are resolved, he said.
Keynote speaker Tharman Shanmugaratnam, Deputy Prime Minister of Singapore and Chair of the Group of 20 Eminent Persons Group on Global Financial Governance, declared: “There is a very real risk that we are drifting into a more fragmented world.” Long‑standing alignments are unravelling, he said, warning that less multilateralism will result in less capacity to deal with increasingly complex global challenges. Describing a combustible mix of unemployment, climate change and biodiversity loss, he called for a new, international cooperative order to address such looming threats.
Raghuram G. Rajan, Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, also delivered a keynote address. He said the open, liberal democratic market system that brought about enormous prosperity following the Second World War is now under attack — including from the prosperous nations that benefitted most. It is now up to emerging and developing countries to take on more responsibility in keeping the world open, he stressed.
Other speakers during the morning session included Tao Zhang, Deputy Managing Director of the International Monetary Fund (IMF), who stressed that “the world economy is at a delicate moment” with the global expansion seen in recent years continuing at a slower pace than previously expected. Mahmoud Mohieldin, Senior Vice-President of the 2030 Development Agenda, United Nations Relations and Partnerships of the World Bank Group, agreed that growth has lost momentum, dropping from 3.3 per cent in the first quarter of 2018 to below 2.7 per cent in the fourth quarter. The effects of the stimulus measures adopted in some economies have waned, elevating policy uncertainty and jeopardizing efforts to leave no one behind, he said.
Participants also held four interactive panel discussions, two of which were attended at the ministerial level. They focused on themes ranging from economic headwinds and tailwinds, to non-economic trends, to reducing inequalities and mobilizing finance for climate action. In addition, the forum began its general debate.
The forum will reconvene at 10 a.m. on Tuesday, 16 April, to continue its work.
Opening Remarks
INGA RHONDA KING (Saint Vincent and the Grenadines), President of the Economic and Social Council, opened the forum on financing for development follow‑up recalling the commitment made four years ago to a global framework for financing sustainable development: the Addis Ababa Action Agenda. While progress has been made at the national, regional and global level, “we have not seen the broad transformation that we need to achieve the Sustainable Development Goals by 2030”, she said. Global risks increasingly materialize and threaten common aspirations. Climate change — from the Caribbean to the Sahel — has reversed development gains, she said, recalling Cyclone Idai recently wrought destruction in Mozambique, Zimbabwe and Malawi. Debt levels have risen, as has vulnerability, stifling investment in developing countries. Trade tensions meanwhile are dampening economic growth.
To address these risks, she said urgent resolve is needed, first and foremost on multilateral cooperation, as no one actor will be able to tackle them alone. Financing frameworks must also be aligned with sustainable development objectives. While many countries have worked to integrate the 2030 Agenda for Sustainable Development into national development strategies, many do not feature comprehensive financing plans. Recommendations to accelerate the financing of sustainable development are needed. She recalled that 2019 is a critical year, as the world concludes the first four-year cycle since the 2030 Agenda and the Action Agenda were agreed. The forum will set the tone for the year ahead. Its outcome will reflect the common ambition to “make 2019 count”, she said, with a set of action-oriented conclusions and recommendations, and a strong signal of commitment.
MARÍA FERNANDA ESPINOSA GARCÉS (Ecuador), President of the General Assembly, said the global economic context described in the 2019 report of the Inter-Agency Task Force on Financing for Development is not encouraging in terms of reaching the aspirations laid out in the 2030 Agenda, which require the annual mobilization of $6 billion. Financial markets are volatile: 30 developing countries are at risk or facing financial difficulties, while trade imbalances have increased over the last year. Indeed, the economic climate has worsened, which is among the most pressing global challenges. At the same time, some countries in Africa and South‑East Asia are carrying out infrastructure projects financed mainly with public funds. The question is: “Are we doing enough to earmark resources in line with our ambition?”, she asked. “Clearly, the response is no.”
Noting that there is time to close finance gaps, she pressed countries that made official development assistance (ODA) commitments to keep them. Governments must ensure that both the public and private sectors make investments and that financial systems create genuine support, as all such elements must generate 600 million new decent jobs needed by 2030. In addition, political determination is required, as is reform of the normative frameworks to ensure that public and private financing is put to work. Fiscal policies must be redistributive, allowing Governments to address tax evasion and avoidance, while international systems must contribute to a fairer economic order. The multilateral trade system must be bolstered, with a focus on ensuring that capacity-building and technology transfer are carried out, she said, and developing countries must be prioritized.
She said the international community also must incorporate the private sector as a key partner, and create the conditions for responsible investments that respect human rights and the environment. The creation of low-carbon technologies is also crucial, as 1 billion people lack access to electricity. Governments must have the tools to ensure that production processes are more efficient. Small and medium-sized enterprises represent 60 to 70 per cent of job creation around the world, and must be promoted. Governments must also look towards the full integration of women into their economies, as ending the wage gap will “make the difference”. The future needs investment. “Now is the time to act,” she said, and ensure that the United Nations is more relevant for everyone.
