USG PRESENTATION Launch f the Flagship Reprt Wednesday, 19 July 2017 15:30-16:30 at the Bhutan Missin H.E. Mr. Masud Bin Mmem, Permanent Representative f Bangladesh and Chair f the LDC Grup, Mr. Karma Cheda, Chargé d Affaires, Bhutan Missin t the UN, Excellencies, Distinguished Delegates, Ladies and Gentlemen, I wuld first like t express my sincere gratitude t the Permanent Missin f the Kingdm f Bhutan t the United Natins, fr generusly agreeing t hst the launch f this imprtant reprt entitled, the State f the Least Develped Cuntries 2017. Earlier tday, Ambassadr Mmen and I cnducted a press briefing n the key findings f the tw chapters f the reprt. Chapter 1 assesses the prgress made in implementing the eight pririty areas f the Istanbul Prgramme f Actin fr the LDCs fr the decade 2011 t 2020. Fr this afternn, I will fcus n Chapter 2. This is because Chapter 1 f the reprt is largely based n the 2017 reprt f the Secretary-General n the implementatin f the Prgramme f Actin, which I presented at the Crdinatin and Management Meeting f ECOSOC tw weeks ag. The findings f this reprt are very timely, especially cnsidering that average GDP grwth in LDCs was 3.8 per cent in 2015, the lwest level recrded fr the grup in the last tw decades. This is far belw the 7 per cent target grwth rate fr LDCs by 2020. T accelerate the prgress twards meeting LDCs develpment bjectives, investment needs t increase. Hwever, this requires an increase in resurce mbilizatin, which is a majr challenge fr LDCs. 1
It is fr this reasn that the special theme f this year s reprt is Financing the SDGs and IPA fr LDCs. The first part f the analysis in Chapter 2 invlved estimating the magnitude f the investment that wuld be required t reach the 7 per cent grwth rate. Using the United Natins Wrld Ecnmic Frecasting Mdel, we find that LDCs need t increase their investment, as a share f GDP by 2.6 percentage pints. This is apprximately US$24 billin additinal investment annually, n average. I wuld like t stress that while meeting the 7 per cent grwth wuld cntribute twards meeting sme f the SDG targets, mre resurces wuld be required t meet all f the IPA bjectives by 2020 and als, t meet the develpment aspiratins set thrugh the ecnmic, scial and envirnmental dimensins f sustainable develpment. I will nw highlight sme f the key findings n the main surces f financing in LDCs. The graph that yu are seeing n the slides summarises the trend fr the selected financial flws t LDCs, as a percentage f LDCs GDP. Gvernment revenue, as measured by tax revenue t GDP, has been the largest surce f develpment revenue in LDCs since the early 2000s and has reached arund 15 per cent in 2015. The literature suggests that 15 per cent is cnsidered t be the minimum belw which cuntries face serius difficulties t execute basic state functins. While ODA is still the mst imprtant surce f external financing fr many LDCs, its cntributin t their GDP, n average, has significantly declined, relative t the levels in the 1990s. Private surces f financing, in particular, FDI have been exhibiting an increase in the past few years. In 2015, the cntributin f remittances t GDP was slightly higher than that f ODA. While remittances are private transfers between husehlds, they can cntribute t investment in educatin and the develpment f the financial sectr. Reducing the cst f remittance transfer is urgently needed fr LDCs. 2
I will nw get int the details f sme f the surces f financing. On Dmestic Resurce Mbilisatin, disaggregated data shws that a higher cntributin f the taxes, especially in recent years, is frm taxing gds and services, fllwed by incme tax. It is imprtant t nte that many LDCs have undertaken refrms f the tax system t reduce tax evasin and braden the tax base. Fr instance, in several LDCs, revenue authrities have been remved frm ministries and set up as autnmus units respnsible fr a brad range f taxes. Better analysis is needed t ensure tax refrms als reduce inequality. In additin, it is crucial that tax exemptins are assessed carefully. Hwever, fr LDCs with mre than half f the ppulatin living in pverty, it is extremely difficult t increase revenues. Tax revenues can increase sufficiently nce GDP grwth and diversificatin speed up. ODA is decreasing further. Net bilateral ODA declined