Download PRESENTACIÓN - Reginald Darius

Emerging Trends in Financing
Sustainable Development
A Latin American and Caribbean Perspective
Dr Reginald Darius
Permanent Secretary, Ministry of Finance, Saint Lucia
January 14, 2014
Sources of Finance for Development
Public
• Domestic (Taxes and other revenues)
• International (ODA , SSC and other Official flows)
Private
• Domestic (Portfolio, commercial bank lending)
• International (FDI, Remittances, portfolio, bank
flows)
Blended
Innovative
Financing
• (PPP projects)
• (carbon pricing policies, FTT, RfI, Diaspora resources)
 Domestic
International
Domestic Public Finance-Trends
• Improvement in Revenue/GDP
ratios … but still below the level of
advanced economies
• Revenue ratio is on the rise in
Caribbean Small States … but
average lower than LAC ratios
General Government
Revenue
(% of GDP)
40
35
General Government Revenue
(% of GDP)
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: IMF WEO
Advanced economies
Developing Asia
Latin America and the Caribbean
Sub-Saharan Africa
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Latin America and the Caribbean
Caribbean Small Sates (Avg)
Source: IMF WEO
Domestic Public Finance
Opportunities
Challenges
Critical source of
finance for expenditure
on public goods and
social services
Leakages due to tax
evasion, illicit financial
flows, capital flight,
money laundering
Most stable and
predictable form of
financing for
development- reduces
aid dependency
High debt service
crowds out spending
for sustainable
development
Domestic resources can
be used to leverage
private resources for
economic development
Transparent and
effective budgeting
frameworks for
efficient use of tax
revenue
Improving Domestic Resource Mobilisation
• Implement policies to broaden tax base and improve efficiency of
collections
• Explore innovative sources of finance eg. diaspora resources
financial transaction taxes, carbon and environmental taxes
• National development plans to guide spending into priority areas
• Strengthen PFM through reforms:
▫ Debt sustainability
▫ Budgeting
▫ Procurement
• Implement policies to curtail illicit financial flows
▫ International tax cooperation
International Public Finance
LAC receives a marginal share of ODA to developing countries…
Source: World Bank Development Indicators
… however Net ODA to SIDS is higher than average of
the wider LAC group…
Net ODA Received (% of GNI)
2007-2011 Avg
East Asia & Pacific
00%
Caribbean small states
Latin America & Caribbean
Europe & Central Asia
01%
00%
00%
Middle East & North Africa
Sub-Saharan Africa
Source: World Bank Development Indicators
02%
04%
Public Finance- International
Opportunities
Challenges
ODA is an important
source of finance to
SIDS with limited
access to international
markets
ODA flows have been
falling in real terms
- Fiscal challenges in
donor countries
Increasing importance
of South-South
cooperation
Quality and targeting
of ODA
Increasing use of
ODA’s catalytic role to
leverage private
finance
Smaller share of ODA
to MICs
- transition issues
Improving the Efficiency and Effectiveness of Aid
• Better defined eligibility and graduation criteria to channel
ODA to areas with the most needs
• The delivery on ODA commitments by donors
• Implementations of systems for improved evaluation and
monitoring
• SSC/OOF should not be seen as substitute for shortfalls in
traditional aid but as a complement
Private flows and remittances are more significant sources
of finance for developing countries…
Source: OECD DAC Stats, World Bank Migration and Remittances Data
Private flows account for 70 percent while remittances
account for 21 percent of financing flows to LAC…
Financing flows to LAC (2011)
Net Official flows
9%
Remittances
21%
Net Private financial
flows
70%
Source: IMF WEO, World Bank Database
FDI is a dominant source of financing to LAC and is on an
increasing trend…
Net Private flows to LAC
(2011)
Net Private flows to LAC
(In US Billions)
150
100
Other
private
financial
flows
9%
50
Private
portfolio
flows
24%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0
-50
Direct
Investment
67%
-100
Private portfolio flows, net
Direct investment, net
Other private financial flows, net
Source: IMF WEO
•Developing Asia and LAC have
attracted the largest volumes of FDI
inflows to developing countries
FDI Inflows to Developing
Countries
•Largest share of FDI inflows to
LAC goes to South America
FDI Inflows to LAC
(Avg 2009-2012)
(Avg 2009-2012)
Africa
8%
LAC
32%
Asia
60%
Source: UNCTAD
Caribbean
37%
South
America
51%
Central
America
12%
• While private financing may seem the more
dominant source of financing for LAC, however not
all countries have the same access
Barriers to Accessing Finance for Development (SIDS)
• Macro-economic stability- growth prospects, fiscal and debt
sustainability
• Costs of doing business
▫ Inadequate infrastructure
▫ Poor institutional, regulatory, political and financial
framework
• Lack of access to capital markets
• Short term horizon of investors
Going forward the focus must be on:
Improving domestic resource mobilization
 Creating an enabling environment for investment
▫ Implementation of a credible national development
plan/strategy to guide spending into priority areas
▫ Implement reforms to improve doing business
climate ( legal and regulatory, reforms, provision of
information, efficient business registration
processes, contract enforcement)
▫ Develop capital markets for access to financing
 Develop investor base with long term investment horizon
 Promote financial services for SMEs
Better aligning private incentives with public
goals through effective PPP frameworks:
▫ Encourage private sector investment in
infrastructure by improving risk/return profile:
 Developing bankable projects for private sector to fund
▫ Funding costs of preparation- feasibility studies
 Direct risk sharing through co-investment, guarantees
and insurances
 Increasing returns such as premium prices and tax
credits
 Support industries by providing capacity in areas of
research and innovation
Conclusion
• Growth is key for development and poverty
eradication
• Aid remains a critical resource for countries with
limited access to private finance
• Improving domestic resource mobilisation to
gradually reduce aid dependency
• Provide the right enabling environment to
attract private investment
• The use of PPPs to improve risk/reward profile
of long term development investments
(infrastructure)