Defining a decade: What to expect from Financing for Development

After months of talks, the Fourth International Conference on Financing for Development kicks off today in a steamy Sevilla. Negotiators will arrive with an agreement in hand, so rather than hash out the details, the next four days will be dedicated to figuring out how to implement the promises made. The agreement — which was only made possible after the U.S. pulled out of the discussions, citing too many “red lines” — is a compromise. High-income countries recognized the debt burdens that many developing countries are facing and the need for reformed architecture, but several “disassociated” themselves from parts of the text on debt and climate, which means that they do not formally endorse or support it — but won’t block the vote. Despite all of that, it’s something Amina Mohammed, the deputy secretary-general of the United Nations, celebrated as a success, stating that the agenda was something “world leaders can do something about” at a press briefing last week. She noted that the document calls for doubling support to help countries increase their tax-to-gross domestic product ratio, and mentioned the creation of a global playbook for special drawing rights — a type of international reserve asset that countries can exchange for hard currency to bolster their reserves. “I think we have concrete things to take out of this meeting,” Mohammed said. “On balance, a significantly flawed win for multilateralism,” Project Starling wrote in their newsletter. “But a win that most will take in the current environment – and further evidence that the rest of the world is moving forward with or without the United States.” What we can expect from the next decade Debt We’re definitely going to hear a lot more about debt in the coming years, but it remains to be seen how productive those conversations will be. The agreement did say it would initiate a process at the United Nations to “close gaps” in the debt architecture — something that low-income countries have been pushing from the start. It also called for the “streamlining and consolidation” of existing debt databases into a single global debt data registry, housed at the World Bank. And while the outcome document did push for a platform for borrowing countries — one that would help them access support from existing multilateral institutions and “strengthen borrower countries' voices in the global debt architecture” — it didn’t specify a plan to create a new mechanism for debt. High-income countries want to keep debt under the G20 Common Framework and work on improvement rather than a new mechanism. In addition, the European Union, Canada, South Korea, and Japan all “disassociated” from that paragraph, which means that they do not support it, but would not formally veto it. They argued that it would serve to replicate existing frameworks. “If you look at the text that was agreed to, it talks about a predictable, timely, orderly, and coordinated process,” said Shari Spiegel, director of the Financing for Sustainable Development Office at the U.N. Department of Economic and Social Affairs. “And then it actually calls for temporary suspensions of debt service by borrowing countries during negotiations, and a guide for borrowing countries on indicative timelines and main steps for debt treatment.” “I think that one of the things that came out of the discussions was a real acknowledgment and realization that developing countries and borrower countries have very little voice in the global debt architecture,” she said. However, many advocacy groups are disappointed. “Rich countries missed a chance to make a real difference in the fight against global poverty and inequality,” said Amitabh Behar, executive director at Oxfam International. “They could have helped to end the debt crisis that is impacting over three billion people in the Global South.” Climate Another contentious issue was climate finance. Low-income countries were happy to see the inclusion of the Rio Declaration, a series of 27 principles adopted in 1992 that provide a framework for sustainable development. They were specifically excited about one principle that says states have “common but differentiated responsibilities” — i.e., developed countries that have contributed more to environmental degradation have a responsibility to contribute more to protect the environment as well. High-income countries were not as happy with this. Despite the fact that the U.S. pulled out, its watering down of the language on climate change remained. Several delegations, even from high-income countries, were disappointed to see a softening of the final FfD text. New Zealand, speaking on behalf of its coalition with Australia and Canada, condemned the last-minute removal of language on climate change, noting that “it is a difficult concession, particularly for those at the front lines of climate impacts.” Poland, speaking on behalf of the European Union and its member states, also expressed disappointment that the final declaration did not include stronger, previously agreed-upon language on climate change. But by the time the U.S. pulled out, the talks were already in their final stage, and reopening the text risked unraveling the negotiation. Experts say that despite the less ambitious language, “the FFD document contains some generally helpful language on climate,” said Ian Mitchell, senior policy fellow and co-director of the Europe program at the Center for Global Development. He referenced the promotion of climate-resilient debt clauses and the encouragement of cooperation on technical assistance at the country level. However, some of the core issues, such as the transparency around the reporting of development finance, “seems well-short of reaching any valuable commitments,” he added. “It does not set out any concrete actions to tackle the mess that is the measurement of climate finance.” Taxes The outcome document contained support for a U.N. Framework Convention on International Tax Cooperation, but did not commit signatories to any agreements. Instead, countries are “encouraged to support” it. There is light wording on gender-responsive taxation, the wealth tax, and an environment tax, though all remain voluntary. It also mentioned the importance of increased transparency