Effective financing of environmentally sustainable development


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Section 1: Context for the Departmental Sustainable Development Strategy

The financing of sustainable development is not located ab initio in the new paradigm but is negotiated within the pre-existing contours of the foreign aid regime. So, before turning to an analysis of development assistance in the context of the promotion of sustainability, I will examine key features of the aid regime. Foreign aid has played a critical role in the elaboration of the development discourse.

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It stands firmly at the intersection of political and security interests and economic and social development. In developing the terrain of the aid regime, I will suggest that this regime contains a limited and limiting conception of development. The omissions or silences of liberal development theory-the discovery of the rural poor, the recognition of the salience of women in development, the importance of redistributivist strategies, and the crucial role played by open political institutions-all reappear periodically at the dawn of a new age.

Tracing the connections between foreign aid and development choices in the world economy is a task central to understanding current development practices. In the post World War Two period, billions of dollars have been transferred from developed to developing countries in the form of economic aid. Foreign aid has long occupied a central place in international development policy.

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Despite the absence of a consensus on the effectiveness of aid, and a failure of the donor states to attain the norm of 0. The aid regime produces and maintains a distinct pattern of development and is itself the product of ideas and theories on development. Robert Wood has provided the most developed description of the aid regime. He outlines five components: the negotiating framework between donors and recipients; the identification of legitimate uses for aid; relations among donor institutions; the relationship between official development assistance and broader development policy; and relations between aid and debt Within each of these components can be found principles, rules, norms and decision-making procedures.

The aid regime is predominantly structured around the interests of the donors. Given that 'he who has the gold makes the rule' the power of the purse is evident in the specific features of the regime. The negotiating framework places the recipients in the position of supplicants; decisions on the allocation of aid are reserved for the bilateral or multilateral donors. Procedures for the evaluating the success of aid remain with donor institutions. Aid is regarded as a supplement rather than a replacement for private capital. Official development assistance should not compete with private capital but should be allocated in cases where the private sector is unable or unwilling to provide funding.

Moreover, aid can be withheld to force the recipient to seek out the private market. Burden sharing and co-ordination of policy is an important feature of the regime. Much attention has been given in recent years to the conditionality in structural adjustment programmes, but conditionality has long existed as an important feature of the aid regime.

Conditionality provides the means through which donors can exercise some influence over the policies followed by recipient governments. The management of debt by creditor clubs places the burden of adjustment on the debtor country.

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Debt relief is provided as long as the recipient agrees to fulfil obligations to both private and official creditors. The aid regime was developed after the Second World War and owes its origin to the Cold War and post imperial European politics Wall, 9. During the colonial period technical assistance was provided by the metropolitan countries to the colonies but the scale of these programmes did not prefigure the post-war effort.

A number of factors underlay the decisions by the industrialised world to develop aid policies after Political and strategic motives have been inextricably linked with the growth of foreign aid. In the Cold War context, aid was one of the foreign policy instruments used by both sides in the East-West confrontation. The phenomenal success of the Marshall Plan, under which massive grants from the United States provided the capital equipment and other resources to stimulate the rapid economic recovery of Western Europe which was already in possession of the infrastructure of a self-sustaining economy , provided an early ideal model of the possibilities of foreign aid, despite the differences in material conditions between Europe and the developing world.

Economic aid was frequently linked to military aid.

Sustainable Development and its Challenges in Developing Countries

Studies of the distribution of aid show a close correlation between strategic interests and aid flows. Western countries attempted to promote economic development in the South through foreign aid on the basis of the theory that a link existed between economic development and democracy.

Hence the granting of aid would "contribute to the growth and strengthening of liberal democratic political systems in the Third World" Packenham, 5. On both sides of the East-West divide communist and capitalist regimes saw aid to Third World regimes as a means of gaining influence with compliant regimes.

The ex-colonial powers used aid as a means of maintaining commercial and political influence in their ex-colonies. Moreover, political stability in the newly independent countries was deemed to rest on the provision of external assistance. Clearly, the strongest rationale for the granting of foreign aid remained enlightened self-interest.

