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The challenge of financing for development in Latin America
and the Caribbean
Alicia BárcenaUSG and Executive Secretary of the Economic
Commission for Latin America and the Caribbean (ECLAC)
Financing for Development Regional perspectives and the role of the UN Regional Commissions
Dialogue of the Executive Secretaries of the Regional Commissions with the UN General Assembly Second Committee
UN Headquarters, New York, 23 October 2017
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
Agenda 2030 proposes a development paradigm shift in a complex context
• Financing Agenda 2030 will cost around 3 to 14 billion dollars annually, more trade and transfer of technology
• Crisis of multilateralism, growing economicnationalism
• A fragmented trading system with more protectionism and growing uncertainty
• An international system with few financial regulations (tax) and weak multilateral mechanisms to regulated the high degree of financiarization
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
Para alcanzar los Objetivos de la Agenda 2030 se requiere entre los 3 y los 14 billones de dólares anuales en total
195
4680
1560
300
7000
1200940
70
800
0
1000
2000
3000
4000
5000
6000
7000
Desarrollo Social Medio ambiente Energía Tierras y agricultura Infraestructura
ESTIMACIÓN DE LAS NECESIDADES ANUALES DE FINANCIAMIENTO DE OBJETIVOS DE DESARROLLO SOSTENIBLE SELECCIONADOS(En miles de millones de dólares)
Fuente: Naciones Unidas, Informe del Comité Intergubernamental de Expertos en Financiación del Desarrollo Sostenible (A/69/315), Nueva York, octubre de 2014.
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
Financial versus real economy: the great decoupling
GLOBAL NOMINAL GDP, FINANCIAL ASSETS AND FINANCIAL DERIVATIVES, 1980‐2014
(Trillions of dollars)
Source: ECLAC, on the basis of Bank for International Settlements (BIS) and World Bank, World Development Indicators, 2015.
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
Latin America and the Caribbean: a MICs region in transition
Region returns to positive growth rates of 1,2% In 2016 the region’s exports are projected to fall 5% and its imports 9%, completing four years of contraction Fiscal reforms have increased public income Weak private‐public partnerships More external private flows: FDI (change trends), portfolio and remittances
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
Greater access to external private flows which have become the main source of external financing
‐50000
0
50000
100000
150000
200000
250000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Flujos Privados
Flujos Oficiales (eje izq.)
LATIN AMERICA AND THE CARIBBEAN: PRIVATE AND OFFICIAL FLOWS, 1980‐2014(In billions of US$ dollars)
Fuente: CEPAL (2016)
FDI:•52% of the total privatefinancial flows in LAC
•goes mainly to naturalresource and servicesectors and 5‐6 countriesMigrant remittances:24% of total privatefinancial flows in LACPrivate flows respond todifferent logic, incentivesand objecives
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
Mobilizing private resources towards Agenda 2030 requires to change the conversation with the private sector
LATIN AMERICA: INFRASTRUCTURE INVESTMENT BY SECTOR, PUBLIC AND PRIVATE, 1980‐2015(Percentages of GDP)
Source: Sánchez, et al. (2017). “Inversión en infraestructura en América Latina. Tendencias, brechas y oportunidades”. Series Recursos Naturales e Infraestructura No 184. ECLAC. Santiago.a Period 1980 ‐ 2006: Calderón, César and Luis Servén, (2010), “Infrastructure in Latin America”, World Bank Policy Research Working Paper, No. 5317, Washington, D.C., The World Bank.b Period 2007 ‐ 2013: ECLAC and BID/CAF/CEPAL initiative.
Multiplicity of actors and sources of finance comes with more requirements and conditionalitiesthat requires a strong public regulation to take strategic approaches
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
Latin American Investment rate vis a vis other developing regions
LATIN AMERICA AND SELECTED REGIONS: GROSS FIXED CAPITAL FORMATION, 1970-2015
(as a percentage of GDP)
Source: Economic Commission for Latin America and the Caribbean (ECLAC) and World Bank on the basis of official figures.
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
Improved domestic resource mobilization through a decade of fiscal reforms
Source: RevStat.
TAX REVENUES, LATIN AMERICA AND THE OECD, 2000 AND 2015(In percentages of GDP)
1214
16 17 17 17 1821 21 21 21 21 21
2325
27
32 32
21
34
1211
1615
1214 13
19
1513 14
10
1618 18
22
30
20
16
34
Guatemala
Dominican
Repu
blic
Panama
Peru
El Salvado
r
Mexico
Paraguay
Chile
Colombia
Nicaragua
Vene
zuela
Ecuado
r
Hond
uras
Costa Rica
Bolivia
Uruguay
Brazil
Argentina
LA‐18
OEC
D‐34
2015
2000
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
But tax revenues are regressive: highly dependent on indirect taxes and direct taxation remains
particularly weak
5
4
1
10
1
12
9
2
11
1
Income and profits Social securitycontributions
Property Goods and services Others
Latin America (18 countries) OECD (34 countries)
Gap
TAX STRUCTURE, LATIN AMERICA AND THE OECD, 2014(In percentages of GDP)
Source: RevStat.
