On the narrative of catalytic role of ODA/blended finance

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On 26 April 2018, Jennifer del Rosario-Malonzo participated at the 2018 Financing for Development (FFD) Forum. This is her input during side-event on "Private Finance: Urgent need for a Systemic View". The FFD Forum was held from 23 to 26 April.

  • The prevailing narrative today is that official development assistance (ODA) needs to be instrumentalized to attract private finance, and that blending public & private resources for development is the way to go to meet the financing requirements of the sustainable development goals (SDGs).

But this narrative is only addressing one side of the coin — quantity. Equally important is the issue of quality of development financing that must be taken into consideration. Why not strive first to meet the 0.7% GNI global commitment for ODA? It seems the mantra of billions to trillions has given most development partners license to ignore this commitment (average ODA at only 0.31% of GNI).

ODA is the only international financial flow that is explicitly intended to benefit the public. Shifting focus to the catalytic role of ODA can dilute the core purpose of ODA, which is poverty eradication and can make it less accountable as the "catalysed flows" are more difficult to monitor. The promotion of blended finance in the absence of necessary and broadly developed accountability systems to monitor the impact of these types of flows is highly troubling.

The narrative around leveraging and blending only highlights opportunities, but rarely takes into account public costs and associated risks, which have the potential to undermine the SDGs.

  • The World Bank’s Cascade approach, for example, strongly features the "de-risking" of private finance by pushing for changes in both global and domestic investment climate, and providing favorable conditions and incentives to investors through regulatory change, subsidies, guarantees and other risk-mitigation.

The mindset being created is that developing countries would have to give up labor, social & environmental standards that we’ve fought hard to put in place. The Philippines for example already offers so much incentives for investors – from exemptions on import levies to tax holidays – so what more do we give up: the minimum wage? Constitutional limits on foreign ownership? Do we allow 100% foreign land ownership?

Guarantees given to investors eat up government budgets for health, transport, energy, etc. and thus hamper the ability to pursue public investment. Countries also face the risk of a debt trap.

  • The Cascade is fuelling the framing of multilateral development banks’ (MDBs) role as institutions that create markets.

This is instead of prioritising development outcomes, promoting the use of concessional financing to crowd in the private sector. The Asian Development Bank, echoing the WB, reduces government roles to reforming themselves to assist the private sector “bridge the infrastructure gap” in Asia.

This narrative imposes the presumption that private and public interests are essentially aligned, and that ensuring corporate profits serves people’s welfare and sustainable development. ###