ANTÓNIO GUTERRES, Secretary-General of the United Nations, said the tools to tackle poverty, inequality, climate change and other critical global challenges are defined in the 2030 Agenda and related international commitments. That Agenda is much more than a blueprint, he said, it is a commitment. “2019 is a defining year for implementing the development goals” and other commitments, he said, warning that “so far, we are not keeping pace”. Spotlighting the threats posed by heightened global trade tensions, possible economic challenges and rising greenhouse‑gas emissions, he added that many people live in countries where inequalities and gender gaps are still widening. Against that backdrop, he said the forum is part of an effort to coordinate the global response to reverse those trends. Noting the findings of a recent study, which stated that countries face an annual funding gap of some $2.6 trillion, he stressed that more funds are still needed to help countries meet development targets. “Simply put, we need more money to implement the Sustainable Development Goals,” he said. While international assistance should be increased, that also requires an increase in domestic tax revenue, as well as international efforts to combat money‑laundering, tax evasion and illicit financial flows.
Among other solutions, he said that financing gap can be filled by accelerating investments by the private sector, international financing instruments, ODA, civil society and philanthropies. National policy frameworks are key to creating an enabling environment, including by reducing risks and incentivizing investment in development goals. Meanwhile, the new opportunities presented by such emerging tools as social entrepreneurship, green bonds and other innovative methods should be tapped and access to credit must be expanded. Recalling that his 2018 strategy for financing set out ways the United Nations can support those efforts, he reported that some progress has already been seen — for example, a new Global Investors for Sustainable Development Alliance was launched and collaboration with regional development banks is being strengthened. At the national level, work is under way to strengthen the United Nations capacity to support Governments as they mobilize resources and unlock new resources to finance development. At this week’s forum, he urged participants to be bold in both their discussions and their negotiations.
TAO ZHANG, Deputy Managing Director of the International Monetary Fund (IMF), recalled that his organization and the World Bank just concluded their meetings in Washington, D.C., with all participants agreeing that “the world economy is at a delicate moment”. The global expansion seen in recent years continues, but at a slower pace than previously anticipated. “We need to do better,” he said, calling for efforts to produce stronger medium-term growth. Outlining three of IMF’s core policy action areas, he spotlighted domestic policies aimed at building resilience and promoting inclusion; upgraded international cooperation; and bolstering commitments to work together on broader global challenges. “No issue looms larger than trade,” he said, calling for efforts to reform the multilateral trading system and to reduce tensions.
Meanwhile, he said, joint action is also needed to confront climate change, including through revamped fiscal policies, energy pricing and the building of resilience for vulnerable countries. Turning to taxation, he called for an urgent redesign of global taxation efforts, noting that the current situation of widespread tax evasion is especially harmful to developing countries. In addition, some 40 per cent of those countries find themselves in a situation of debt distress, requiring more sustainable financing practices. In that context, he said, IMF is helping countries identify and better manage their debts, while also extending outreach to help other organizations scale up assistance in debt management. “We must strengthen financial integrity,” he added, noting that the annual cost of bribery is estimated at $1.5 trillion. “We need robust national actions and enhanced international cooperation,” he stressed.
MAHMOUD MOHIELDIN, Senior Vice-President of the 2030 Development Agenda, United Nations Relations and Partnerships, World Bank Group, describing the messages that emerged from the international financial institution’s spring meetings, said global growth has lost momentum, dropping from 3.3 per cent in the first quarter of 2018 to below 2.7 per cent in the fourth quarter. There are waning effects of stimulus measures adopted in some economies and elevated policy uncertainty. The aspiration to leave no one behind will not be met by maintaining the status quo. Stressing that hundreds of millions of people will suffer from extreme poverty by 2030, he said the World Bank Atlas for the Sustainable Development Goals finds that 9 out of 10 of the world’s extremely poor will be in Africa. “Actions are required today,” he asserted. Describing trade as good for growth and lowering poverty, he said there are also countries not benefitting from the extent needed. Fair trade and the distribution of trade benefits are issues the World Bank is working to support.
Stressing the importance of the private sector to attaining the Sustainable Development Goals, he said linking finance and climate action is also essential and he encouraged Governments to make better investments in people. Indeed, the overall message of the spring meetings is that bold reforms and adequate financing are needed over the next decade. With that in mind, he described four levels of engagement, welcoming first a report by the Group of 20 Eminent Persons Group for Global Financial Governance which called for rearranging the global financial architecture. At the regional level — which is often neglected in several aspects — more integrated solutions are needed with a focus on infrastructure, trade logistics and financing. At the national level, the World Bank President has emphasized the importance of broad-based growth, with a focus on infrastructure and gender. The last — and neglected — type of engagement is at the local level. One lesson learned from many national reports on efforts to integrate finance into implementation of the Sustainable Development Goals is that countries do not have good budgets for achieving the Goals. “If not reflected in the budget, it does not exist,” he stressed. The upcoming General Assembly is an opportunity to urge acceleration now, aligning all types of finance — public, private, domestic and external — and localizing such efforts effectively. He expressed hope the forum would allow for using collective knowledge, skills and resources to finance the Goals.