Nevertheless, it should not be forgotten that aid was a response to the demands made by the newly independent African and Asian countries and a Latin America intent on industrialisation. Whether the arguments were based on the importance of reparations for past exploitation, international solidarity or mutual interests Third World countries demanded access to aid.

The aid regime is not static and its key components have evolved since the s, but at its core are the changing theories of development. The economic rationale for aid is based on the claim that the macroeconomic contribution of aid to recipient countries is positive through the promotion of improved economic policies and resource allocation. It increases the efficiency of capital through strengthening technical, managerial, institutional and administrative capacity.

In an unequal international economic system and imperfectly functioning capital markets, aid reallocates capital from rich countries to poor countries. And a crucial role for aid is the relief of poverty through the protection of the incomes of the poor Lele and Nabi, 7. Aid theory has tended to follow, rather than anticipate, the major changes in development thinking. Development thinking and practice, both orthodox and heterodox, within the construction of the development discourse produced a number of refinements and re-evaluations Oman and Wignaraja, The two gap model of Chenery and Strout provided the foundation for aid policies in the s.

In this model, the foreign exchange gap is perceived as a key constraint on growth. The supply of external assistance was needed to pay for much needed imported materials and machinery. A realisation that although growth was occurring the poorest often remained trapped in poverty led to a re-evaluation of the development paradigm at the beginning of the s. The initial impetus for what came to be known as the basic needs strategy came from the ILO's World Employment Programme launched in The basic needs approach to development dominated the development discourse in the s and shifted the focus from industrialisation and trickle-down to the rural sector and redistribution.

The deteriorating external balance of developing countries at the beginning of the s led to the debt crisis of , the demise of the Keynesian consensus on economic policy and the rise of a neo-liberal approach to economics. The acknowledgment of the failure of many projects occasioned a review of both development economics and aid policy. The move to structural adjustment loans or policy-based lending ushered in a revolution in aid policy Mosley, Harrigan and Toye, Attention has focused over the years on improving the quantity, quality and effectiveness of development assistance.

Various studies have been conducted to determine the role of external capital in development. Proponents of foreign aid maintain that although aid has on a number of occasions failed to achieve its goals, the overall record is positive. A major study of the effectiveness of aid published in the s concluded that aid "succeeds in meeting its developmental objectives where those are primary , contributing positively to the recipient countries' economic performance, and not substituting for activities which would have occurred anyway" Cassen et.


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The official view links the economic growth of developing countries with the provision of aid; " Official development assistance, together with the growing markets provided by OECD countries, significantly contributed to these gains" OECD, These arguments have not gone unchallenged and a vast literature critical of the claims of the supporters of aid have been produced by its opponents. Critics of aid from both the right Bauer, and the left Hayter and Watson, question the positive linkages made by orthodox aid theory between aid and development.

Debate has ensued over the relationship between aid, savings and growth Griffin and Enos, ; Papanek, ; the impact of aid on the poor Madeley, ; Cassen et. The foreign aid regime can be termed multilateral bilateralism. The dominant source of funds has been bilateral, but although aid programmes are nationally financed and administered, they are guided and harmonised through multilateral agencies and structures like the World Bank, the DAC of the OECD, and the various regional development banks.

The declared intention of aid to generate a technocentric solution to the self-evident problem of poverty clearly reflects an intellectual debt to American social science Packenham, Many commentators on aid have frequently examined what may appear to be paradoxes in the distribution and efficiency of aid but which disappear once aid is situated in a broader context. The aid regime is based on a number of separations which make sense from an economic perspective, but fail to present a coherent picture of the reality of development assistance.

A crucial separation resides in the divorce of politics from economics. Aid is inherently political, but studies of the efficacy of aid are conducted either in the absence of considerations of the political context or with political events held constant. Second, the different types of aid-food aid, technical assistance, military aid-are discussed separately from each other rather than as part of a complex whole.

To what extent has there been a shift in aid policy in the era of sustainable development? And to what extent are current practices conditioned by the structure of the post-war aid regime?

