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European Commission

MEMO

Brussels, 16 July 2013

New EU communication sets out proposals for financing for poverty eradication and sustainable development post 2015

On July 16th, the EU adopted a new communication on financing for poverty eradication and sustainable development: ‘Beyond 2015: towards a comprehensive and integrated approach to financing for poverty eradication and sustainable development’.

The Commission also published its 2013 EU Accountability Report on Financing for Development.

a) Communication on financing for poverty eradication and sustainable development

What is the Commission proposing?

On 16th July the European Commission adopted a new Communication proposing a common EU approach to financing poverty eradication and sustainable development after 2015, once the target date for the Millennium Development Goals (MDGs) has been reached. It sets out to develop a common EU approach to financing issues in international discussions. It offers reflections on how a global approach to financing poverty eradication and sustainable development could be structured, which international processes can best contribute and what financial resources are available and could be mobilised from domestic and international public and private sources.

What does this mean in practice?

The Communication supports updating the comprehensive approach of the Monterrey Consensus (2002)/ Doha Declaration (2008) on Financing for Development (previous international agreements on development financing) to include sustainable development. Some key principles should apply:

1. Financing must go hand-in-hand with policy-making to bring about results (e.g. money won't solve policy bottlenecks).

2. Comprehensive coverage of all financing sources available is required, be it public domestic finance, public international finance or private finance. This means that attention should not be focussed solely on public finance such as Official Development Assistance (ODA) because this itself constitutes only 2% of the total finance available in developing countries. However, ODA still remains an important source of financing for Low Income Countries (LICs). (See attached pie charts.)

3. A global approach to financing should leave countries to decide their own resource prioritisation between different policy goals.

4. Different policy goals are mutually reinforcing and therefore synergies between them should be supported, so that one Euro spent in one policy area can have positive effects in other policy areas (e.g. better food security is essential for poverty eradication and can be achieved through better preservation of land, biodiversity and forests, which may in turn help combat climate change).

5. External Public Finance (or Official Development Assistance) should be rebalanced towards countries most in need; emerging economies and Upper Middle Income Countries can contribute their fair share in this regard.

6. Enhanced transparency and mutual accountability of all finance at national and global level is necessary to ensure that this is used more effectively.

7. International financing discussions on tackling global challenges can be linked within an overarching setting that builds on and remains consistent with the financing for development process of Monterrey and Doha to develop a comprehensive and integrated approach to financing. This will ensure more coherence and coordination of specific financing and ongoing international negotiation processes.

Why is this of interest?

2015 is fast approaching and there is still a lot to do achieve the MDGs. At the same time, discussions are ongoing to decide the priorities of the post-2015 development agenda and the Rio+20 follow-up on sustainable development. Agreeing on new international development goals will also require identifying financing resources and other means for reaching these goals. A comprehensive and integrated approach to financing will therefore ensure that the money invested in different policy areas will contribute to more effective poverty eradication and sustainable development.

And although the Communication emphasises financing for developing countries, the proposed approach can be applied universally and relate to every citizen in every country.

Where are the financial resources coming from?

Resources can come from two sources: public and private, both at the domestic and international level. Public domestic finance includes taxes and other government revenues, including from natural resources. Public international finance can take the form of grants, equity or loans. Private domestic finance includes investments by local enterprises and charities. Private international finance comprises international investments, private transfers such as remittances and donations. New and innovative sources like a Financial Transaction Tax, receipts from carbon trading or bunker fuel taxes would also fall into one of the above categories.

In developing countries, an estimated €7,126 billion of public and private finance was available in 2010, with a potential to contribute to poverty eradication and sustainable development.

The data confirm that domestic public resources exceed international public finance (by a factor of 20), itself only 2% of the total finance available in developing countries. Private finance is on par with public finance. At the same time, there are fundamental differences between countries in the composition of financing sources, as shown by the different situations of the Low Income Countries (LICs) and Middle Income Countries (MICs).

Figure 1: Financing Sources in Lower Income Countries (LICs)

Figure 2: Financing Sources in Middle Income Countries (MICs)

Percentages as share of finance available to developing countries

b) EU Accountability Report on Financing for Development

What is it?

This is an annual publication by the European Commission. It responds to the Council’s invitation to monitor progress and report annually on EU Financing for Development (FfD) commitments.

  • It was initially set up to focus on official development assistance (ODA) commitments made at the 2002 International Conference on FfD in Monterrey.

  • However; Council later expanded the original monitoring mandate to cover other areas of FfD, including domestic resource mobilisation, aid effectiveness, aid for trade, climate finance.

  • It is now also designed to contribute to discussions on post-2015 to review progress towards achieving the MDGs and Rio+20 follow-up.

What is new this year?

For the first time ever, extended coverage of this report covers Science, Technology and Innovation (STI) to reflect new commitments made as part of the commitments made at the Rio+20 summit last year.

What are the key findings?

On the private sector:

The report considered ways in which the European Commission is increasing the role of blending as a catalyst of private investment for development. It showed that the EU and Member States have provided substantial funding for private sector development (in 2004-10, the Commission alone provided €2.4 billion in direct support in the form of grant funding and since 2007, the EU, together with some MS, has set up eight regional blending facilities, covering all regions of EU external cooperation).

On trade:

The EU is the largest trading partner of developing countries and the market most open to them, according to the report. On trade, the report found that the EU and Member States are collectively the major provider of Aid for Trade AfT worldwide (strengthening countries’ capacity to negotiate and implement trade agreements to their benefit), accounting for around a third of total AfT in 2011

On climate change:

In terms of climate change; the report highlights that the EU and MS have contributed €7.3 billion in 2010-12 to ‘Fast Start’ climate funding (helping to make countries more resilient to climate change and better able to cope with its effects). It also points out that the EU has been by far the largest contributor to both mitigation-related and adaptation-related ODA in 2010 and 2011.

On Science Technology and Innovation:

The report points out that the EU and its Member States are longstanding supporters of research and development in developing countries, including in the area of clean technologies.

On innovative financing sources and instruments:

The report states that overall, funds allocated for innovative financial instruments by EU Member States and the Commission have increased from €600 million per year in 2010-11 to over €2 billion in 2012.


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