Oh dear. Another unreadable European Report on Development. Good stats on finance (FFD) though.

May 20, 2015

     By Duncan Green     

Here I go again. Sorry. Europe is home to some of the world’s most interesting and innovative research and action on aid and ERD logodevelopment, littered with smart thinktanks, thoughtful academics, and reflective practitioners. So it would be great to create some kind of intellectual counterweight to the US-based dominance of the World Development Report and others. Why then is the European Report on Development so invariably disappointing?

Let’s start with the title of this 5th ERD: ‘Combining finance and policies to implement a transformative post-2015 development agenda’. Enough said.

After that if follows the usual ERD format, which I summarized in a post on the 2013 ERD:

‘What you get is a decent overview of progressive thinking on inequality, migration, trade, domestic resource mobilization and the role of aid. And a lot of developmental platitudes: the ‘key conclusions’ include ‘a transformative agenda is vital’, ‘national ownership is key’, ‘the children are our future!’ (OK, I made that last one up).’

Have things improved? ‘Fraid not. Here’s how the press release summarizes the ERD 2015’s key messages.

‘A key message emerging from the report is that success will be determined by the way policies and finance are used to implement a transformative post-2015 development agenda, and that a lack of funds will not be the constraining factor in achieving the objectives. Based on existing evidence and specific country experiences, the ERD 2015 shows that finance seldom reaches the intended objectives unless the right policies are in place. To implement a transformative, post-2015 development agenda needs the right combination of finance and policies.’

Yes, that’s the press release. Hold the front page – you need cash and the right policies. Who would have thought it!

ERD figsThe one section that woke me from my torpor was the number crunching on financial resources:

Finance options have changed

FFD options have changed dramatically by country income grouping, and over time. For example, consider the following financial flows (expressed in 2011 constant prices):

  • Domestic public revenues (tax and non-tax revenues) rose by 272%, from $1,484 billion (bn) in 2002 to $5,523 bn in 2011
  • International public finance (net ODA and Other Financial Flows (OOF)) rose by 114%, from $75 bn in 2002 to $161 bn in 2011
  • Private domestic finance (measured as Gross Fixed Capital Formation by the private sector, less FDI) rose by 415%, from $725 bn in 2002 to $3,734 bn in 2011
  • Private international finance (net FDI inflows, portfolio equity and bonds, commercial loans and remittances) rose by 297%, from $320 bn in 2002 to $1,269 bn in 2011.


Thus, since the 2002 Monterrey Consensus, in real terms (2011 dollars) developing countries have had access to an additional $0.9 tr in private international finance, $3 trillions (tr) in private domestic finance and $4 tr in public domestic revenues. Public international finance increased by just under $0.1 tr (and the total is now less than 1.5% of the total resources available). Figure 1 depicts the evolution of finance flows to developing countries.

The data shows that domestic public resources have grown rapidly and are the largest source of finance for all country income groupings. International public finance has also increased but is declining in relative importance. Domestic private finance has shown the fastest growth, but is still much lower (as a percentage of GDP) in LICs than in lower middle-income countries (LMICs) and upper middle-income countries (UMICs), with rapid transformations continuing. International private finance has been highly volatile compared to the other flows. Innovative finance is promising but is yet to take off on a large scale. These trends set the context and also present a number of key challenges that need to be addressed in the post-2015 development agenda and FPFD. For example, it is clear that there is both a need to think more about public resources ‘beyond aid’ and also to consider new approaches to ODA.

The composition of finance evolves at different levels of income

Figure 2 shows that as countries move towards higher incomes, they tend to experience: (a) declining ratios of aid-to-Gross Domestic Product (GDP); (b) increasing tax-to-GDP ratios (stabilising when countries approach LMIC levels), and within this, increasing shares of tax from incomes and profits and notably goods and services, but declining shares of international trade tax revenues; and (c) increasing private investment-to-GDP ratios.’

I had a decent exchange with the ERD team over my critique of the 2013 report (in the comments), so anyone care to leap to the report’s defence this time around, say what I’ve missed etc? I should confess that I’ve only read the 21 page executive summary (not sure they quite understand how executives work, There may be some buried gems in the full 377 page report – but in that case, why are they buried?!

Here endeth the rant.

May 20, 2015
Duncan Green