The following section of the paper provides preliminary reflections on the construction of development assistance in the context of sustainable development. At its simplest level, the problem addressed by the financing of environmentally sustainable development through bilateral and multilateral channels arises from the observation that economic growth had previously ignored environmental impacts and sustainable development as the most appropriate tool for reaching the poor.

Major creditor countries and donor agencies have responded to the call for sustainable development by developing new norms and approaches to lending and debt management. It is the aim of this section to critically assess the extent to which this restructuring represents a radical departure from the old patterns of aid provision.

A comparative analysis of the aid policies of the major donors is beyond the scope of the paper. The Development Assistance Committee of the Organisation for Economic Co-operation and Development OECD provides a forum in which the principles, norms, and rules of the major donor states are harmonised. The World Bank is the leading multilateral agency for provision of development finance, and the leading lender for environmental projects in the developing world.

In December , a meeting convened by the DAC resulted in a Policy Statement on Development Co-operation in the s, outlining the promotion of participatory development and environmental sustainability as two new concepts to guide official development assistance. Future aid programmes would "integrate the objectives and requirements of: promoting sustainable economic growth; enabling broader participation of all the people in the productive process and a more equitable sharing of their benefits; and ensuring environmental sustainability and slowing population growth in those many countries where it is too high to permit sustainable development" OECD, 7.

According to the DAC, the aims of a sustainable development strategy are: to reduce poverty while achieving broadly based economic growth; strengthen the domestic human and institutional capacities to meet the challenges of development and to prevent social disintegration; to improve the developing countries' capacity to contribute to the management and solution of global problems; to reinforce the transformation of institutions enabling developing countries to play a bigger role in the world economy; and to shift the focus of development from central government to organs of civil society OECD, Sustainable development is to be "based on an integrated strategies that incorporate key economic, social, environmental and political elements" OECD, Central to this strategy is a shift from financing central government to the inclusion of non-governmental organisations NGOs , and community based organisations CBOs.

This focus on the institutions of civil society is mirrored by equal attention to the role of the private sector. The sustainable development paradigm fosters a participatory approach to development which attempts to reduce poverty and promote economic growth. It maintains the focus on growth central to the post-war development discourse, but places greater emphasis on human capital than previous approaches to development. The promotion of socially responsible development in this view depends on increased local involvement with projects, greater governmental accountability, an increased role for the private sector and sustainable environmental practices.

The rhetoric of the World Bank is similar in tone to the DAC and supports the contention that the financing of sustainable development signifies a new phase in the aid regime Serageldin and Sfeir-Younis, For the World Bank, the sustainable development paradigm goes beyond the mere provision of financing for environmental projects, and incorporates a number of different strategies. We can distinguish between three different strategies followed by the World Bank in its efforts to 'mainstream the environment' World Bank: a.

First, financial and technical resources are targeted specifically towards the environment. Targeted programmes for the environment include pollution management the brown agenda , natural resources the green agenda and national institution building. The World Bank's rhetoric places great emphasis on balancing financial objectives with the demands created by environmental degradation. Second, all the Bank's lending is subject to environmental assessments. EIAs are reports conducted by borrowing countries to evaluate and monitor the environmental consequences of proposed projects.

NEAPs are national strategies created by aid recipients to provide a framework for integrating environmental considerations into economic and social planning. EIAs and NEAPs provide a way of incorporating environmental considerations into project design, and the identification of projects that have environmental improvement as their major goal.

A third key element of the new paradigm is participation, or participatory development.


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Previous top down approaches to development are eschewed in favour of a participatory approach which engages the local population. Successful grassroots participation is part of a new focus on the social components of sustainability. This focus on participation partly arose from the conclusion that the state had failed in many developing societies. New agents capable of transforming societies were sought by the aid agencies. The discourse of participatory development is not restricted to the empowerment of CBOs and NGOs, but also attempts to engage actors from the private sector.

In his speech to Board of Governors in , the president of the World Bank noted, " The focus on participatory methods is linked to new approaches to poverty assessment and relief. Thus, GNP figures as a means of assessing poverty are supplemented by interview data. Similarly, the search for innovative financing of sustainable development has led to an increased focus on micro-credit. This faith in the potential of the non-state sector of developing countries constitutes the basic credo of all redistributive strategies committed to reconciling the goals of equity and efficiency, and was evident, for example, in the basic needs approach.