TIM YEEND, Chef de Cabinet and Principal Adviser to the Director-General, World Trade Organization (WTO), describing the current state of implementation of the 2030 Agenda, recalled that the Addis Ababa Action Agenda emphasized the important role of trade in generating the resources needed to finance the 2030 Agenda. There is ample evidence of the importance of trade in helping countries harness growth for development, notably in supporting job creation, raising per capita income and reducing poverty. The integration of developing countries into the multilateral trade system, by providing access to new technologies and investments, has catalysed a “take-off”, he stressed, noting the importance of ensuring that such gains are not undone by today’s challenges — which are among the most complex in a generation. If not addressed, they will have short-term and long-term effects. Until tensions among the largest countries are resolved, economic uncertainty will likely persist. There is the potential for improving the global trade forecast, but it depends on reducing tensions and focusing on charting a positive path forward for trade.
He said there could be some upsides to the current situation, as it offers an opportunity to determine whether aspects of the global trading system can be fixed to meet current needs. A conversation about WTO modernization has started, with members putting forward ideas on transparency, notifications, rule-making and the dispute‑settlement mechanism. Among the contentious issues is the lack of definition for a developing country, and who should benefit from special and preferential treatment. Members have expressed a desire to explore rules on joint initiatives — being pursued in such areas as electronic commerce, gender and trade. Discussion is also centred on how rules are agreed at WTO, as some believe groups of members should be allowed to pursue measures that lead to binding outcomes on those members. Throughout such conversations on the future of the global trade system, strengthening global cooperation must be a priority, he said, as it is crucial for attaining the 2030 Agenda. Going forward, the forum will assume more importance as an optimal space for multilateral dialogue focused on development.
Keynote Speakers
THARMAN SHANMUGARATNAM, Deputy Prime Minister of Singapore and Chair of the Group of 20 Eminent Persons Group on Global Financial Governance, said it is virtually certain that the Sustainable Development Goals will not be achieved without major reforms in the global coordinating system. “There is a very real risk that we are drifting into a more fragmented world” with long‑standing alignments unravelling, he said, adding that it will be a weaker world less capable of dealing with its increasingly complex global challenges. In that context, it is crucial to act now to build a new, international cooperative order tailored for today’s more decentralized and interconnected world. The Eminent Persons Group has come up with proposals for practical reforms to the global economic system, aimed at addressing various crucial challenges. Those include creating decent jobs for the developing world’s rapidly expanding youth bulge, which is three times larger than that of China at its peak in the early 1990s. The impacts of a failure to create such jobs will intersect with other future challenges, including a combustible mix of climate change and global biodiversity loss — increasingly scarce ground water and agricultural land, as well as the spread of new, antimicrobial-resistant diseases.
Noting that the scale of financing required to tackle those challenges is much larger than any previously needed, he said the ability of countries to grow and adapt has been hindered by a large deficit in funds. The current system is too fickle and the world is too reliant on a few countries. That is not a system that supports growth, he stressed, noting that, in the case of a future global slowdown, the world will increasingly come to depend on the success of developing and emerging countries. Spotlighting another of today’s serious challenges, he drew attention to a growing crisis in multilateralism. Global challenges are, at their heart, domestic in nature. Stressing that such challenges are not new, he underlined the need to rebuild trust in national institutions to tackle them more effectively. However, that new domestic trust must be underpinned by a strong, interconnected, cooperative global network. Indeed, national strategies and international ones go hand in hand, and failing to bolster international cooperation will only yield lose-lose results. A new harmony is needed, with all actors playing the same musical score.
Briefly outlining some of the Eminent Persons Group’s recent proposals, he said the first idea is to create country and regional platforms that will bring all multilateral and national agencies together around core standards on such issues as anticorruption and sustainable finance. Finance must then be scaled up to a higher level than ever seen before, requiring a reorientation of the business model of multilateral development banks. To attract the large volume of private and institutional capital that is out there, he called for efforts to diversify the risks of development across the international system. Such global commons as health and natural resources require stronger institutional capacity, he said, noting that today’s efforts in those arenas are overcrowded with much duplication of efforts. In that vein, he proposed the creation of a coordinated network of global action for each global commons. Finally, if a new system of global cooperation is to be established, there is an urgent need to tackle the root causes of domestic dissatisfaction. “We all have an interest in an open, integrated international order,” he said.
RAGHURAM G. RAJAN, Katherine Dusak Miller Distinguished Service Professor of Finance, University of Chicago Booth School of Business, said the open, liberal democratic market system that brought about enormous prosperity following the Second World War is now under attack, including from the most prosperous nations that have benefitted dramatically from it. It is now up to emerging markets and developing countries to take on more responsibility in keeping the world open. The disparate effects of technology enhancements will need to be managed better. For decades, the developing world was told it should join the global trade system and be open to foreign direct investment (FDI) — encouraged to view the adverse effects of such changes on people as inevitable costs of development. They implemented that advice, overriding domestic opposition, with an understanding that being part of global supply chains offered a way to pull them into the world order.
