The following is an extract from the Unlocking Investment and Finance in Emerging Markets and Developing Economies (EMDEs) World Bank program with Shari Spiegel
-Public Finance Strategies to Unlock Finance and Investment in EMDEs
So there’s been an increase in interest in national planning by many governments planning went out of sight was popular in the nineteen seventies but went out of style in the nineteen nineties when there was an increasing focus on the washing consensus policies more recently though with the advent of the sustainable development goals which bring together different sectors in an integrated manner and bring together these different calls an integrated way there’s been an increase focused on how to governments actually plan for that and some more countries have implemented national sustainable development strategies and those strategies are increasingly bringing in the sustainable development goals.
However a recent study showed that very few of those studies have serious and concrete financing plans associate with them so what we have strategies more than seventy nine out of a hundred and seven plans had no financing strategy associated with that at all so one of the biggest challenges for it for implementing the twenty thirty agenda for sustainable development and sustainable development more broadly is the financing challenge in the Addis Ababa action agenda which I know you heard about earlier governments actually try to address this issue and governments agreed to implement what they called integrated national financing frameworks and to support national sustainable development strategies my talk is going to draw on the findings of the two thousand nineteen financing for sustainable development report which was just published by the inter agency task force on financing for development.
The task force is led by the United Nations but includes more than sixty other agencies including the World Bank group the IMF the financing financial stability board the OCD secretariat and just about every UN agency you can imagine and we all work together to bring together our knowledge on financing issues financing for sustainable development and this year’s report highlighted integrated national financing frameworks so to start with what are they and basically they’re very simple it’s just a tool to assess what are the financing options and policy options that countries have so they start by looking at the full range of financing resources that could be public resources such as taxes but also aid international aid and international support from between governments as well as private flows including both domestic flows and domestic investment and foreign direct investment.
International portfolio flows see start by looking at the full range of financing sources and then the possibility of whether the financing policies that go with this with the goal of increasing investment managing risks and better a linings finance with sustainable development why should countries adopt integrated approaches and they’re basically four main reasons first is because the financing landscape has become increasingly complex so there are new creditors there are also new instruments that are very complex and often on transparent and private investment has all has been inherently dispersed.
So when we start thinking about bringing private investment into public goals how to governments adopt policies to bring this very dispersed forms of investment together towards a public goal and also and basically that each of these has distinct risk profiles that governments need to consider second on many public and private actors remain short term oriented.
so we know the capital markets tend to be very short term oriented with quarterly reporting and annual bonuses etcetera and at the same time in the public sector because of political cycles many governments also and that being short term oriented so integrated financing frameworks are tool to try to re-orient financing and re orient policy making towards the medium or long term third policies are often inconsistent and may coherence so policies and regulations in countries have many in place but they’ve developed over time often an attack manner and in the as a result many of them are contradictory or don’t support each other for example you might have in place tax incentives to bring in foreign direct investment.
Some of those tax incentives may interact foreign direct investment into areas that pollute or that our carbon emitting going against the sustainable development goals as well as you’re going to be lowering your tax base by putting this in place so are they the optimal policies how can you think about these in a coherent manner and that’s one of the importance of bringing together tax policies with investment policies across the boards that governments can think about how these fit together in a coherent manner and finally when especially when developing countries have this tool in place they can use it as a basis for discussion with their donors so that the process of aid can become more of a joint process between the that between the two parties in terms of understanding that that it is aligned with government priorities so how did countries go about implementing integrated financing frameworks.
So we’ve built for building blocks would identify four building blocks with this for countries that countries can use to operationalize these the first is an assessment and a diagnostic stage that means looking at the existing financing flows the financing needs through costing exercises financing risks and then most importantly also what are the policy options available because you can imagine cases where you come up with a budget and the costs of implementing a project a really expensive but there are certain policies that if you put them in place that increase that strengthen the enabling environment that might reduce vests would lower the funding costs of the particular project so to understand these we need to look at what are the binding constraints within the country where or what policy reforms are needed and where would they have the greatest impact and how do they work in an integrated manner so that’s the assessment and diagnostics stage the second stage is the financing strategies you have to develop what your strategy is going to look like based on really the diagnostics that were done earlier.
The third element is mechanisms from monitoring and review accountability and finally a governance and coordination mechanism this ends up being extremely important from the examples that we’ve had so far of governments implementing this it really provides the political backing and ownership of the policy and experience shows that it needs to first of all be supported at the highest level domestically and seconds to you make use of existing governance mechanisms it’s this is really one of the biggest challenges because in essence were saying that different ministries have to coordinate with each other which is always a challenge in many countries but there are mechanisms that are in place to do this already in some countries have been very successful in doing this particularly in the climate space and so their examples that other countries can learn from.
Finally I would say that the other piece of this is that national actions alone are not sufficient and we know this that the international environment really can impact how countries implement financing strategies if there is a crisis if capital flows become very volatile if their capital outflows because global investors have increased risk aversion and want to pull their money out of countries this can delay an entire financing strategy so unfortunately right now the report has a has identified that this is the international system is not really supportive of financing right now so global growth has peaked at three percent trade tensions have risen dead risks have also risen there thirty low income countries that are now considered to be at high risk of death to stress climate change continues and as opposed to despite efforts that are happening as opposed to greenhouse gas emissions going down in two thousand seventeen.
They actually went up again and the and finally so the question is what can we as a global community do and the report suggests that the global community review the multilateral architecture to ensure that it best supports sustainable development and the changing global environment including the growth of technology which is changing many of the relationships there were used to and so clearly there is a need to be visit and people are visiting the trade architecture there is discussions about re visiting some of the trade architecture and also international tax negotiations and to make sure that all of these are fit for purpose for the changing global environment.
So in summary integrated national financing frameworks are critical elements to help implement the SDGs sustainable development goals and for countries to really figure out how to implement financing on the ground they will be very different for different countries so there’s no one size fits all framework but there are these components that countries can use to put together took start creating their own internal financing frameworks and at the same time we need to think globally as a global community how to ensure that the international environment is supportive of country of its.