The new approaches to development financing under the umbrella of sustainable development, however, share certain key features with the old aid regime. First, aid is perceived as a supplement to private finance. Indeed, it is private capital which is given the greatest role in the promotion of sustainable development. Moreover, in the era of the financing of sustainable development, foreign aid has continued to fall in real terms. In , official development assistance from the AICs represented 0. This fall is also noticeable with respect to aid flows to the poorest countries.

In , the low income countries received 0. The role of external public agencies is to assist local and foreign capital. Second, the provision of aid is related to the existence of a sound policy framework.

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This framework, and attendant conditionality, is determined by the donors. A key feature of the new regime is political conditionality. Although political conditionality, good governance and democratisation were articulated initially separately from sustainability Baylies, ; Burnell, ; Robinson, ; and Hopkinson, they have become inextricably linked with sustainable development.

Political conditionality as a principle of the aid regime emerged in the geo-political space created by the end of the Cold War. FSDO also provides Secretariat support to the UN Committee of Experts on International Cooperation in Tax Matters UN Tax Committee , and disseminates the guidelines issued by the Committee through a capacity development programme aimed at strengthening the capacity of developing countries to develop more efficient and effective tax systems, with the ultimate aim to increase the mobilization of resources for investment in sustainable development.

The Addis Agenda established an annual ECOSOC Forum on Financing for Development FfD Forum , an intergovernmental process with universal participation mandated to discuss the follow-up and review of the financing for development outcomes and the means of implementation of the Agenda.

Despite signs of progress, investments that are critical to achieving the Sustainable Development Goals SDGs remain underfunded and parts of the multilateral system are under strain. Financing for Development. Here, let me share some good news and some not-so-good news. First, the good news. In recent years, low-income countries have been able to access more financing. This partly reflects relatively easy global financing conditions. More importantly, we have also seen a diverse group of official creditors step up to make funding available, and sometimes on a very significant scale in support of potentially transformative infrastructure investment.

Now for the not-so-good news. Unfortunately, not all borrowers have managed this increased financing well, and others have been hit by significant economic shocks. The result has been a rapid rise in the median debt burden to 47 percent of GDP in for low-income developing countries. The rise has been particularly concentrated in commodity producers.

Forty-three percent of low-income developing countries are currently assessed at either high risk of debt distress or are already in debt distress, compared with 21 percent in So how can we get past the conundrum that countries need to spend more while their macroeconomic stability is in jeopardy?

As I survey the landscape, I do see a lot of efforts in the global community to find solutions that contain debt vulnerabilities. China just announced a new framework for evaluating debt sustainability in Belt and Road recipients—closely aligned with the framework employed by the World Bank and the IMF.

We welcome this initiative by an important official creditor. And Caribbean countries have been exploring ways to adapt their debt instruments to build resilience against shocks—with the support of the Paris Club, the World Bank, and the IMF. These are all excellent examples of multilateralism at work, of global solidarity. We need to continue to push these initiatives forward together.

Of course, borrowing countries themselves have a role to play, first and foremost by raising the payoff from public investment. Moving from the lowest to the highest public investment efficiency quartile could double the impact of investment on output, and thereby better underpin debt sustainability. Strengthening debt management will also be crucial. This can be quite tricky.

Effective financing of environmentally sustainable development Effective financing of environmentally sustainable development
Effective financing of environmentally sustainable development Effective financing of environmentally sustainable development
Effective financing of environmentally sustainable development Effective financing of environmentally sustainable development
Effective financing of environmentally sustainable development Effective financing of environmentally sustainable development
Effective financing of environmentally sustainable development Effective financing of environmentally sustainable development
Effective financing of environmentally sustainable development Effective financing of environmentally sustainable development
Effective financing of environmentally sustainable development Effective financing of environmentally sustainable development
Effective financing of environmentally sustainable development Effective financing of environmentally sustainable development
Effective financing of environmentally sustainable development Effective financing of environmentally sustainable development

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