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Even if we [development charities] had 10 times the amount of resources we operate with we would be barely scratching the surface. One of the costliest SDG goals to deliver, and the one sector the global community is furthest away from meeting its MDG target, is sanitation. So where is this money going to come from? Finance ministers from around the globe will convene at a UN summit in Addis Ababa, Ethiopia, in July to discuss this very question.

Andy Cotton, emeritus director of the water engineering and development centre at Loughborough University, said while the MDGs were predicated on rich countries making good on decades-old pledges to allocate 0. He added that over the past 15 years, donor countries and many charities have backed away from focusing on building capacity. Eliza Anyangwe, commissioning editor for the preparing for hub on the Guardian Global Development Professionals Network , who moderated the discussion, asked why the importance of domestic finance is only now being recognised. It is much more difficult to know what individual countries spend on services, such as water and sanitation, because they are mainly financed through tariffs on users.

She added that there are other revenue-raising tools besides domestic taxation that countries can use, such as taxes on companies and on property development, as has been done in Morocco, but few do so. Onyekachi Wambu, director of policy at the African Foundation for Development AFFORD , said many governments are too preoccupied with attracting aid money to raise taxes from their own people. The absence of taxation has meant no relationship — and no accountability. This has resulted in the mushrooming of new financing and delivery modalities and of innovative finance mechanisms, most notably in the area of public health and climate change.

Bilateral and multilateral aid agencies — willingly or unwillingly — focus ever more on financing, implementing and monitoring global public policies whose scope and objectives go well beyond poverty reduction. Such global public policies address biodiversity, peace and security, public health, energy security, financial stability, migration, environmental degradation and other issues that are critical not only for developing countries, but for donors as well.

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Stringent environmental and energy constraints fundamentally challenge the dominant development model centred on maximisation of economic growth. Increased competition over scarce resources and environmental degradation calls for a paradigm shift in the relationship between human activity and the biosphere and lower carbon development, at least in MICs and high-income countries HICs.

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Shifts in regional comparative advantages and patterns of integration in the world economy pose new risks and opportunities, especially for Africa. Much ODA is focused on this continent. Africa will double its population by UN-DESA Population Division, making it relatively labour abundant and land scarce, while at the same time East Asia is experiencing a demographic transition that will contribute to increasing labour costs.

This means that sub-Saharan Africa may fare a better chance of developing labour-intensive industrial activities than up to now. The unfolding of a series of crises from on — from food and energy to private finance, banking, sovereign debt and public finance — has put the aid system under great strain as support for aid erodes in the North in the face of public spending cuts. Many traditional donors are set to reduce their aid budgets, which puts into question earlier pledges made.

Dealing with fragile states remains a major challenge, compounded by the increasing frequency of disasters in war-torn and post-conflict settings. Mixing development with defence and diplomacy has produced uneven results at best, which calls for reconsidering the role of aid in stabilisation and state-building. It assesses the specific contributions of multilateral and bilateral agencies as well as of non-state actors in the global public goods agenda, and addresses the emergence of non-DAC donors as significant aid and global players.

We discuss two major reasons for international aid organisations to stay in MICs. The first is to engage them in the design and implementation of global policies required to protect global public goods, arguably in the best interest of LICs and of DAC members themselves. The second is to assist MICs in combating poverty at home, which often relies on redistributive policies that include social security and tax reform as well as improved, targeted public services. As part of this political endeavour, foreign aid agencies must tread a fine line in supporting domestic drivers of change that play a pivotal role in pushing this agenda forward.

In this chapter, we focus in particular on the emerging middle classes and civil society organisations. We conclude by arguing that policy coherence for sustainable development offers a common framework for MICs and DAC donors to effectively address poverty alleviation and the provision of global public goods.

The data show that the graduation process translated in less poverty reduction and more inequality than might be expected. Table 1. Figure 1.

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This classification is based on three criteria: low-income per capita, weak human development and high economic vulnerability. Source: Sumner c based on data processed from World Bank b. First, pockets of extreme poverty and vulnerability arguably call for aid no matter where they occur. Besides, the Indonesian example shows that a country that graduated to the MIC status can easily relapse in the LIC category as a result of a financial crisis or an external shock.

Third, by partnering with MICs, Western donors can gain relevant knowledge for development assistance to LICs, for instance in setting up effective social safety nets in the framework of triangular aid programmes. Fourth, there may be a moral argument to provide development assistance given that MICs are still part of global power relations that may disadvantage them to some extent until those global relationships change e.

Reframing aid in a world where the poor live in emerging economies

Yet policy coherence for development should prevail over foreign aid if countries of the Organisation for Economic Cooperation and Development OECD seriously wish to address these issues see concluding section below. For instance, several donor agencies are supporting multi-stakeholder initiatives that involve governments, businesses and civil society organisations.

The objective is to influence the behaviour of key actors through a mix of market and political incentives and to pave the way for the emergence of global norms that can lead to new policies and regulatory frameworks Carbonnier, Brugger and Krause Forging and developing partnerships with MICs is increasingly critical for effective collective action.

Engaging developmentally with MICs is thus seen not only as an end in itself i. We can therefore conceptualise global public goods in three ways: as a policy framework for engagement with MICs; as meeting the long-term interests of HICs as well as MICs and LICs; and as fundamentally contingent on the actions and cooperation of MICs not as mere aid recipients but as active stakeholders in addressing the issues at stake both domestically and internationally. The adequate supply of global public goods often rests also on the resolution of conflicting interests at the national level, as shown by negotiations on climate change.

