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Background

Financing development


Mutter mit Kind im Tragetuch, Ecuador. Urheberrecht: Photothek.netIn 2000 the in­ter­na­tional com­mu­ni­ty agreed bind­ing targets for sus­tain­able de­vel­op­ment in the form of the Millennium De­vel­op­ment Goals (MDG). This trig­ger­ed debate on how the mea­sures need­ed to achieve the goals would be funded.

In 2002 the de­vel­op­ing and industrialised coun­tries adopted the Monterrey Consensus, in which they agreed to increase public financing of de­vel­op­ment co­op­er­a­tion; this agree­ment was re­af­firm­ed in the Doha Dec­la­ra­tion of December 2008.

Since then, however, the chal­lenges faced by de­vel­op­ment financing have mounted as a result of the global financial and eco­nom­ic crisis. Without additional funds or al­ter­na­tive sources of finance it will not be possible for the Mil­len­nium De­vel­op­ment Goals to be achieved on schedule and in full.

Various ways of raising long-term de­vel­op­ment finance are being discussed on the in­ter­na­tional stage:

  • Additional debt relief and debt conversion
    Experience of the debt relief initiative for heavily indebted poor coun­tries (the HIPC Initiative) has shown that can­cel­ling debt is an ef­fec­tive way of re­liev­ing the burden on poor coun­­tries; more­over, the funds that are released can be chan­nel­led into pov­er­ty re­duc­tion. Germany has launched an in­no­va­tive debt con­ver­sion scheme in the form of the Debt2Health initiative; under this ar­range­ment the money released through debt relief is paid by de­­vel­­op­­ing coun­­tries in local currency into the Global Fund to Fight Aids, Tuberculosis and Malaria. See also: Pressing ahead on debt relief

  • Mobilising de­vel­op­ing countries' own revenue
    Domestic revenue is crucial to pov­er­ty reduction, enabling the gov­ern­ments of co­op­er­a­tion coun­tries to finance public goods and ser­vices them­selves. In the long term it is only with adequate re­venue of their own that de­vel­op­ing coun­tries can become in­de­pen­dent of ex­ternal aid and assume re­spon­si­bil­i­ty for achieving the MDGs. One of the ways in which Germany assists its co­op­er­a­tion coun­tries to mobilise more of their own re­venue is by helping them re­form their tax systems. Inter­nation­al­ly Ger­many sup­ports mea­sures to tackle tax evasion and avoidance.

  • Innovative financing instruments
    A range of concepts come under this head­ing; they include auctioning carbon emission rights, blending budget funds with capital market funds, using fi­nan­cial re­turns from de­vel­op­ment co­op­er­a­tion and mobilising pri­vate capital. There are also in­ter­na­tional initiatives involving a de­vel­op­ment levy on air­line tickets, a tax on fi­nan­cial trans­actions and in­ter­na­tional for­eign ex­change bu­si­ness, the raising of capital and commitments that facilitate the de­vel­op­ment of drugs and vaccines. See also: Innovative de­vel­op­ment financing instruments

  • Efficiency improvements
    Discussion focuses not only on de­vel­op­ing new in­stru­ments but also on im­pro&v­ing efficiency in de­vel­op­ment co­op­er­a­tion. It is generally agreed that the im­pact of fi­nan­cial sup­port can be boosted if there is greater co­or­di­na­tion both be­tween donor coun­tries and with the co­op­er­a­tion coun­tries and if donor coun­tries make longer term and more reliable commitments.

To meet its commitments the German gov­ern­ment looks to a combination of ad­di­tion­al budget funds, further debt relief and in­no­va­tive financing in­stru­ments. It also helps the de­vel­op­ing coun­tries mobilise more revenue of their own.

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