and accountability on tax expenditures — the breaks, exemptions, and incentives that cost countries up to 4% of global GDP. But that language was diluted over the course of the preparatory meetings. Still, Oxfam’s Behar pointed to the mentions of tax in the outcome document as progress. “The outcome does make some positive calls on inequality and on taxing the super-rich, which governments can build upon,” he said in a statement. MDB reform One of the headline commitments in the outcome document is the call to “immediately triple” the financing capacity of multilateral development banks. The target would be for them to increase their annual financing to developing countries to around 2-3% of the countries’ GDP — up from the current 1%. They would also seek to meet 15% of the total external financing needs of these countries to tackle development challenges. “It recognizes ongoing processes at the international financial institutions, and the reforms that have been taking place at those institutions,” said Chola Milambo, Zambia’s permanent representative to the U.N., at last week’s press briefing. But others point out that the final text significantly diluted the ambition of early drafts, removing a 10-year timeline for the tripling and specific actions to achieve it. The one that got away Experts say that while the U.S. withdrawal made the agreement possible, it may limit its ability to drive global change. “On the one hand, you can say that due to this withdrawal, it was possible for the rest of the countries of the world to agree on an outcome document,” said Christian von Haldenwang, senior researcher and project lead with the German Institute of Development and Sustainability, or IDOS. “But on the other hand, we all know that this is an absolutely key player.” There is some concern that the rest of the countries will avoid making any big plans without the world’s biggest economy — and that even if they do, the U.S. could undermine those goals down the line. “The question is, what does [agreeing without the U.S.] mean with regards to the extension or the ambitions that we can have,” von Haldenwang said. Spiegel said that while it would have been nice to have the U.S. on board, their absence will not halt progress. “It is what it is,” she said. “The world is coming together. Of course, it’s always great to have the biggest economy in the world be part of the discussions, but the rest of the world wants to come together to move this forward and to make an agreement. I’m sure there are elements in there that the U.S. isn’t against. And as I said, many countries are going to move it forward.” A promise to implement Because the text is already decided, delegates will spend their time in Sevilla on implementation. “Sevilla is not an ending point; it’s a starting point,” Spiegel said. “It’s a starting point for implementing a new framework and new ways of thinking about how to get some of the financing back on track.” It is still unclear how, exactly, these discussions proceed. But we can expect to see the current outcome document ratified, as well as the formation of a secondary document, the Sevilla Platform for Action, in which coalitions of governments, development banks, and other stakeholders will begin implementing portions of the agreement. A bit of history The very first FfD conference was in March of 2002, just six months after the 9/11 terrorist attacks in the U.S. That conference, and the two that followed, have served as a space to shape the principles of development finance. In 2002, countries endorsed the established U.N. target for wealthy countries to commit 0.7% of their gross national income to ODA. By the 2008 conference, talks were somewhat derailed due to the global financial crisis, though delegates still managed to adopt the Doha Declaration on Financing for Development at a follow-up conference by vote. The 2015 conference took place about 10 months after the U.N. proposed the new Sustainable Development Goals. Countries adopted the Addis Ababa Action Agenda by consensus, which emphasized the need for capacity building within low- and middle-income countries and called for an increase in private sector and blended financing and improved debt sustainability. But Minh-Thu Pham of Project Starling points out that it accelerated the World Bank’s “billions to trillions” agenda, which she said has largely served as a distraction from the need for public finance. “The narrative became one about private finance, blended finance,” said Pham, adding that “the harm here is that we took the eye off the ball about the importance of public finance.” Mikaela Gavas, managing director of the Center on Global Development Europe, said that this year’s outcome document is “remarkably similar” to what came out of the Addis Agenda for Action in 2015.” But the world has changed. Now, with mounting debt, global instability, and political resistance to tax cooperation and official development assistance, the productive conversations are happening “only between the willing – against a backdrop of real systemic crisis which has called into question the value and purpose of international assistance,” Gavas said. “In both the [outcome document for FfD3 and the draft document for FfD4], there are very few concrete commitments,” said Bodo Ellmers of the Global Policy Forum. “And … when there’s not a clear commitment made, but there’s just a vague declaration of intent on these documents, it’s very difficult to hold the parties to account.” Wheeling and dealing Because FfD does not produce a legally binding outcome, experts say that they expect much of the real discussion to happen on the sidelines. Sevilla is set to be overrun with side events, from the International Business Forum to our very own Casa Devex. Currently, the FfD4 website has a 32-page list of in-person side events and another 11-page list of virtual events. And, there’s likely to be plenty more: We’ve already heard about marches through Sevilla’s cobblestone streets, and even an ice cream event with a tagline: “Taxing the rich never tasted so good.” “I definitely think that some of the private side meetings and conversations in the corridors will be the most useful part of the conference,” Gavas said. “And might be where real agreements and concrete actions emerge.”