Donor assistance has only recently started to be focused on supplying global public goods. Te Velde et al. In the case of aid projects in the energy sector, Michaelowa and Michaelowa show, however, that the number of bilateral projects promoting energy efficiency and renewables followed an erratic path over the past three decades, with an increase immediately before international environmental summits followed by a decrease when the political and media attention shifts to other priorities, and with a certain sensitivity to oil price booms.

The author remarks that, based on available evidence, the mainstreaming of the global public goods agenda in operational practice has been limited so far, mainly to progresses in identifying and costing global risks and their impact on developing countries. Mordasini this issue argues that significant reforms of multilateral and bilateral aid agencies have to take place at the institutional, organisational and operational levels in order to start addressing seriously the pressing challenges facing the developing world.

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Jenks this issue forcefully argues that the ability of the UN to produce significant outcome in the global public goods agenda relies on its continued capacity to generate universal norms and widely shared values. This in turn requires strong leadership and a strong capacity to leverage a broad variety of networks and new, innovative financing mechanisms. Innovative financing mechanisms IFMs and climate financing are two particular areas that received increasing interest both in policy and academic arenas see e.

Private Sector Financing in Developing Countries: Full of Promise or Over-Promised?

Innovative financing is also about creating incentives for new actors to engage with development funding, often through set-ups based on market principles and closely involving private firms, foundations and individuals. Other proposals include imposing levies on international maritime transport and on air travel, developing a uniform global tax on CO 2 emissions and the issuance of bonds on international markets.

These proposals are all means of creating new mechanisms to generate resources for addressing climate adaptation and some mitigation activities that are or are meant to be separate and additional to existing ODA Brown et al.

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Some argue that output and outcome legitimacy are of the essence, but need to be complemented by an accountability-based approach to legitimacy that carefully differentiates between different forms of governance, with a variety of actors playing distinctive roles and assuming differentiated responsibilities. The legitimacy of norms setters and global policymakers in the absence of a worldwide, democratic polity has been repeatedly put into question and deserves more scrutiny.

The UN Organization seems obviously well placed for the job see Jenks in this issue , but with an uneven representation at the Security Council and other central bodies. Indeed, three chapters in this issue that focus on Brazil, China and South Africa respectively demonstrate that these countries construe foreign aid as a strategic policy instrument in two respects: first in relation to LICs in the framework of South—South cooperation agreements, and second to advance their interests within the global governance system and in the elaboration of global public policies.

All these countries have also developed a rapid response capacity not only to be prepared for disasters at home, but to be able to contribute to the international response to major humanitarian crises around the globe. The question is particularly relevant for many MICs that today enjoy sound fiscal and balance-of-payments positions. To the extent that most of the poor live in MICs and that poverty reduction remains their primary objective, traditional donors have little choice but to continue working in the new MICs.

But they need to adapt their interventions to the evolving reality of these countries that have grown richer. Tackling poverty often means addressing inequality, exclusion and redistribution, all of which requires political engagement rather than technical approaches. Similarly Soares et al. In short, the capacity to redistribute is an important issue for poverty alleviation in MICs.

Donors have long understood that pushing for change, for instance via a progressive tax reform, requires the buy-in from the emerging middle classes whose contribution is central to the redistributive endeavour. Thus a better understanding of the redistributive preferences of the new middle classes in MICs is critical for donors. The growth in the size of the middle class is largely driven by a number of Asian countries whose populations are graduating out of poverty into the middle classes. However, it is much wider than just India and China.

It notes that if public services are of low quality, the middle classes are more likely to consider themselves a loser in the fiscal bargain and less willing to contribute to financing the public sector. Other factors that determine preferences include: personal experiences of social mobility, national and regional cultural and social values, the impact of higher taxation on leisure consumption, levels of tertiary education and attitudes toward prevailing levels of meritocracy.

Governments and donors must manage transitions away from aid

Support for redistribution is undermined by low institutional capacity in tax administration and the quality of state services, and by pessimistic views over social mobility. In contrast, some say that ODA cash-flow-based measurement includes too little. Donors make efforts that are not counted as ODA—such as guarantees, callable capital, etc. Such efforts are particularly needed today when an increasing number of developing countries turn to loans, guarantees and equity—rather than grants—to finance their economic growth.

Finally, the ODA concept does not fully capture the complex and continually evolving interaction between the public and private sectors. All this gives rise to tensions between ODA as a measure of development effort by donors, and the actual flows of funds available to developing countries to reduce poverty and promote growth. Consider loans, for instance, which are the subject of much public and policy debate at the moment. One reason for this extra attention is the growing demand for loans by developing countries themselves. This is good news, since it means those economies are expanding.

Loans have always been an important part of development financing. Part of the problem is that donors follow different approaches in determining what makes a loan concessional. Some countries follow the approach of the multilateral development banks—where only loans that have been subsidised are reported as concessional. As former OECD-DAC Chair Richard Manning pointed out in his 9 April letter to the Financial Times, there is a need to revisit these calculations to ensure that loans are indeed concessional in relation to current market terms, and to discuss whether, for instance, interest rate repayments should be deducted from ODA totals.

But at the same time, the importance of the public guarantees for institutions providing loans, which address the high-risk factor of some development investments, must be borne in mind. As the discussions continue, it is important that these differences—and the data behind them—continue to be publicly known and available for scrutiny, not least for the sake of building an effective strategy for how to finance the goals that will take over from the Millennium Development Goals after And with the increasing complexity of development financing, the broadening of the development agenda to incorporate the likes of capacity, governance and so on, and the growing diversity among developing countries themselves, that debate needs to be about both aid and other sources of financing for development.

In other words, discussions about other sources of financing should not be taken as an excuse for donors to walk away from their very important aid commitments.