While competition has enhanced prosperity, he said the rising tides have not lifted all boats. The creation of winners and losers has meant that developing countries must work harder to help those affected adjust. “But, this is not a license for protectionism,” he clarified. As developing countries learned to play by the rules, industrialized nations claimed they were cheating and pushed for a rules change. Stressing that protectionism does not preserve jobs, as the jobs gained in one protected sector are lost in others, he said it also offers little defence of the job-destroying effects from automation and artificial intelligence. The only guarantee against redundancy is to help workforces stay ahead through constant retraining. Addressing their concerns should start by recognizing that trade and investment flows have disempowered people and their communities. As markets expand beyond political borders, participants have preferred a common governance structure with lowered transaction costs.
Historically, that has happened within countries, with national Governments increasing their powers at the expense of local communities. As globalization surged, Governments acceded to international treaties that diminished their power, which, in turn, catalysed movements seeking to reclaim national sovereignty. As funding moved from local to global levels, the impact of technology change has also varied greatly across developed and developing countries, with high-level skills now a prerequisite for high-paying jobs at a time when it is increasingly difficult to acquire them. Noting that unemployment often leads to a decline in local institutions like schools, and social breakdown in the form of broken marriages and substance abuse, further disconnecting communities from growth opportunities, he said: “No wonder people are angry and clutch to straws like protectionism.” People want democratic control over their futures. To preserve the open world, he recommended giving up on the hyperintegration of governance.
“We may have gone too far in standardizing laws across countries in our efforts to accommodate economic integration,” he said, suggesting that power be brought back to the country level, providing that markets remain open. While economists often call for more targeted “place-based” policies to channel economic activities to depressed areas, such solutions could be irrelevant, he said, citing Amazon’s decision to pull out from a massive project in New York City after local politicians rejected its plans. To revive a community, place-based policies must come from within: often driving a turnaround is a motivated local leadership team, which identifies resources and impediments, and expands activities along the way. The key is to empower such leadership and restore the links between national and local economies. National Governments can help local communities hold on to talented people by providing such infrastructure as broadband access. More broadly, the international community must preserve a world open to trade and investment, he said, and follow the principle of subsidiarity, with decisions made at the local level in the context of wider cooperation. Also, more room must be created for countries to choose their way of coping. This is as much a developed country problem as it is a developing country problem, he asserted.
Introduction of Report
LIU ZHENMIN, Under-Secretary-General for Economic and Social Affairs and Chair of the Inter-Agency Task Force on Financing for Development, presented the findings of the Task Force’s 2019 report (document E/FFDF/2019/2). Noting that many key investments in the Sustainable Development Goals remain underfunded, putting progress at risk, he said the report is an urgent call to coordinate global financing efforts. Citing some of the most pressing challenges, he said global growth peaked at 3 per cent, while developing countries remain at high risk of debt distress. The multilateral system is under strain. However, revisiting trade, debt and other global systems also opens the door to make those systems more fit. Rather than retreat from multilateralism, countries should strengthen collaboration. Global approaches need to be strengthened by national action, he said, adding that private-public incentives must be better aligned with the Sustainable Development Goals. He also underlined the need to harness the potential of innovation to strengthen developing financing and manage risk more carefully.
Panel I
The forum then opened its first interactive discussion, on the theme “Navigating the headwinds and tailwinds: current global economic context and emerging trends”. Moderated by Rana Foroohar, Global Business Columnist and Associate Editor of the Financial Times, it featured: Tao Zhang, Deputy Managing Director of IMF; Camillo Gonsalves, Minister for Finance, Economic Planning, Sustainable Development and Information Technology of Saint Vincent and the Grenadines; Vera Songwe, Executive Secretary of the Economic Commission for Africa (ECA); Jorge Moreira da Silva, Director of the Organisation for Economic Cooperation and Development (OECD) Development Cooperation Directorate; and Dana M. Peterson, Director of Citi Global Economics, CITI Group. Serving as discussant was Kavaljit Singh, Director of the India-based policy research institute Madhyam.
Ms. FOROOHAR, opening the discussion, agreed with other speakers that today’s many challenges also present significant opportunities for the global financial system. Turning to Mr. Zhang, she asked him to address the issues of budgeting, as well as the prioritization of global challenges.
Responding, Mr. ZHANG spotlighted the critical issues of education, health and infrastructure. Investments in those areas will require about half a trillion dollars by 2030, he said, calling for both domestic efforts and international cooperation. “Work starts at home,” he stressed, noting that macroeconomic policies must be in place to support growth and domestic revenue mobilization must be improved. He also called for smarter spending and more transparent governance.
Mr. GONSALVES, responding to a question about how small island developing States are tackling climate change, warned that the concept of financing for development has become a “Trojan horse” for attacks on offshore financial institutions. The application of that assault is discriminatory against small island developing States, he said, noting that those who make the rules curiously omit their own activities from those regulations. What is done in small island developing States pales in comparison to what is done by the world’s larger players. Noting that small island developing States face adaptation costs of some $100 billion annually — for even a 2°C increase scenario — he said they are still far from that number, and international assistance is not forthcoming.
