Statement by Ahmed M. Saeed, ADB Vice-President, Operations 2, at the APEC Finance Ministers Meeting 2021, 22 October 2021
Thank you to all participants, and especially to the Government of New Zealand for their admirable work in chairing APEC this year. Deputy Prime Minister Robertson, that was a rousing introductory sequence for today’s meeting and I wish I was in Wellington to witness it in person.
Earlier interventions have commented on the current macro environment and associated risks. ADB will of course remain your partner in economic development, infrastructure development, policy response, vaccines, and other key areas.
I would like to pivot in my remarks from where we are in fighting COVID 19 to what we have learned, and how these lessons can help us prepare for the challenge of climate change.
Much like public health, climate change is a matter of collective success or collective failure. To succeed in battling both of these scourges, we must vigorously ensure that the sum of our collective actions is greater than the parts, that we are focused on outputs and not inputs.
Our work at ADB reveals two important facts about the climate transition that I would like to share, and that may hold one key to better outcomes:
The first is that we can and must pivot from a negative to positive agenda on climate change. Economists have long described climate mitigation as an extraordinarily expensive process, one that will hold back progress and reduce, not increase, global income. But, in coming years, trillion dollar technology-led commercial transformations will happened in every economic sector as the entire global economy pivots towards decarbonization. These represent an unprecedented opportunity to mobilize both capital and skills to support development.
If we can make climate related FDI a reality at scale, the $100 billion annually promised by the developed world to developing countries will seem like a small and easily exceeded number.
Second, if we are to successfully mobilize private capital, we must do so by creating actionable vehicles and platforms that engage market actors, incentivize voluntary actions, and respond to local circumstances, sometimes implicitly rather than explicitly, particularly when it comes to carbon pricing.
ADB has announced several new platforms of this kind in recent weeks. These include a new Climate Innovation Fund launched with grant funding from Bloomberg and Goldman Sachs, and a new billion dollar investment platform, with investments from HSBC and Temasek, that will finance marginally bankable sustainable infrastructure. This platform is an example of the kinds of blended finance vehicles referred to by His Excellency Minister Wong of Singapore.
I would also like to thank Her Excellency Ibu Sri Mulyani for mentioning our work with her Government and that of the Philippines on a new climate transition vehicle, the Energy Transition Mechanism. ETM is a blended finance solution that leverages its lower cost of capital from concessionary funds to reduce the working life of coal-fired power plants. We view this as a locally tailored, replicable, scalable, market-based and fair mechanism for accelerating carbon transition, especially as it will come with a series of associated policy commitments from government.
A climate change framework that recognizes the possibility for, and makes real through private sector mobilization, win-win investment opportunities will open up new ways for governments, market participants and development partners to work together for common purpose. As we move forward, increasingly, I am convinced that we will find that decarbonization is development.
ADB stands ready to support APEC economies as they navigate the exciting path ahead.
Thank you.
Fiscal policy and budget management to address ongoing challenges
APEC Asian economies have supported economic recovery through fiscal policy and will remain accommodative this year, with a general shift toward consolidation in 2022 and beyond. Fiscal stimulus has been vital in mitigating the pandemic impact through transfers and direct income to households and firms. However, this has put fiscal positions and public debt ratios under pressure. Primary deficits have widened sharply as revenues have fallen and unplanned spending and countercyclical policies to stem the crisis have surged. We also estimate public debt-to-GDP ratios in developing APEC Asian economies to rise from 38.8% in 2015 to 50.3% by 2021, and potentially to 51.7% by 2024.
Four broad measures can help address fiscal challenges.
First, domestic resource mobilization has emerged as a strategic priority to ensure debt is sustainable and fiscal space sufficient for sustainable investment. However, with average tax yields nearing 20.3% of GDP in 2019, revenues in most APEC Asian economies are substantially lower and more volatile than in OECD economies. Economies should continue refining tax frameworks to reduce a disproportionate reliance on narrow sources of revenue, raise progressivity, and increase effort to tap environmental and subnational taxation. Greater public trust and fair distribution of tax burdens are equally important.
In particular, digitalization has accelerated during the pandemic. This raises concerns that multinationals can use these technologies to shift profits to low-tax jurisdictions and exploit tax loopholes. Greater international tax cooperation can ensure all parties pay their fair share of taxes, as can the recently adopted multilateral tax agreement.
Second, so-called medium-term revenue strategies can offer economies a roadmap for tax system reform and boost tax revenues through an economy-led, whole-of-government approach. Alongside other development partners, ADB will provide technical assistance to developing countries to help formulate such medium-term strategies.
Greater regional cooperation on taxation can help mobilize domestic resources and improve tax integrity. In May 2021, ADB launched the Asia Pacific Tax Hub at its 54th Annual Meetings as a platform to promote strategic policy dialogue, improve knowledge sharing and coordinate action. In this, ADB reinforces its commitment to mainstream support in tax matters, including through policy-based programs, technical assistance, and capacity development.
The Tax Hub’s three building blocks include (i) the development of a medium-term revenue strategy, (ii) a roadmap for digital transformation of tax administrations, and (iii) technical assistance to help members participate in international tax initiatives.
As a next key milestone, the Hub will host its first High-Level Regional Tax Conference on the 24th and 25th of November to discuss challenges, identify areas of support for a strong recovery, and coordinate development partners. We look forward to sharing the outcomes of this initiative at the APEC Finance Ministers’ Process.
Thank you.