by 4% in real terms in 2016. This is despite the reality that in 2015, abut a third f the LDCs relied n ODA fr mre than 10 per cent f their GNI, as shwn n the graph. Regarding the target f prviding at least 0.15 per cent f GNI in ODA t LDCs, nly seven OECD-DAC dnrs reached the gal in 2015, dwn frm 8 in 2014 and 9 in 2013. The negative trend in ODA t LDCs needs t be reversed and develpment partners shuld cnsider t reach the upper IPA target f 0.2% f GNI. In additin, the quality f aid, including its predictability and use f cuntry systems, need t imprve further. Suth-Suth cperatin fr LDCs has als been increasing, with a fcus n infrastructure develpment. 3
The highlighted table shws the examples f climate funding that is available. I will nt g int the details f each fund but based n the detailed analysis in the reprt, there is need fr better infrmatin and, reprting n climate change finance t LDCs is needed. In additin, the percentage f funding t LDCs frm the GEF Trust Fund needs t increase, and the LDC Fund replenished. Furthermre, pririty needs t be given t finance adaptatin fr LDCs. The absrptive capacity f LDCs needs t imprve, including supprt fr preparatin f bankable prjects. Prject apprval and disbursement prcesses shuld be streamlined and simplified. Mving n t external debt and access t capital markets, sme f the key findings are that since 2011, the level f external debt in LDCs has been steadily rising. It is interesting t nte that the cmpsitin f public and publicly guaranteed debt in LDCs is changing. Histrically, the external debt prtfli in LDCs has mstly been made up f bilateral and multilateral surces. Cmmercial bank lending cntinues t play an imprtant rle, as shwn in the graph. Hwever, it is wrth nting that the increase in internatinal svereign bnd issuances has been mre remarkable. While access t a diverse prtfli f external finance can cntribute t financing lng-term investments, debt build-up, especially frm private surces pses risks, including thse related t currency mismatch and freign exchange risks. Given the risks that brrwing carries, it is imprtant that resurces frm the lans are mainly used t finance necessary investments t ensure lng-term prductivity grwth in LDCs. In additin, GDP-linked bnds and green bnds shuld be further explred. While FDI flws t the LDCs increased significantly in 2015 t US$44 billin, led by greenfield investment prjects, they declined by 13 per cent in 2016 t US$38 billin, highlighting their vlatility. 4
FDI is still dminated by a few mineral and il extracting cuntries. In additin, the stck f Chinese FDI in LDCs mre than tripled t USD 31 billin frm 2010 t 2015, making China by far the largest investr. Suth-Suth cperatin is als grwing, fr example, thrugh the Asian Investment Infrastructure Bank and Industrial Develpment Cperatin f Suth Africa. The internatinal cmmunity shuld increase crdinated investment supprt fr LDCs with the cntributin f all stakehlders, in line with decisins in the Addis Agenda t adpt and implement investment prmtin regimes. This include the fllwing: financial and technical supprt fr prject preparatin and cntract negtiatin; advisry supprt in investment-related dispute reslutin; access t infrmatin n investment facilities; and, enhanced risk insurance and guarantees such as thse available thrugh the Multilateral Investment Guarantee Agency. Our Office is wrking with partners n sme elements fr this but further discussins are needed. I wuld like t cnclude by prviding the fllwing key messages: Due t the large gap in investment, access t all mdes f financing needs t increase fr LDCs. LDCs need enhanced capacity, including in tax administratin, prject develpment and negtiatins with investrs, as well as cllectin and use f data. Mre develpment partners shuld meet r exceed their cmmitments t prvide 0.15 t 0.2 per cent f GNI in ODA t LDCs as agreed in the IPA, Addis Agenda and SDGs. T increase access t climate change funding, supprt fr capacity building prvided t LDCs needs t be stepped up t facilitate the preparatin and submissin f bankable prpsals. Nt all finance is suitable fr all purpses: LDCs need t assess whether the cst f investment is justified by its scial returns Finally, I encurage all t read the reprt and I thank yu fr yur kind attentin. 5