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
Tax evasion and trade misinvoicingneed to be significantly reduced
LATIN AMERICA AND THE CARIBBEAN: TAX LOSSES ASSOCIATED WITH TRADE MISINVOICING, 2004‐2013
(Billions of dollars and percentages of GDP)
Soruce: Economic Commission for Latin America and the Caribbean (ECLAC), Financing he 2030 Agenda for Sustainable Development in Latin America and the Caribbean: the challenges of resource mobilization, (LC/FDS.1/4), Santiago, 2017. [Online: http://foroalc2030.cepal.org/2017/sites/default/files/17‐00214_fds1‐financing_the_2030_agenda_web.pdf ]
LATIN AMERICA: TAX COLLECTION AND ESTIMATED EVASION, 2015(Percentages of GDP and billions of dollars)
Estimated evasion:US$ 340 billion(6.7% of GDP)
Estimated tax losses:US$ 31 billion(0.5% of GDP)
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
Effective control of tax evasion and illicit flows requires international cooperation and networking
• Illicit flows represent a huge transfer of financial resources out ofdeveloping economies
• Global Financial Integrity estimated that in 2014 outflows of illicitflows reached US$ 164 billion dollars for the region
• Illicit flows near FDI flows (US$ 167 billion for 2016) and representmore than twice the amount of remittances (US$ 62 billion in 2016)and roughly times the amount of ODA (US$ 16 billion) received by theregion.
• The tax practices of multinationalsmust also be subject to regulation• According to estimates for developed countries, particularly in
Europe, the annual cost of tax avoidance through transfer pricemanipulation amounts to US$ 150 billion, BEPS is ok but we need togo beyond so multinationals pay taxed not only in their jurisdictionbut in the place they make the gains
• Tax havens and offshore financial centers must also be regulated andthese should comply with international standards on commercialbanking.
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
Public debt exhibits varying levels of vulnerabilityLATIN AMERICA: GROSS AND NET PUBLIC DEBT,
NON‐FINALCIAL PUBLIC SECTOR, 2015(Percentages of GDP)
Note: Data are for the general government for Brazil; central government for the Dominican Republic, Haiti and Honduras.Source: ECLAC, on the basis of official figures.
THE CARIBBEAN: NON‐FINANCIAL PUBLIC SECTOR GROSS PUBLIC DEBT, 2015
(Percentages of GDP)
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
• They are a source of medium‐ and long‐term resources through investmentfinance for infrastructure and productive and social development.
• Subregional development banks have significantly increased the volume ofresources they provide and their share of business in respect of multilateraldevelopment banks and by increasing sectoral diversification and financialintermediation
Source: prepared by the author on the basis of the annual reports of the relevant banks.
Role of development banks at national and regional level should be countercyclical and stronger on financial inclusion
CABEI member States
CAF member States CDB member States
Share provided by subregional banks 44% 37% 22%
Share provided by World Bank 15% 28% 30%Share provided by IDB 40% 35% 48%
SUBREGIONAL DEVELOPMENT BANKS’ SHARE IN TOTAL MULTILATERAL LENDING TO SUBREGIONAL MEMBER STATES, 2010‐2013(Millions of dollars and percentages)
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
Financial inclusion requires innovative practices and instruments
• Financial inclusion is an unfinished business for theregion
• LAC has the lowest levels of household financialinclusion
• In LAC, on average, only 45.8% of adults have at leastone account at a financial institution
• This is below the global average (61%) otherdeveloping regions ,
• Only 45% of small and Medium Sized Firms haveaccess to the formal financial system while 67.5% oflarge firms have access to formal systems. Gap of 1.5times
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
Financial inclusion should also guarantee equal access by gender to the formal financial system
12.5
22.9 21.526.7 25.0
40.735.0
44.040.3
50.3 52.157.8
88.992.3
female male female male female male female male female male female male female male
Middle East &North Africa
Sub‐Saharan Africa South Asia Latin America &Caribbean
Europe & CentralAsia
East Asia & Pacific High income: OECD
ACCOUNT AT A FORMAL FINANCIAL INSTITUTION (% AGE 15+), 2014(Percentages)
Source: Own elaboration based on World Bank data
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
AIA
ANT
BHS
BRB
BLZ
DMA
GRD
GUY
JAM
MSR
KNALCA
VCTSURTTO
Average
0
10
20
30
40
50
60
70
80
0 10 20 30 40
As a percentag
e of ta
x revenu
es
As a percentage of goods and services exports
THE CARIBBEAN: PUBLIC DEBT SERVICE BURDEN, 2014
Public debt servicing requirements severely limit Caribbean countries’ fiscal space and potential to achieve the SDGs
Source: IMF(2016) World Economic Outlook, UNEP Environmental Vulnerability Index 2000.
SMALL STATES: PUBLIC DEBT AND ENVIRONMENTAL VULNERABILITY, 2013
(Percentages of GDP)
Between 1990 and 2008 the cost of natural disasters in the Caribbean is estimated at 136
million USD in constant dollars of 2008
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
ECLAC is advocating to create a Resilience Fund with debt relief and the Green Fund
• Relief for 2 billionmultilateral debt out of the total of 42 billion dollars
• Establish a Resilience Fund to restore and rebuild new infrastructure after disasters
• Countercyclical funds for addressing external shocks since Caribbean is ineligible to borrow concessional funds to rebuild and goes to market rates
• Adaptation to climate change infrastructure in coastal areas
The challenge of financing for development in Latin America and the CaribbeanAlicia Bárcena
In short: to implement the 2030 Agenda
• Global, regional and national governance:• reduction of power asymmetries in the global and regional governance of monetary, financial, trade, technological and environmental matters
• institutional cooperation and coordination within and between countries through RECs and UN
• Ensure that private flows are a key contribution to financing for development these flows must be nested in a developing strategy
• Consolidate the role of ECOSOC in economic issues and create the intergovernmental body for tax matters and for technology transfer
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