* *** * * * ~201O.es ***** Delegation of the European Union Permanent Mission of Spain Informal Event on Innovative Sources of Development Finance European Union statements for: Panel 1: Mechanisms of innovative development financing in operation Panel2: Innovative development financing initiatives under development By Maria-Francesca Spatolisano First Counsellor Delegation of the European Union to the United Nations United Nations New York, 3 June 2010 1" panel discussion (existing mechanisms) • International financing constitutes a vital addition to national resources for development. Innovative sources and mechanisms of financing fo .. development complement othe.. I'esources and should be given adequate attention, • Several innovative mechanisms al ..eady build on public-p..ivate pa..tne..ships and markets to p..ovide a good addition to existing ..esou ..ces and mechanisms for supporting development Other options are currently being explored in various fora, including the Leading Group on Innovative Financing to Fund Development • EU Membe.. States lead most cu....ent initiatives on innovative sources of financing fo .. development. Depending on the definition, only about a third of all EU Member States raised f1rnds via innovative mechanisms in 2009, but they are piloting most of the existing mechanisms. • France was one of the first countries (in July 2006) to introduce an ai.. ticket levy witha sliding scale based on destination and class, Most of the proceeds are earmarked for development finance, notably an International Drug Purchase Facility (UNITAID) aimed at combating the major pandemic diseases affecting the developing world,. The French air ticket levy collected EUR 165 million in 2007, EUR 173 million in 2008 and EUR 162 million in 2009 Following this example, which was subsequently promoted by the Leading Group on Innovative Financing for Development, several other countries around the world introduced similar air ticket levies, including Chile, the Ivory Coast, the Republic of Korea, Madagascar, Mauritius and Niger, which allocate all or a share of the revenues to UNITAID, Furthermore, Luxembourg and Spain collect voluntary contributions from air passengers, Cyprus (EUR 0,4 million), Luxembourg (EUR 05 million) and the UK (£25 million) are supporting UNITAID from their general budgets . • The general concept of the International Financing Facility (IFF) was first put forward by the UK Government in 200.3. It is designed to frontload aid by issuing bonds in international capital markets, backed by binding long-term commitments from donors to provide regular payments to the facility, The Iirst concrete implementation of the IFF concept is the International Finance Facility fo .. Immunisation (IFFlm) begun in November 2006, IFFlm's total anticipated disbursement of USD 4 billion is expected to protect more than 500 million children through immunisation in more than 71 developing countries, So far, IFFlm bonds have raised more than USD 2 billion for immunisation programmes run by a charity called the GAYI Alliance IFFlm's financial base consists of legally binding grants from its sovereign sponsors, which are France, Italy, the Netherlands, Norway, Spain, Sweden, the United Kingdom and South Africa • Germany is using part of the revenues from the EU emission trading scheme (ETS) for ODA-accountable climate mitigation and adaptation in developing countries. In 2008, 120 million euro were used in that way and in 2009 the amount was 230 million eum • The idea of an Advance Market Commitment (AMC) was strongly promoted by the governments ofltaly and the UK from the end of 2005. The idea is that donors guarantee a set envelope of funding to purchase at a given priee a new product that meets specHied requirements, thus creating the potential for a viable future market. In June 2009, the governments of Italy, the UK, Canada, the Russian Federation, Norway and the Bill & Melinda Gates Foundation launched the pilot AMC against pneumococcal disease with a collective USD 1.5 billion commitment. The supporters of this pilot AMC estimate that the introduction of a pneumococcal vaccine through the AMC could save approximately 900,000 lives by 2015 and over 7 million lives by 2030. In October 2009, four suppliers made 'offers to supply vaccines under the Pneumococcal Advance Market Commitment. • Debt-for-development swaps are implemented by Germany which introduced the conversion of debt into grants for health financing in the "Debt2Health initiative". It reduces partner countries' debt as the corresponding amounts are invested in additional financial resources for health systems through the Global Fund (GFATM). In this way, additional financing of EUR 25 million in 2007 and BUR 20 million in 2008 were generated by the German Government for the GFATM. Similarly, the government of Australia is implementing an anangement worth some EUR50 million with the Indonesian Government. The instrument has proven to benefit recipient countries twice through debt relief and provision of additional financial resources to fight diseases . Other creditor countries interested in the Debt2Health initiative are