Ms. SONGWE, responding to a question about the African continent’s current place in the global development financing landscape, said there is little exuberance in the global economic environment. Underlining the importance of trade agreements, including the new African Continental Free Trade Agreement, she said those represent a vote for more multilateralism and growth. Noting that an estimated $680 billion is needed to achieve the 2030 Agenda in Africa, she called for better replenishments of the African Development Bank — the largest funder of the world’s poorest countries and warned countries not to get too carried away in trying to attract private investments.
Mr. MOREIRA DA SILVA, asked how to break down silos in financing for development, emphasized that “there is no room for complacency” against the backdrop of regressions in ODA and development investments. The problem is not only the volume, but the pace, he said, noting that blended finance is becoming more prominent but remains unbalanced, with only 20 per cent going to least developed countries. Meanwhile, investments in women’s empowerment remain relatively small and some investments are still not climate-compatible. More scrutiny of public and private flows is required, as is better regulation and increased transparency, he said.
Ms. PETERSON, in response to a question about bridging the divide between the business and international communities, drew attention to parallel efforts in both spheres to increase gender parity. Spotlighting a persistent wage gap between men and women, she said CITI Group undertook efforts to identify its own wage gap and then rectified the discrepancy between the salaries of male workers and those of women and people of colour. Meanwhile, she expressed support for efforts to enhance paid family leave, provide subsidized childcare options and support working mothers — known to be among the labour force’s most productive employees.
Mr. ZHANG, asked to address issues relating to debt, called for more sustainable debt planning aimed at utilizing funds more intelligently. Strengthening capacity-building in borrower countries is also crucial, he said, drawing attention to infrastructure and technology as two important areas requiring more investment in developing countries.
Mr. MOREIRA DA SILVA, on the same issue, said special attention should be paid to addressing the debt burdens of countries transitioning from least developed status or into middle-income status. There must be no dramatic changes from one day to the next, he said.
Ms. SONGWE said much debt is taken on because countries fail to raise enough domestic revenue. To address that challenge, illicit financial flows must be tackled. As more equity and debt providers come on board, partnerships around debt must be better organized, she said.
Mr. GONSALVES expressed concern that most small island developing States have a debt to gross domestic product (GDP) ratio of 60 to 150 per cent. Those figures are exacerbated by major storms and other climate-related natural hazards, he said, calling for access to concessional funds, debt-for-climate swaps and a reduction of arbitrary regulations.
Mr. SINGH called for efforts to manage volatile financial flows, which can threaten stability in developing countries. Safety nets are patchy and are growing more fragmented, he said, adding that recipient countries should use capital controls if needed. Multilateral development banks must be managed transparently, while financial technology must be regulated now, not later.
Panel II
The forum then launched a panel discussion titled “Bending the curve: Non-economic trends and embracing new opportunities”. Moderated by Ms. Foroohar, it featured presentations by: Aksel Jakobsen, State Secretary for International Development, Norway; Luis Alfonso de Alba, Secretary-General’s Special Envoy for 2019 Climate Summit; and Ronan Ryan, President, IEX Group.
Ms. FOROOHAR said the second panel will focus on the non-economic trends involved in meeting 2030 challenges, all of which require international cooperation at a time when institutions are incredibly fragile.
Mr. JAKOBSEN, discussing the non-economic risks to economic progress, highlighted trust as a key element. “Trust is invaluable,” he said. It is among the crucial elements for human progress and there are signs it is being depleted. Trust is essential for every human interaction, transaction and productive relationship. It is abstract, personal and very real — and when it is lacking, all of society is at risk. Plenty of research demonstrates that where poverty exists, so does a lack of trust. Moreover, trust is a robust determinant of economic growth — and Governments are the single most important actors in shaping trust in a country. “We must fix things seen as grossly unfair,” he said. People must see that the international community is doing its utmost to stop illicit financial flows and practices like corruption, which extinguishes as much as 5 per cent of global GDP. Ensuring fair taxation and good use of revenues to deliver basic services to everyone is also crucial. The good news is that trust is a renewable resource — and exclusion is expensive, accounting for 7 per cent of a country’s GDP.
Mr. DE ALBA said climate change affects the entire development agenda. It also offers an opportunity to transform economies by using technologies including solar and wind power, which are cheaper than coal. Financing for development must be prioritized both at the national and global level, as well as among public and private actors, he said, citing the commitment to transfer $100 billion annually to developing countries. Indeed, discussions must centre on the trillions of dollars needed to transform economies. Investors and Governments must invest today, and at the same time, de-invest from the “brown economy” and rally behind private sector investment. He described a process — clearly seen at the World Bank’s spring meetings — in which various financial institutions, funds and Governments are taking the necessary measures, noting that the upcoming Climate Action Summit will be an opportunity to shift the trajectory.
