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Resource Mobilization and Structural Transformation Abdoulie Sireh-Jallow Lead Economist, IsDB 2011 African Economic Conference Green Economy and Structural Transformation Format of presentation • Structural Transformation • Resource Mobilization - Fiscal Space Expansion • Traditional (the Usual) • Non-Traditional sources (Ethiopian Case) • Conclusion Definition • Structural Transformation Large scale transfer of resources from some sectors to others in a system, necessitated by fundamental changes in policies or objectives. • Why Transfer? How about Creation? • Transitioning into a Green economy is a structural transformation • How can we fund this? Resource Mobilization • From where???? • Traditional Sources (the Usual Workhorses) • Tax and Non-Tax Revenue • ODA • Borrowing (External or internal) • Efficient management of what we already have And if these are NOT Enough? • Non-Traditional Sources of Development Finance to COMPLEMENT traditional ones • WHAT is Non-traditional?? • Lets look at the Tax Landscape in SSA Revenue sources as % of GDP - SSA Total Tax Nontax 0 2 4 6 2000-2005 8 10 12 14 1990-95 Source: Raising Domestic Revenue for MDGs, Terry Mckinley, IPC, UNDP using IMF Statistics 16 Estimated Tax Effort 100 90 80 70 60 50 40 30 20 10 0 Tax ratio (% of GDP) Estimated Effort (%) Source: Revenue Mobilization in Developing Countries, IMF (March 2011) Government Revenue as % of GDP in SSA Average Revenue as percent of GDP in SSA 40 35 30 25 20 15 10 Financial and Economic Crisis 5 Food and Fuel Crisis 0 2004-2008 2004 2005 2006 2007 2008 2009 2010 2011 Oil Exporting Middle-Income countries Low-Income Countries Fragile countries Oil importing countries SSA 2012 Source: Regional Economic Outlook: Sub Saharan Africa, IMF (Apr, 2011) What are Non-Traditional Sources? • Very country-specific • What is N-T to country A may be Traditional in Country B • Examples • Carbon Sequestration and Trading • Diaspora Bonds • Trade in Services • Centers of Excellence – Trading Services in the Social Sectors • Tourism • You can only own your development when you FUND it yourself. The Case for Ethiopia Source: Min of Finance, Ethiopia, UNDP MP, IMF, Own computations ODA – Gleneagles Scenario Food and Fuel Crisis Source: Min of Finance, Ethiopia, OECD, Own computation FEC Carbon Trading Scenario Table 2 - Potential fiscal space from deforestation for Ethiopia Total Change of Forest Cover (1990-2005) (Hactares) Annual Change of Forest Cover (1990-2005) (Hactares) 2 Potential CO sequestered by 1 Hactre of Forest Cover Cost of a Metric Ton (US$) Fiscal space with 50% reduction in Deforestation rate Fiscal space with 25% reduction in Deforestation rate Fiscal space with 10% reduction in Deforestation rate Fiscal space with 1% reduction in Deforestation rate 2,114,000.00 140,933.33 200.00 Metric Tons 10.00 US$ M 140.93 70.47 28.19 2.82 Birr M % of GDP 1,550.27 0.63 775.13 0.32 310.05 0.13 31.01 0.01 Tax Revenue as % of GDP Non-Tax Revenue as % of GDP Grants as % of GDP Source: www.Mongabay.com and own computations 9.70 2.40 4.00 Potential Fiscal Space (Select N-T Sources) Potential Fiscal Space Creation (US$ M) Carbon Sequestration Tourism Diasphora Bonds Total US$ M 141 83 175 % of GDP 0.60 0.30 0.70 399 1.60 Source: Prospects of Non-Traditional Sources of Development Finance in Ethiopia, UNDP Ethiopia (2010)(Unpublished) Solar Energy Potential Source: Millennium AG Fiscal space expansion helps in relaxing binding constraints induced growth Catch-22 cycle Binding Constraints (e.g. Non-competitive economy Infrastructure Deficit) Unfavorable debt sustainability situation Sub-Optimal Exports Limited Fiscal Space Conclusion • YES WE CAN! • YES AFRICA CAN! • Analytical Study in only ONE step, the next is a STRATEGIC ACTION PLAN to implement the study recommendations • Let us explore and exploit Non-Traditional Sources of Development Finance (Country-specific). • The more you can fund your development, the more you own your development. Thank You Reference documents Revenue Mobilization in Developing Countries, IMF (March 2011) Regional Economic Outlook: Sub Saharan Africa, IMF (Apr, 2011) Raising Domestic Revenue for MDGs. Why wait for 2015? Terry Mckinley, IPC, UNDP (2007) Prospects of Non-Traditional Sources of Development Finance in Ethiopia, UNDP Ethiopia and CDPR, SOAS (2010) Fiscal Space and Carbon Sequestration in Ethiopia: a potential non-traditional source of development finance to meet the MDGs, Abdoulie Sireh-Jallow (2010)