Statement at the First High-Level Follow-up Dialogue on Financing for Development in Asia and the Pacific
Delivered at the First High-Level Follow-up Dialogue on Financing for Development in Asia and the Pacific in Songdo, Republic of Korea.
Your Excellency, Mr. Yoo Il Ho, Deputy Prime Minister and
Minister of Strategy and Finance, Republic of Korea,
Your Excellency, Mr. Cho Tae Yul, Vice Minister of Foreign Affairs,
Republic of Korea,
Central Bank Governors and Deputies,
Ladies and Gentlemen,
Welcome to the First Asia-Pacific Follow-up Dialogue on Financing for Development.
I wish to thank the Government of the Republic of Korea, which also holds the 2016 ECOSOC Presidency, for co-hosting this Dialogue with ESCAP. The strong participation by finance ministers, central bank governors and policymakers from 42 countries, together with the private sector, civil society and our development partners, is heartening.
This is a valuable opportunity for member States to share perspectives on the best ways forward on finance – one of the most critical means of implementation of the 2030 Agenda for Sustainable Development.
ESCAP’s member States have already contributed much to the design of the Addis Ababa Action Agenda on Financing for Development, through high-level consultations hosted jointly with the Government of Indonesia over the past two years.
The Addis Agenda is a global compact that establishes a strong, broad-based framework to support implementation of the 2030 Agenda, backed by concrete policy actions and supported by a range of means of implementation, such as finance, trade and investment, as well as science, technology and innovation.
With your support, this inaugural follow-up session has been structured to reflect on the Addis Agenda’s implementation priorities in Asia and the Pacific. It is also informed by a recent note of the United Nations Secretary-General on Monitoring Commitments and Actions, which highlights the main findings of the first report of the Inter-Agency Task Force, of which ESCAP has been an active member.
The outcomes of this Dialogue will inform the deliberations being convened by the President of ECOSOC, from 18-20 April 2016 in New York. Those global deliberations aim to develop a formal framework for follow-up and review, which will lay the qualitative assessment framework and quantitative targets and indicators for implementation of the Addis Agenda.
The region’s implementation of the Addis Agenda is critically linked to the regional economic and financial environment. To effectively harness domestic public resources, private finance and global partnerships, we need an enabling environment that supports economic prospects and financial stability.
My remarks today will underscore that conducive economic and financial conditions are a prerequisite for adequate access and availability of much-needed sustainable financing. I will also urge member States, with ESCAP’s support, to develop a strategy and action plan for implementation of the Addis Agenda.
Conducive Policy Environment: Prerequisite for Sustainable Financing
For policymakers, there are at least two essential prerequisites for effective implementation of the Addis Agenda:
- Sustained, Robust and Inclusive Growth. Reviving economic growth and trade is critical. ESCAP estimates that the regional outlook is strained because of a combination of lingering effects of the global slowdown, subdued domestic demand, lack of economic diversification and a decline in productivity. These elements lowered regional GDP growth to 4.4% in 2015, with export growth falling behind at 2.3%. Prospects of an export-led recovery remain subdued, as global aggregate demand remains weak and China’s economic expansion moderates, impacting global and regional value chains. This scenario risks impeding the ability of our region to implement the Addis Agenda, as taxable economic activity shrinks and financial markets are less able to channel private resources.
- Resilient and Credible Macroeconomic and Financial Stability. A confluence of factors risks fresh financial market vulnerabilities and volatility, with attendant macroeconomic costs and risks. For instance, global and domestic macroeconomic and asset market challenges have prompted significant capital outflows, exchange rate depreciation and asset price volatility. These developments cloud prospects for robust increases in both financial and non-financial means of implementation for the 2030 Agenda. The risk of financing costs rising in our region, as domestic interest rates are aligned to the emerging increase in the rate of the US Fed, may impede critical investments such as in infrastructure and climate mitigation and adaptation. Similarly, rising private household and corporate debt, in some economies of the region, carries the risk of spilling over to broader debt sustainability concerns.
This then raises the question: what strategies and policy levers are available? Business as usual, relying on external demand in advanced countries, is not feasible and there is not much maneuvering room for monetary policy either, given capital outflow pressures and the need to safeguard financial stability. To provide a more dynamic economic environment for reviving growth and trade, as well as its capacity to finance development, there is need for:
- Further rebalancing towards domestic and regional demand, along with measures to enhance productivity and expansion in taxable economic activities.
- Implementing trade facilitation measures and paperless trade, which will substantially reduce trade costs and expand potential to deepen regional integration.
- Improving economic and trade diversification, including through services which are becoming crucial factors in industrial competitiveness (service inputs contribute 30% or more of industrial exports).
