Financing the Sustainable Development Goals International Conference, Accra, Ghana 18 March 2015 Peter Chowla, Financing for Development Office, UN DESA.

International finance and

international rules?

Financing the Sustainable Development GoalsInternational Conference, Accra, Ghana

18 March 2015Peter Chowla,

Financing for Development Office, UN DESA

All views expressed are personal and should not be considered as the views of the United Nations.

Challenges

International tax cooperation

Overview

ChallengesNeeds and flows

Caveats Water & sanitation

◦ Extra $100 billion annually in capital costs Education

◦ Extra $100 billion annually Health

◦ Extra $50-$80 billion annually Sustainable Energy

◦ Access: $50 billion annually◦ Sustainability: $500 billion annually (all countries)

Immense financing needs

To fill these gaps, public, private, domestic, and international financing needed

Even if 0.7% were reached, ODA alone wouldn’t be sufficient.

At the same time, the private sector which is profit-oriented is◦ Particularly appropriate for productive investment◦ But unlikely to invest sufficiently in social needs, global

public goods where risk-adjusted returns are not high Different financing flows are complements, not

substitutes, as they have different roles and objectives

All sources will be necessary

Net transfer of resources

($ billions) 2011 2012 2013 2014

African direct investment

41.8 35.0 40.0 41.0

African portfolio investment

-11.7 3.5 8.9 -0.1

African other net investment

-9.3 22.3 -73.1 -17.6

Net Private Flows

20.9 60.8 -24.2 23.3

Volatile capital flows

International tax cooperation

Revenue in an age of globalisation

Domestic revenue is the largest and most reliable source for investment in sustainable development

International rules, policies and cooperation often limit what Governments can raise as domestic revenues

There is no agreed definition of IFFs: commercial tax evasion, criminal activity, corruption – domestic and international

Estimates of untaxed off-shore wealth: $6 trillion - $32 trillion

Illicit financial flows (IFFs)

At the domestic level: tax administration◦ Skills and capacity gaps◦ Regulatory capture

At the international level◦ Method of allocating economic activity

Transfer mispricing – particularly intangibles◦ Tax competition between jurisdictions◦ Fiscal transparency rules

Related issues to address

Distributional implications◦ Domestic & international businesses◦ State & business◦ Amongst states

Political economy of intergovernmental negotiations◦ Most MNEs are hosted in OECD countries◦ Incentives for policy makers are skewed

Participation of developing countries in reforms

Considerations for international reform

Assistance for tax capacity building◦Optics – substitution for ODA and other

finance Venue for tax policy making

◦Roles of the UN Committee of Experts on Tax Matters, OECD, Global Forum

Definitions and data Fiscal transparency implementation

◦Multilateral convention?◦Delayed reciprocity?

Implications for Addis Accord

Alternatives to whole transfer pricing reforms◦ Unitary taxation◦ Innovative policies – standardised transfer pricing◦ Cooperative auditing

UN Convention Against Corruption Stolen asset recovery Combatting environmental crimes Overall it speaks to coherence questions:

◦ Global economic governance structures◦ Follow-up process

Implications for Addis (II)

Thank you

[email protected]

Local capital market development

Original sin, contagion

Total debt securities rose from 13% of GDP in 1994 to 54% of GDP in 2010 in upper middle income countries (Laeven 2014)

Local public debt changes◦ Upper MICs: 8.1% -> 31.3%◦ Lower MICs: 35.0% -> 29.2%

Local private debt changes◦ Upper MICs: 2.4% -> 13.3%◦ Lower MICs: 0.9% -> 1.6%

The share of local currency denominated bonds in US investor portfolios has grown from about 2 per cent in 2001 to about 37 per cent in 2011

Local capital markets

Exchange rate risks Portfolio flow volatility Availability of capital to SMEs and domestic

business Market size problems Debt versus equity driven markets

Key issues to address

Macro-prudential regulatory framework – matching this to national needs and situations

Capital account management tools Striking the right balance between stability

and capital availability Environmental, social & governance risks

◦ Corruption may not be the biggest problem given global systemic risks

Considerations for reforms

Support for local capital markets or access to international capital

Appropriateness of Basel III regulations Restrictions on capital account

management contained in investment and trade treaties

Harmonisation of ESG frameworks Regional integration policies

Implications for Addis Accord

* The size of boxes does not represent financing volumes/importance

** There can be cases where international public finance also directly supports the implementation of international objectives*** Sovereign wealth funds handle public money, but are managed like private investors

International Enabling Environment (including fair-trading system, macroeconomic stability, systemic issues, etc.)

National(e.g. poverty/social needs and

investments in national development)

Goals and Uses

Environ-mental

International(e.g. global public goods)

Economic

Social

Domestic Enabling Environment and Policy Framework

Intermediaries

Blended institutions, e.g.• Innovative partnerships, e.g. Global

Health Funds, potential public-private infrastructure funds

Public institutions, e.g.

• Governments• National and regional development

banks• Bi- and multilateral aid agencies• International financial institutions

Instruments, e.g.

Domestic public spending

Grants Subsidies Loans Concessional Non-Concessional

PPPs Guarantees

Bank loans Money markets Bonds Equities Derivatives

and direct investors

Sources*

National public

sources

National privatesources

International public

sources**

International private sources

Private investors

Investors with long-term liabilities, e.g.:

Investors with short- and medium term liabilities, e.g.:

• Pension funds• Life insurance• SWF

• Banks• Cooperative banks• Mutual funds• Hedge funds

A FLOW OF FUNDS FRAMEWORK