Introduction to Development Finance

By Galijang Shampang
Introduction to Development Finance

 Can also be referred as financing for development

 assuring that the necessary financial resources are mobilized and utilized in
an efficient, effective and sustainable way so as to promote development and
meet particular sustainable development outcomes and goals

 Goals – Global (SDG’s)

 National - national development strategy plans

 Local – local communities and households access to appropriate financial

services
Fundamental issue in Development
Finance
1. An increase in the level of current existing
sources of finance

2. Trying to tap additional sources of finance.

Evolution of source of external finance

Source – Development finance, Innovations for sustainable

growth
Financing for Development-Context of
Nepal
Source – Inter-Agency Tas Force on Financing for Development,
Inaugural Repot, 2016
AAA - Addis Ababa Agenda
 central concept of ‘sustainable’ development
 Three dimensions – economic, social and environmental
 Seven key areas/issues identified in development finance
1. Domestic public resources
2. Domestic and international private business and finance
3. International development cooperation
4. International trade as an engine for development
5. Debt and debt sustainability
6. Addressing systemic issues
7. Science, technology, innovation and capacity-building
1. Domestic Public Resources

 Reduces dependency on aid, encourages good governance and accountability

and helps strengthening the social contract between governments and their
citizens.

 Strengthening of tax administration, fight against fraud and tax evasion are
crucial for domestic resource mobilization effectively and efficiently.

 AAA stresses on two key issues

1. Increased importance attached to efforts of capacity building to increase this

performance
 the increased focus on curbing illicit financial cross-border outflows.
Nepal - Tax Revenue (% Of GDP)
2. Domestic and international private
business and finance
 Private business activity, investment and innovation are major drivers of
productivity, inclusive economic growth and job creation.

 Finance and investment is not always allocated to where it is needed for

sustainable development.

 Emphasizes private sector corporate responsibility initiatives, while also exploring

policy and regulatory frameworks to better align business and finance with
sustainable development.

 Financial Inclusion, development of capital markets and foreign direct investments

3. International development
cooperation
 SDG’s places significant demands on public budgets and capacities

 It require scaled up and more effective international support, including both

concessional and non-concessional financing.

 Role of ODA(Official Development Assistance), MDB (Multilateral Development

Banks) and innovative source of finance like climate financing, humanitarian
finance, etc.
 ODA commitments (0.7 per cent of GNI to developing countries and
0. 15-0.20 per cent of GNI to LDCs)
 Increased cooperation among developing countries.
4. International trade as an engine for
development
 Trade can also help to realize productive employment, decent work, women’s
empowerment and food security, as well as a reduction in inequality, among
other objectives.

 GVCs (Global Value Chains) have been the motor behind the massive
expansion in trade among developing countries.

 Need to promote a universal, rules-based, open, transparent, predictable,

inclusive, non-discriminatory and equitable multilateral trading system under
the World Trade Organization.
 Promoting world trade growth that is consistent with the SDGs
Contd..

 Two key challenges

1. How to make trade growth inclusive.

2. Formation of deeper RTAs involving major economies may further exacerbate

the marginalization of low-income or small and vulnerable economies in world

trade.
5. Debt and debt sustainability

 Borrowing, both by governments and private entities, is an important tool for

financing investment critical to achieving sustainable development.
 High debt burdens can impede growth and sustainable development.
(Eurozone crisis)
 Debt has to be well managed in both public and private spheres.

 Managing sovereign debt and addressing debt crises when they do occur has
been on the agenda of Financing for Development.
 Fostering appropriate debt financing, debt relief, debt restructuring
and supporting sound debt management, as appropriate.
 Invite the IMF and World Bank to strengthen the analytical tools for assessing
debt sustainability
6. Addressing systemic issues
 The importance of coherence and consistency of the international financial,
monetary and trading system.

 Reforms to the international financial architecture should aim at poverty

eradication.

 Developing countries are still exposed to the risk of spillover effects.

 Broaden and strengthen the voice and participation of developing countries in

international economic decision-making and norm-setting and global
economic governance.

 Call on IFIs to align their business practices with the 2030 Agenda for
Sustainable Development
Contd…

 Pursue sound macroeconomic policies that contribute to global stability,

equitable and sustainable growth and sustainable development.
 Address the risk created by “too-big-to-fail” financial institutions
 Also addresses the concern for safe migration and transnational crimes.
7. Science, technology, innovation and
capacity-building
 Importance of science, technology and innovation (STI) for economic growth
and sustainable development and highlights the need for capacity building.

 74 per cent of populations in developed countries use the Internet, compared

to only 26 per cent in developing countries.

 The STI capabilities of a country depend not only on access to a growing stock
of science and technology, but also on the quality of interactions among the
innovation actors.(Innovation systems)
 lack of an appropriate innovation system to ease interaction among key actors
 Bridging the formal and informal sector is especially difficult in circumstances
of high social disparities.
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