Mr. RYAN said IEX is among the newest stock exchanges, formed in 2012 and launched in 2016, which set out to institutionalize fairness in trading. As the execution of trades became faster, market actors, including hedge funds, became disintermediated when they acted on behalf of small investors. IEX sought to build an exchange that slowed things down by 350 microseconds — or one one‑thousandth of an eye blink — to ensure that people trading on the platform receive the best treatment. It currently holds 3 per cent of the trading market, but in terms of “block trades”, it has captured almost 40 per cent of the market. It sought to understand who was capitalizing on high-speed trading to the detriment of investors and how it could block them out. Fairness is pertinent to every industry. IEX, as a member of the United Nations Task Force on Digital Financing of the Sustainable Development Goals, is working to institutionalize fairness with technology, efforts that are important for all aspects of an economy.
Asked about an area of un-leveraged opportunity, Mr. RYAN said that, to create smart cities, for example, one can analyse data, determine what works and push that out into other cities. There is a broad spectrum for how data can be used. A stock exchange brings an ability to collect huge amounts of data, normalize it and make it useable in various contexts.
Mr. JAKOBSEN, asked a question on the shift from an economy based on tangibles to one based on intangibles, underscored the need to address the gap between rich and poor, citing a fair taxation system as a basic instrument for tackling inequality.
Mr. DE ALBA highlighted the Green Climate Fund, which allows Governments to give assurances to the private sector to invest in green projects. He also underscored the need to incentivize private investment in resilience.
In an ensuing questions‑and‑comments segment, the representative of the Russian Federation, speaking on behalf of nine countries, said unilateral sanctions hamper economic and social progress. He rejected such measures, particularly by the United States, noting that sanctions are also used to force regime change and monopolize market access. No State has the right to dictate its will on others through political, economic or trade restrictions, he said. The representative of Guyana meanwhile said some countries are grappling with basic education. By focusing on macroeconomic issues, without attending to lower-level issues like education, which are arguably more important, there is a risk of creating a base that is extremely weak. Education, as a non-economic factor, should be an economic priority.
Mr. JAKOBSEN agreed that education is essential for empowering a nation, particularly for girls. Only then can entrepreneurship and creativity be supported. Mr. DE ALBA agreed, adding that capacity-building and training — directed towards transforming an economy — is also crucial. Mr. RYAN added that macroissues can become microissues by analysing data. “Bad data in results is bad data out,” he stressed.
Ministerial Finance Dialogue I
In the afternoon, the forum held an interactive discussion at the ministerial level on the theme, “Promoting inclusive growth and reducing inequalities”. Moderated by John Authers, Senior Editor for Markets at Bloomberg, it featured a special presentation by Maatia Toafa, Deputy Prime Minister and Minister for Finance and Economic Planning of Tuvalu. Panellists included: Giovanni Tria, Minister for Economy and Finance of Italy; Mangala Samaraweera, Minister for Finance of Sri Lanka; Norma Allegra Cerrato, Vice-Minister for Foreign Affairs and International Cooperation of Honduras; and Alicia Tauro, representative of the United Nations major group for children and youth. Mamadou Diallo, Deputy General Secretary, International Trade Union Confederation, served as discussant.
Mr. AUTHERS recalled that 17 years have elapsed since the first forum was held in Monterrey, Mexico. Citing many improvements in development financing since that time, he nevertheless said a certain amount of injustice — and much unfished work — remains. In particular, he drew attention to increasing discontent over the roles of capital and labour in developed countries.
Mr. TOAFA said Tuvalu’s National Development Plan seeks to strike a balance among economic growth, social equity and natural resource protection. There is no simple answer to finding the right mix of policies, he said, noting that the redistributive effects of fiscal policies should be given careful concern. Describing Tuvalu’s tax policies, he said it takes into account the population’s cost of living and introduced a presumptive tax aimed at supporting small and medium-sized enterprises. In Tuvalu, enforcement of corporate taxes remains a challenge due to capacity limitations and outdated technology. Noting that investments in education and health can reduce inequality and promote social mobility, he outlined a range of programmes aimed at supporting vulnerable groups. Individual countries alone cannot tackle inequality while boosting growth, he stressed, calling for increased financing from development partners.
Mr. TRIA, outlining Italy’s efforts to promote inclusive economic growth, said today’s globalized world is characterized by hyperconnectivity, including in trade. As a result, economic power has been concentrated in certain places in the world — and even within countries — increasing inequality. Large amounts of liquidity now exist with low levels of investment. To resolve those problems, he called for greater investment in social protection networks, infrastructure and skills training, as well as policies that support education. Citing a trend in some wealthy countries wherein too much focus is placed on higher levels of education, he warned against exacerbating the “brain drain” phenomenon and said more social services and productivity are also needed. Agreeing that it is difficult to promote inclusive growth in an atmosphere of restricted fiscal flexibility, he advocated for progressive tax policies that are intelligently designed.