therefore encouraged to participate and draw on Germany's experience. • Many EU Member States provide tax discounts such as tax exemptions or write-off's for private funding of development, for example through civil society organisation, foundations or charities Such tax reductions exist in Austria, Belgium, Denmark, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Spain and the UK. nd 2 panel discussion (mechanisms under discussion) o The crisis has created important needs for fiscal consolidation in ED countries and around the world, as recently underlined by the sovereign debt crisis in some countries. At the same time, resources must be found to meet key global challenges with significant budgetary implications related to the financial sector, climate change and development While improvements in existing tax systems should be the main responses to these fiscal and global challenges, new non-traditional ways of raising public finance - 'innovative finance' - can make a significant contribution. The ED is currently discussing some of these issues and policy options. o A recently published European Commission Staff Working Document assesses the potential of innovative financing to face these challenges. It shows that there are some instruments where a significant "double dividend" of both raising revenue and improving market etIiciency could be reaped, in particular by ways of taxing the financial sector or carbon emissions. Effects on income distribution and administrative and legal aspects are also assessed. o Global coordination is essential for a successful implementation of most instruments The participation of all relevant key players, many of them members of the G-20, is vitaL Agreement by G-20 members on basic principles, in particular for a new levy on the financial sector, would be important to prevent an uncoordinated adoption of measures that could hamper a level playing field on global markets Actions by the ED alone would be less effective but could be considered, particularly if there are good reasons to expect that an ED role of global leadership would be followed by other key countries. o Options for ensuring that the financial sector contributes to the costs of financial stability are currently discussed in Europe and globally, notably by the G-20 on the basis of a recent IMF report Several instruments for taxing financial institutions could be considered, taking into account the incentives on risk-taking and moral hazard and the joint impact in combination with new regulatory measures. While there might be limited willingness to earmark all or part of the revenues from these sources for development, it should be taken into consideration that such revenues will enhance the budgetary room for manoeuvre to preserve stable and predictable development aid, notably in the event of new financial crises. o Regarding climate change, the European Commission Staff Working Paper highlights that the more promising options relate to the pricing of carbon emissions which can create a "double dividend" of raising revenues and improving the efficiency of markets According to existing ED regulations, Member States should use revenues from the auctioning of allowances for greenhouse gas emissions under the ED Emission Trading Scheme from 20 1.3 These are considered as an important source of climate finance, including for developing countries.. The ED is looking forward to the results of the UN Secretmy-General's High-level Advisory Group on Climate Change Financing to be presented in the course ofthis year. • The international commitments to help developing countries achieve the Millennium Development Goals by "more and better" development aid, in particular the EU's ambitious targets for further scaling up of aid, are essentiaL According to some, this might also require the use of revenues fium new and existing instruments of innovative sources of finance Several instruments for frontloading public finance through the capital markets and for leveraging private finance through public incentives have been proposed or implemented to support development initiatives, notably in the health sector. However, the scope for a further significant scaling up of these sources might be limited, The Commission and several EU Member States are engaged in the work of the "Leading Group on Innovative Financing for Development", including in its "Task Force on International Financial Transactions for Development", • With a view to aid effectiveness, a key question is what institutional mechanism should be established to ensure accountable management and effective disbursement at beneficiary leveL II' some proceeds of innovative financing flow into a global fund, adequate global coordination will be needed to identify the most effective and representative institutional set-up, • Most importantly, we have to ensure full respect of the aid effectiveness principles (ownership, alignment with country procedures, donor harmonisation, mutual accountability and results orientation), and avoid a proliferation of overlapping aid channels which would completely overburden the limited capacities in our partner countries.