Regional Public Investment and the future of financing
6 July 2022
The world we live in is volatile, uncertain, complex and ambiguous. There is strong consensus that without significant new ideas and changes to how we operate in the international development and humanitarian sectors, we cannot address many of the biggest global challenges we face.
No country can solve climate change, the impacts of pandemics, growing inequality and humanitarian crises single-handedly. Many of these challenges are likely to become more extreme in the future, and new crises will doubtless continue to emerge. One of the most pressing problems is insufficient and, at times, ineffectively targeted public finance and a financing architecture which is not responsive to these challenges.
Collective action at this scale requires substantial resources, but concessional international public finance has not and cannot keep pace with growing demand. Despite rapidly rising needs, global funding for humanitarian assistance has faltered. While Official Development Assistance grew by 4.1% in real terms between 2020 and 2021, key drivers of this growth were the value of donated Covid-19 vaccines (which some have argued were clearly inflated in some instances), and contributions to multilateral organisations which resulted in a large increase in loans to developing countries, not an increase in grants.
I have written extensively about how to address crises while building a more equitable global system aimed at achieving the Sustainable Development Goals, calling for a major paradigm shift in how we raise international public finance. That is why I want to see Global Public Investment (GPI), a new system for concessional financing of global public goods – in which all contribute, decide and benefit, – explored as a top priority. But we need to go beyond the global level to think regionally too.
While global approaches are vital, it is sometimes argued that global public finance fails to respond adequately to regional and country priorities. Numerous aid management platforms have been set up at the country level to align global donor priorities with country needs, but analysis by the Global Partnership for Effective Development Cooperation has shown the challenges in achieving alignment through their regular monitoring reports. Can the principles that underpin GPI be applied beyond global public goods in helping raise and distribute regional public concessional finance? Or in other words, could building a Regional Public Investment (RPI) mechanism?
RPI would aim to leverage funds from the region for the region to create greater regional equity, foster regional development, and deliver regional public goods, specifically supporting the convergence of the poorest countries and subregions with other regional leaders. Countries in the region would have a stake in the system by contributing to the fund based on what they can afford. They would also have a voice in how the funds are spent in their own countries in alignment with regional objectives, and a shared accountability to drive growth and development in their countries for the stability and success of the whole region.
This kind of thinking is already present in some regions. It sits at the heart of the EU’s attempts to address regional disparities via its globally unique Structural and Investment Funds, which have played a significant part in a continent-wide levelling-up programme. Member States contribute to these funds which then provide grants to less well-developed regions within the bloc, with the aim of achieving greater regional economic, social and territorial cohesion.
Could similar regional public financing mechanisms emerge elsewhere? There are three main reasons why I think there is a clear opportunity to drive this agenda now.
Firstly, many regions are becoming wealthier, with a growing middle class, notably in Asia. In India for example, despite many domestic challenges, growth this year has been at 8%, the fastest growing major economy in the world according to the International Monetary Fund (IMF). The IMF predicts that by 2027 India will be the world’s fifth largest economy, with a GDP of $5trn at market prices. As regional wealth grows, so does the opportunity to contribute to regional funds and reduce dependency on global public funds which remain constrained, and often do not align with regional and country priorities.
Secondly, there is a growing appetite for regional multilateralism which has been accelerated by the pandemic. In Africa for example, the Covid-19 pandemic demonstrated overdependence on imports of vaccines and donor goodwill, and the continent’s ability to weather the economic impacts have been constrained by an inability to access public finance. The move toward regional cooperation and the desire for African solutions to Africa problems is strong, as demonstrated by the establishment of the Africa Continental Free Trade Area, the African Medicines Agency and the African Framework for Action. South Asia has also seen regional cooperation strengthened through initiatives like energy integration.
Thirdly, we have seen the strengthening of regional development banks which channel funding from donor countries to less well-developed regions. While these funds are largely non-concessional, many of them, such as the African Development Bank, also contain small, highly concessional facilities. For example, the African Development Fund which sits within the African Development Bank, provides concessional loans and grants to reduce poverty and stimulate economic growth. However, it remains reliant on investments from global donors, leaving it vulnerable to capture by donor priorities as opposed to those of regional recipients.
While RPI is still very much a nascent idea, I believe that the conditions are there for it to become a reality within regional governance bodies, or to lead to the formation of larger concessional facilities within regional development banks. In Africa, Development Initiatives is keen to partner with institutions, organisations and leaders who are interested in taking this new idea forward and exploring how it could become a reality for regions around the world.
This blog is part of Bond's Future Dialogues series.