Mr. SAMARAWEERA said inclusive economic growth was the theme of Sri Lanka’s most recent budget. The country enjoys a long history of robust social welfare policies, he said, pointing out that Sri Lanka has achieved exceptional outcomes in both health and life expectancies. Noting that significant urban inequality still exists, he said major improvements have been registered since the end of the civil war in 2009. Many efforts are under way to put all segments of the population on an equal footing. Citing one example, known as “Enterprise Sri Lanka”, he said its goal is to create 100,000 young entrepreneurs — especially from rural areas — by granting concessional financing with interest subsidized by the Government. Since its inception in mid-2018, the programme has already created over 60,000 entrepreneurs under age 35, largely in the technology sector.
Ms. CERRATO described Honduras’ National Vision strategy, which seeks to create jobs and reduce inequality by using its natural resources appropriately. However, the country has witnessed a clash between the economic and social dimensions. Agreeing that there is no ideal policy recipe for growth, she said developing countries in particular should study, and carefully consider, the human impacts of any planned tax reforms. Investors consider country risk before providing any investment, she said, noting that any State with safety and security challenges — including those resulting from drug trafficking and organized crime — might see reduced investment. In that context, she described her country’s efforts to reduce its murder rate and other rates of criminality.
Mr. TAURO said the major group for children and youth is committed to ensuring decent jobs for all young people. Encouraging all Member States to also undertake commitments in that area, she said participants at last week’s Economic and Social Council’s Youth Forum saw young people stress the need to go beyond GDP and challenge the mainstream discourse of development. Indeed, GDP does not measure inclusivity or inequalities. Young people must be seen as more than just engines of GDP, steamrolling over planetary boundaries. Calling for such shifts as the creation of a universal social protection floor, a universal labour guarantee and progressive taxation — especially on extreme wealth and large corporations — she also urged efforts towards a structural transformation. Decentralized, bottom-up, grass‑roots engagement of all stakeholders is the only way to reduce structural inequalities, she said, declaring: “Entrepreneurship is not a silver bullet.”
Mr. DIALLO said poverty is a major challenge not only for those without employment, but also for the working poor around the world. Noting that salaries in 2018 grew at the lowest rate since 2008, exacerbating both poverty and inequality, he rejected the false dominant discourse which says collective bargaining is bad for growth and investment. To the contrary, social protections and wage floors only strengthen global demand, while also increasing productivity, stimulating economies and decreasing inequality. Advocating for the extension of national social protection systems to all people, he said Governments should also implement equitable social policies, fight tax havens and invest in sustainable work. Taxes on financial transactions could be considered as a source of revenue and a way to halt risky speculative behaviour, he said.
Following those remarks, Mr. AUTHERS asked the panellists to consider how best to incentivize those working in the informal economy to join the formal economy, thereby expanding the tax base.
Responding, Mr. TRIA underlined the need to eliminate bottlenecks that keep people from accessing basic services and connecting with markets. Mr. SAMARAWEERA said his country works to incentivize a shift towards the formal economy by extending credit to small business people.
The representative of the International Labour Organization (ILO) agreed that social protection is a human right and a major contributor to achieving the Sustainable Development Goals. However, 55 per cent of the world’s population lacks any access to social protection, due largely to low political will and underinvestment. Calling for a reversal of that trend, she said raising domestic resources — including through new taxes on financial transactions — will be crucial to expanding coverage. Another avenue being widely discussed is to increase the role of the private sector, she said, noting that ILO connects businesses with win-win strategies to expand social protection to workers.
Ministerial Finance Dialogue II
The forum then held a ministerial finance dialogue on “Mobilizing finance for climate action”. Moderated by Satu Santala, Director-General for Development Policy, Finland, it featured a special presentation by Richard Cantor, Member of the Task Force on Climate-Related Financial Disclosures; Chief Risk Officer, Moody’s Corporation; Chief Credit Officer, Moody’s Investors Service. Other presentations were made by Peter Eriksson, Minister for International Development Cooperation of Sweden; Aiyaz Sayed-Khaiyum, Attorney-General and Minister for Economy, Civil Service and Communications of Fiji; and Nigel Clarke, Minister for Finance and the Public Service of Jamaica.
Mr. CANTOR said businesses will make climate investments only if they believe they will be rewarded by capital markets for their green operations and penalized for their brown ones. The Task Force on Climate-Related Financial Disclosures, established to address the risks associated with climate change, has made recommendations on climate-related risks and opportunities. Supporters of its recommendations include three quarters of the world’s largest banks, 8 of the top 10 asset managers and all major credit rating agencies. In total, they manage almost $110 trillion in assets. He also pointed out that the number of climate‑related shareholder resolutions jumped to 90 in 2018, and not surprisingly, the supply of disclosures is responding, too. Among 1,800 company filings for 2017 reviewed by the Task Force, most included disclosures aligned with its recommendations. “This is impressive,” he said.
However, more progress is needed, as disclosures did not yet include the financial implications of the risks identified, he said. Disclosures also varied in quality and quantity by industry and region. The next milestone will be the Task Force report on 2018 implementation, to be presented at the Group of 20 Summit in June. It will describe the type of disclosures investors are finding most useful and include examples of firms testing their resilience strategies against different climate outcomes. Activities at Moody’s show the journey taken by credit rating agencies, which have incorporated climate risks into their ratings. Moody’s has taken a systematic approach and improved its understanding of climate risk implications. A widely cited “heat map” assesses how various sectors of an economy are exposed to risks. Along this journey, Moody’s has invested in training its analysts. Many market participants agree they must evaluate climate risks and act based on that analysis. “There is no time left for further delay,” he said.