- Deploying the right technology and innovation to improve not only what we produce and trade, but how we trade and consume. Services and technology, along with investment in enhancing skills, better infrastructure and improved agricultural productivity, can also help to jolt lackluster regional productivity growth.
Since the most destabilizing element of the 2008 crisis was the procyclical amplification of financial shocks throughout the broader economy, a combination of more attention to financial stability, while promoting sustainable financing, is required.
Strong fiscal buffers, to finance development and to have the required cushion to ensure debt sustainability, are also important, as is a proactive fiscal policy – not only to support domestic demand through countercyclical measures, but to strengthen the foundations for inclusive and productivity led growth.
Allow me now to briefly share some perspectives on the main deliverables from the six sessions of this Dialogue:
Session 1: Regional Tax Cooperation: The aim is to support tax revenue enhancement while addressing dimensions such as harmful tax competition and cross-border tax evasion. ESCAP member States, through Commission resolution 71/5, have proposed establishing an Asia-Pacific Tax Forum for Sustainable Development, and we look forward to hearing your views and to your active support to operationalize the Forum. In line with the substantial untapped tax potential of the region, an average incremental rise of just 5% in developing country tax-GDP ratios would enhance regional tax revenues by about $1 trillion.
Session 2: Capital Market Development: The aim is to explore how the region plans to strengthen under-developed and illiquid debt and equity markets, through both national action and nurturing cross-border exchanges and their integration, encouraging them to mainstream sustainability and long-term development financing. The market capitalization in Asia and the Pacific is, on average, 80% of GDP. A 10% increase in market capitalization could mobilize up to $2 trillion in additional support for the 2030 Agenda.
Session 3: Infrastructure Finance: The aim is to scale up infrastructure financing, leveraging diverse financing sources and modalities to mitigate risks. It may also be important to develop a strategy for promoting PPP infrastructure for countries with special needs. For example, the top institutional investors of the region possess a total asset pool that exceeds $12 trillion. With the further unlocking of both pension and insurance funds, and other types of asset management funds, the region could raise more than $1 trillion to provide further funding for long-term sustainable infrastructure projects.
Session 4: Financial Inclusion: Incentivizing enhanced services to the unbanked, low-income groups and small entrepreneurs is critical to the sustainable development agenda. Exploring options for stronger engagement of central banks and financial inclusion platforms for this purpose will be important. In South Asia alone, between 2011 and 2014, the financial access of the poorest 40% of the population already increased from 37% to 51%, with considerable room for further progress.
Session 5: Climate Finance: Following the Paris Agreement, there is a need to increase financing flows for climate adaptation and mitigation. This will require also exploring options such as ‘greening’ national budgets and promoting ‘green’ banking and bonds, along with a review of commitments relating to the Green Climate Fund. More than a third of total global climate finance flows are currently invested in Asia and the Pacific.
Session 6: South-South and Triangular Development Cooperation: Asia has already taken the lead in driving South-South cooperation to leverage support for sustainable development, especially in our countries with special needs. Capital accumulated through the BRICS New Development Bank, AIIB and OBOR initiatives will contribute to closing existing financing gaps. South-South cooperation, led by seven largest Asian economies, cumulatively contributed more than $35 billion in the last five years.
While this round of dialogue will focus exclusively on key financial elements of implementation, ESCAP is next week convening the Asia-Pacific Forum on Sustainable Development to address the non-financial aspects of the Addis Agenda as well. The reports from these high-level dialogues will then be shared with the members of ECOSOC during the global deliberations next month.
In conclusion, Asia’s track record of achievements and the potential for unleashing both resource mobilization and private investment, give us confidence that the region will act to implement the Addis Agenda. It will be important for the region to strategize to mitigate the downside risks that could complicate the development scenario if not effectively managed. Strong macroeconomic management, supported by productivity enhancement, will generate sufficient growth to facilitate effective resource mobilization. Flexible fiscal policy management needs to be accompanied by reforms of taxation systems and administration.
It is best to take preventive measures to ensure that financing for development and its follow-up processes are not disrupted. In particular, strengthening of fiscal positions through tax policy and administration reforms will be most critical.
Such efforts should be complemented by improving the regulation and oversight of financial systems, and increasing their outreach to optimize the contribution of capital markets to sustainable development, including through investment in infrastructure and climate action, as well as through enhanced financial inclusion.
ESCAP has produced four key background notes on the critical means of implementation which have been circulated for your consideration.
Once again, thank you all for your contributions to this important Dialogue. I look greatly forward to the outcomes of our deliberations.
I thank you.