Written Statement to the Development Committee by Angel Gurría
Washington, D.C. - 21 April 2018
1. Achieving the Sustainable Development Goals (SDGs) will require a significant scaling up of resources. In developing countries, funding in SDG-critical sectors has an estimated shortfall of up to USD 2.5 trillion per year. At the core of financing the 2030 Agenda for Sustainable Development is a dual challenge: mobilizing unprecedented volumes of resources and ensuring no-one is left behind.
2. No single financing instrument will deliver the SDGs alone. Only by combining resources — international and domestic, public and private, corporate and philanthropic — will it be possible to achieve the necessary levels of financing. Even then, achieving the SDGs will require countries to adopt appropriate expenditure policies, to enhance their spending capacity and to target resources to people who are most at need. The challenge is to increase both the scale and impact of financial resources and improve linkages between them. The OECD is particularly focused on the role of investment, taxation and development assistance, and building partnerships to mobilize them.
3. Following the 2008 global financial crisis, global foreign direct investment (FDI) flows declined sharply, but recovered strongly in 2010. Over the next 5-6 years, FDI flows to developing countries remained relatively stable.
4. However, this period of relative stability and "FDI prosperity" for developing countries came to an end in 2016 when global FDI flows suffered their largest declines since the onset of the financial crisis. According to the OECD's FDI database and IMF Balance of Payment database, FDI inflows to developing countries dropped 16% in 2016. Preliminary estimates show that FDI flows in developing countries continued to decline in 2017.
5. Reversing this downward FDI trend is critical to helping address the SDG financing gap. Despite longstanding agreement on the need to maximise qualitative outcomes of FDI, little information exists on how and to what extent different types of FDI translate into sustainable development outcomes in developing countries. Although data on volumes of FDI flows and stocks provide internationally comparable measures of investments that contribute to the productive capacity of developing economies, new efforts are underway to supplement our understanding of the development impact of these investments with measures that better capture the development qualities of FDI.
6. The OECD and World Bank are jointly working to strengthen the quantifiable links between FDI and development through a new Quality FDI Toolkit. The Toolkit will include measures of the impacts of FDI on growth (e.g., economic diversification), inclusiveness (e.g., geographic concentration), and sustainability (e.g., green infrastructure). It aims to go beyond country averages to study sectoral, within-country (sub-national), and within-firm heterogeneity (e.g. SMEs versus large firms). The Toolkit is expected to help improve assessments on linkages with inclusive growth and support the implementation of the SDGs.
7. Higher investment alone will be insufficient to address the SDG financing gap. Better taxation is also important. Taxation plays a vital role in incentivizing investment, and ensuring that the proceeds (at least in part) of investment are redistributed and reallocated in line with sustainable development priorities.
8. Currently, many developing countries struggle with low tax–to-GDP ratios, with many below 15%, the minimum level to enable basic state functions. Improving these ratios in today’s globalized world requires international co operation, and new tools and approaches. The Global Forum on Transparency and Exchange of Information for Tax Purposes has catalyzed a new era in tax co operation, with 150 members committed to facilitating the cross-border flow of information to enforce tax rules. The establishment of Automatic Exchange of Information (AEOI) as a new standard is already having a significant impact on revenues, with over USD 85 billion raised through voluntary disclosure regimes. The 2017 Yaoundé Declaration — a call to action by a group of African Finance Ministers to tackle illicit financial flows through international tax co-operation — highlights the increasing commitment across Africa to seize the opportunities of exchange of information.
9. The 15 OECD Base Erosion and Profit Shifting (BEPS) actions provide new tools and approaches for all countries to reduce the opportunities for multinational enterprises (MNEs) to avoid tax, conservatively estimated to cost USD 100-240 billion per year in lost revenues. In the Inclusive Framework on BEPS, 113 countries and jurisdictions have committed to implementing standards to address corporate tax avoidance. They are also committed to working together on an equal footing, continuing to improve standards and guidance, and developing approaches to new challenges, such as how to tax increasingly digitalized economies.
10. Creating tax systems that deliver for the SDGs can be challenging for many developing countries. The OECD, in partnership with key stakeholders and institutions, is seeking to increase and produce innovative measures to support capacity building in tax. For example:
11. The OECD provides a core monitoring and accountability function for providers, recipients and the greater international development community on Official Development Assistance (ODA) volumes, allocation and effectiveness. ODA will remain a crucial pillar of development finance — over the next 15 years and beyond — to meet basic funding gaps in countries most in need. Absolute volumes of net ODA totaled USD 146.6 billion in 2017, a slight fall of 0.6% in real terms relative to 2016 but — excluding in-donor refugee costs — an increase of 1.1% in real terms. ODA remains vital in the Least Developed Countries (LDCs) where ODA represents about 70% of total external finance and is significant relative to domestically mobilized resources.
