Speech by ADB Vice-President for Operations 2 Stephen Groff at the UN ESCAP (United Nations Economic and Social Commission for Asia and the Pacific) Asia-Pacific High-Level Consultation on Financing for Development on 29 April 2015 in Jakarta, Indonesia
Minister Pak Bambang, Dr. Akhtar, Excellencies, ladies and gentlemen.
A salaam alaikum. Good Morning. Let me begin by joining you in expressing condolences and solidarity with the people of Nepal. I would also like to thank Dr. Akhtar and ESCAP colleagues for organizing this important meeting, and to our Indonesian hosts for the lovely arrangements and hospitality.
The Asian Development Bank welcomes the far higher ambition behind the new universal global sustainable development agenda succeeding the MDGs – an agenda that will touch every country, every person and every activity in which we engage. In support of the proposed SDGs, ADB’s value-added focuses on addressing some of the deprivations associated with extreme poverty, including: education and health deficits; clean water and energy shortfalls; infrastructure gaps; and cross-border public goods, among others.
As we make the transition to the SDGs, it is clear that we also need to move from the historic aid-centric approach to development finance, to a much more broadly defined orientation. A new ADB publication, “Making money work: Financing a sustainable future in Asia and the Pacific” looks at the challenge of moving from an ODA-centric approach, to one anchored in domestic fiscal optimization. The report looks at both sides of making money work: first, how to inject more funds towards well-managed investments in sustainable development; and second, how to boost the ability to direct and manage funds from diverse sources. Meaning addressing both capital and capacity.
Estimates of what this will cost are understandably tentative, but it is clear that the sums involved are large. Though it is not just a lack of money on its own that creates bottlenecks.
Domestic public funds in the region are growing and countries well recognize that fiscal decisions are central to shaping development priorities. At the same time, international public financing flows – like ODA – are often more directly programmable and remain critical for low-income and fragile countries. In addition, they are a signal of commitment to shared development agendas. And have strategic relevance for all developing countries to crowd-in other sources, build capacities, and bring focus to cross-border public goods. Growing south-south flows are also a critical element of this picture.
However, to finance Asia’s ever-expanding development needs, the largest sums will increasingly be in private hands. Tax and non-tax revenues are estimated at $3 trillion a year, while regionally allocated ODA - at $26 billion annually - is small compared to investible private funds. For example, remittances are $205 billion, FDI is $568 billion, private savings are $6 trillion, and insurance premiums are $1 trillion. Pension and sovereign wealth funds in the region also hold enormous potential with $3.5 trillion in assets.
But the question of how private funds can be better leveraged for development remains to be addressed. To tap these, there are two constraints to be overcome.
First, many of the investments contributing to the SDGs are not adequately profitable and therefore not attractive to the private sector; and second, private funds tend to be invested in richer countries with stronger financial markets, not where much of the advances in development have to take place.
Hence new challenges and opportunities need to be considered. Our “Making money work” publication presents an eight point agenda for public and private actors to work together within a comprehensive framework. This includes, among others: coordinating on cross-border public goods; adopting bottomup approaches on local tax and non-tax revenues; leveraging the private sector and PPPs; utilizing innovations in the financial sector; broadening partnerships for awareness and accountability; delivering on commitments as donors; and expanding and improving support by the MDBs.
This work makes it clear that the financing landscape has altered dramatically. And so too must ADB’s support – both externally and internally.
Externally, ADB is working with the UN and other development partners to prepare for the 3rd Conference on Financing for Development in Addis Ababa, this year. Apart from today’s consultation, ADB is also working jointly with the other MDBs and the IMF to better define our comparative advantage in financing sustainable development. Earlier this month, we issued a joint statement on our commitment and this was also discussed extensively at the 18 April meeting of World Bank Group Development Committee. Much of this centers on a joint discussion paper titled “From Billions to Trillions: Transforming Development Finance”, where the MDBs made a joint commitment on financing the proposed goals, including: exploring how to increase available financial resources; expanding technical assistance for policy development, domestic resource mobilization and effective spending; promoting and catalyzing private investment; supporting international action on global/regional development issues; and further improving coordination and alignment.
Internally, ADB is preparing to back the new agenda through increases in both capital and capacity. Enhanced lending will be possible through a groundbreaking proposal that combines our concessional grants and loans through the Asian Development Fund with our ordinary capital resources balance sheet. This novel approach boosts assistance to poor countries, enhances risk-bearing capacity, strengthens private sector operations, and increases preparedness for risks from future economic crises or natural disasters. It will ultimately enable ADB to increase our operations by as much as 50 percent from the current level of nearly $14 billion annually. ADB is also reinforcing our ability to help client countries attract private investment for sustainable development. The new Asia Pacific Project Preparation Facility and our Office of Public Private Partnerships will both help to crowd-in private investment for infrastructure. Finally, a recent mid-term review of our long-term strategic framework— Strategy 2020—resulted in an action plan that will make ADB stronger, better and faster in the service of our clients and in support of the sustainable development agenda.
It is only right that MDBs be expected to review their business strategies to respond to new demands in a changing global environment where many developing countries have more options for external financing. Global interconnectedness – through economic value chains, international finance, human mobility and the environment – is increasing and new international financial institutions have emerged. Growing concerns about the consequences of climate change, the aim of eliminating rather than just reducing poverty, and increased attention to lessening inequalities, have widened the development agenda considerably – far beyond the limits of directly programmable ODA or domestic resource mobilization alone.
To realize our shared vision for the future, efforts by ADB and all MDBs to leverage and catalyze public and private finance must continue.
To conclude, Asia and the Pacific -- with 60 percent of humanity and 35 percent of global GDP -- remains an evolving development story. On one hand, the region will account for more than 60 percent of global growth in 2015. While, on the other, 1.4 billion people still live on less than $2 per day. This region is in the midst of a massive social and economic transformation. How it navigates development pathways, how it identifies the right kind of development-oriented investment, will impact not just Asia but the entire globe. For our part, ADB stands ready to work with partners to support Asia and the Pacific in this crucial endeavor.
Thank you. Terima kasih.
Speaker
