New Report from ODI CAPE

[John Short]

The 2014 Centre for Aid and Public Expenditure (CAPE) Conference was held at the Overseas Development Institute’s London offices on 12 and 13 November 2014. The purpose of the 2014 CAPE conference was to assess the evidence base that should inform the negotiations the Third International Conference on Financing for Development will take place in Addis Ababa in July, next year; and in particular, to ask whether commonly held beliefs around development finance are really underpinned by solid evidence.

The conference examined how financing for new policy agendas at the global level relates – or perhaps doesn’t relate – to domestic fiscal and policy perspectives at country level. Building on previous CAPE conferences of 2012 (on the future of external development finance) and 2013 (on the realities of domestic public
finance), the event brought together different constituencies and perspectives to look beyond the usual fractures in development finance analysis and debates. Speakers examined the shifts in government priorities and capabilities, the resource mobilisation and allocation choices that governments face, the types of development finance instrument now in fashion, and the current trends and motivations underpinning external finance.

Our aim is to understand better the country-level ramifications of new global financing agendas, and to provide a financial reality check on the global policy debates over the coming year.

This report summarises the key policy recommendations, main areas of discussion and resulting conclusions from the conference.

[Napodano]

One more report from ODI

Financing the post-2015 Sustainable Development Goals - A Rough Road Map

ABSTRACT

We regroup the main types of global development finance into three clusters: concessional public finance (including domestic taxes), public borrowing on market-related terms, and private finance. We look at the main purposes they can be used for, and their interdependence. We consider the global outlook for capital markets, the determinants of country creditworthiness and why grant aid should be prioritised for less creditworthy countries. We suggest that financing plans for most of the new Sustainable Development Goals should be developed at the country level rather than globally, so that key trade-offs can be fully explored. We look at specific policies to unlock access to private sector participation in five key areas – including social services.

We introduce a Market Aid Index to help track donor engagement with the private sector. We investigate how a country’s mix of development finance changes as it grows – the so-called ‘missing middle’ dilemma. We find that public resources overall fall continuously until a country is well into middleincome status, as international assistance falls faster than
tax revenues rise. Static per capita income thresholds are becoming increasingly unreliable guides to resource allocation. We look at alternative groupings, especially taking into account fiscal capacity, creditworthiness and vulnerability.

We assess the recent literature on trade-offs between rapid growth and climate change mitigation imperatives. We examine the geography of public climate finance, which is intrinsically different from that of development aid, and the lack of a credible ‘additionality’ test for funding the former over and above the latter. We therefore consider how the limited public grant element so far available should best be rationed, to limit the scope for distortions. We revisit the role of the multilateral development banks’ market-related windows, in view of the missing middle problem. We consider what factors underpin their secular stagnation, and how to overcome them.

We summarise other specific international reform options in response to our analysis, on private sector contributions, market-related lending and climate finance. We conclude by contrasting two alternative world views: (1) making international public finance a complement to private finance everywhere, and (2) deliberately focusing public stakes where the private sector is not present. We suggest a way forward.