12. Another key dimension of the OECD’s measurement work relates to the financing of multilateral organizations, through which a considerable portion of ODA is channeled, rendering these flows central to Agenda 2030. ODA channeled to and through multilateral organizations represented around 30% of total ODA, a level that has not changed significantly in recent years.
13. Decentralized Development Cooperation (DDC) can play a key role in localizing the SDGs. It is estimated that 65% of the 169 targets underlying the 17 SDGs will not be reached without proper engagement of, and coordination with, local and regional governments. Subnational governments were responsible for 59% of total public investment in 2015 throughout the OECD area and for almost 40% worldwide. Encouragingly, from 2005 to 2015, DDC volumes grew by 1% per year to reach USD 1.9 billion.
14. The Addis Ababa Action Agenda (AAAA) called on the OECD to support the international community’s development of a new statistical measurement framework — Total Official Support for Sustainable Development (TOSSD). TOSSD will promote transparency about the full array of officially supported development finance provided in support of the 2030 Agenda — including resources provided through South–South co operation, triangular co operation, multilateral institutions, and emerging and traditional donors, as well as private finance mobilized through official interventions.
15. The OECD recently released a landmark report, Private Philanthropy for Development, which documents the important contribution of private philanthropy to the global development agenda. The report shows that foundations provided just under USD 8 billion per year on average over 2013-15. While this is small relative to ODA, it serves as a critical source of finance in specific policy areas, notably in health and reproductive health.
16. Building on this report, the OECD is setting up a Centre on Philanthropy to bring together projects and researchers in this area, enhance data collection on philanthropic flows for development, and provide research and analysis on global trends and the impact of philanthropy for development. Further, the OECD Development Centre hosts the Network of Foundations Working for Development (netFWD), which promotes dialogue between foundations and other development actors, creates opportunities for multi-stakeholder partnerships, and develops guidelines and tools that can help make the most of foundations’ potential in development.
17. While many developing countries have recorded strong economic growth since 2000, growth has often not been inclusive: a large share of the world’s poorest live in lower and upper middle income countries. Upper middle-income countries remain trapped, unable to make the transition to high-income status. Since the founding of the International Development Association (IDA), 44 countries have graduated and nine have since re-entered (“reverse graduated”). Further, around 30 developing countries — most of which are in conflict or post-conflict situations — require both humanitarian support and investments to support their long term development.
18. To address these challenges, the OECD is working on transition finance to understand the dynamics of external flows (concessional, non-concessional, private, philanthropy and remittances) — as well as domestic resources — to developing countries as they move along the development continuum. The objective is to adopt the right policy and financing mixes to ensure long-term effects and the contribution of development finance to the SDGs.
19. For many countries, blended finance may hold the key: public funds can reduce risks in investments that the private sector would otherwise be unwilling or unable to undertake. The OECD DAC Blended Finance Principles present a definition and framework to support governments in designing approaches that mobilize and better target commercial capital towards the SDGs. The recent OECD publication, Making Blended Finance Work for the Sustainable Development Goals, shows how development finance providers need to ensure that blended finance mobilizes commercial resources that are not currently supporting development, and to better target blended finance to a broad range of development issues and contexts.
20. Financing climate action in developing countries is a critical strategic component of the development finance agenda. Scaling up green finance and investment is also central to the development–climate–energy nexus, as universal access to sustainable energy underpins all other development goals of Agenda 2030. Publicly owned financial institutions with a specific development mandate are critical to addressing the sustainable infrastructure challenge, as demonstrated by the OECD report, Investing in Climate, Investing in Growth.
21. Both the AAAA and the SDGs acknowledge the positive contribution of migration and remittances in supporting development. Remittances to developing countries are estimated to have reached USD 441 billion in 2015, which far exceeds ODA. The inflow of remittances significantly contributes to poverty reduction: remittances raise households' income, helping them not only to meet basic needs, but also to finance education and health. The OECD is working to promote enabling environments for the productive use of remittances. For example, public policies to improve the wider investment and financial service sector can enhance the positive linkages between migration and investment.
22. Broader macro-fiscal and development finance trends mean that ODA flows and policies will need to be balanced and increasingly work in partnership. Partnerships that combine public and private operators are critical at various levels. The OECD Development Centre’s Emerging Markets Network (EMnet) promotes dialogue with the private sector on development challenges in emerging economies.
23. The OECD is also working to establish partnerships in other important contexts. For instance, within the framework of the Global Knowledge Partnership on Migration and Development (KNOMAD), the OECD and UNDP have helped develop a dashboard of indicators to measure coherence for migration and development.
24. Looking forward, the OECD will continue to support international efforts to fill the financing gap and support implementation of the SDGs with the launch of a new Global Outlook on Financing for Development in September 2018. The Global Outlook aims to strengthen coherence and effectiveness with evidence and recommendations spanning AAAA action areas (e.g., investment, taxation, trade, environment, science, technology and innovation).