Financing the Sustainable Development Goals International Conference, Accra, Ghana 18 March 2015 Peter 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

Needs 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)

 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

($ billions) African direct investment African portfolio investment African other net investment Net Private Flows

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

 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

 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

 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?

 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

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

 Exchange rate risks  Portfolio flow volatility  Availability of capital to SMEs and domestic business  Market size problems  Debt versus equity driven markets

 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

 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

* 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 private sources 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