Mr. ERIKSSON said the resources required to develop into low- or zero-carbon societies are available “if we really want to” use them. Such a transition requires the right focus on transport, energy, energy efficiency, building smart cities and using new technologies. To mobilize finance for climate action, the business and financial sectors require clear signals. Regulatory frameworks must be in place to create an enabling environment. It is most important to use the right incentives in energy markets. He described a green certificate system in Sweden, which has invested massively in wind power. It is now more profitable to invest in energy efficiency overall, he said, highlighting the importance of phasing out fossil fuel investments. In 2017, the Parliament adopted a climate law which aims to reach net zero emissions by 2045 and 100 per cent renewable energy production by 2040. The Fossil-Free Sweden partnership, in which industry leaders present plans for reaching such targets, has seen 13 road maps introduced for industries including steel, cement and construction. Climate action must also be firmly integrated into budgets, he said, also underscoring the need to end carbon subsidies.
Mr. SAYED-KHAIYUM said that, to mobilize finance, States must articulate and cost out their climate actions. With that level of assessment, they can attract a plethora of financing opportunities. In Fiji, for example, a World Bank climate vulnerability assessment determined that $9.4 billion is required over several years to build resilience into its infrastructure. Noting that funds raised from a new levy must go into climate resilience, he said that, as part of those efforts, Fiji will take a small percentage to set up a relocation trust fund to help 43 villages now under threat due to encroaching waters. Encouraging countries to carry out environmental vulnerability assessments, he recalled Fiji’s development of green bonds — the first emerging market to launch them — which are now listed on the London Stock Exchange. He called for a blended finance approach to tackling such issues. For countries like Fiji that do not have the economies of scale to track climate finance, there has been a focus on adaptation: building sea walls and integrating resilience into infrastructure. Now, there is more focus on mitigation, specifically through new technologies. He cited opportunities in the agricultural sector, where soil salinization threatens food security, noting that Fiji also has assessed ways it can adopt technology to reduce risks.
Mr. CLARKE said Jamaica’s management of climate change risks can be measured against its historical context of high debt and low growth. In recent years, it has tackled the problem through fiscal, monetary and structural reforms, having reduced its debt-to-GDP ratio by 50 points and attained the highest employment rate in its history. Concerned that the risks of natural hazards could impact economic prospects, Jamaica’s approach aims to increase economic and structural resilience. It is putting in place a suite of products to ensure greater economic resilience in response to natural hazards, as no one product will provide the insulation required for any one eventuality. Going forward, it intends to create fiscal savings and a contingency fund for natural hazards. For the first time in its history, Jamaica transferred a significant sum to an account in the central bank as first down payment in a reserve fund for natural hazards. Another product, developed with the Inter-American Bank, provided Jamaica with loan funds so that, in a time of great need, it did not need to do the underwriting required to access such resources. The Caribbean Catastrophe Risk Insurance also provides resources under specific circumstances, he said.
Mr. ERIKSSON, asked how he viewed adaptation and financing resilience, replied that Sweden is increasingly looking to development cooperation. He cited the recent natural hazard in Mozambique as an example that the world must mobilize faster.
Mr. SAYED-KHAIYUM, replying to a query from the moderator, said 900,000 people live in Fiji — 300,000 of them around the capital. To mitigate climate risks, Fiji has worked on a $400 million river rehabilitation project with Japan. More broadly, he anticipated several opportunities for the private sector, given a realistic rate of return.
When the floor was opened, lead discussant Yannick Glemarec, Executive Director of the Green Climate Fund, discussed policy instruments for catalysing climate finance at scale. The Green Climate Fund is an open fund, working with public, private and non-governmental entities. It aids in the form of grant and non-grant instruments, he said, noting that grant finance helps developing countries prioritize climate actions, whereas senior loans or equity investments help catalyse finance at scale. Concessional finance is also offered for policy support.
Following another round of questions to the panellists, a speaker from the Asia Pacific Forum on Women, Law and Development said climate actions must be directed by climate science. Stressing that such financing must reflect historic responsibilities, she called for eliminating fossil fuel subsidies, as well as cutting and redirecting military spending to climate actions. The representative of Nepal said mitigation is a cross-sectoral issue requiring both bureaucratic and political commitment. He asked how countries such as his own can ensure that adequate financial resources are allocated for climate-related disasters. The representative of Belize said small island developing States and low-lying coastal countries require grant-based financing for adaptation, and to address loss and damage. Pointing out that adaption is underfinanced — and that loss and damage are not even being discussed — she said small island developing States are made to bear such costs, drawing on finite resources or borrowing at non-concessional rates. She asked what the international community can do to ensure that a shift in financial flows targets the needs of small island developing States.