GLOBAL POLICY LAB
LSE
LSE Institute of Global Policy
Business Should Care About Public Finance for Development
Amar Bhattacharya
Senior fellow at the Global Economy and Development Program at Brookings Institution
Homi Kharas
Interim Vice President and Director of the Global Economy and Development Program
Amar Bhattacharya
Homi Kharas

The G20 Finance Ministers requested an Eminent Persons Group (EPG) to make recommendations on global financial governance. The report of this group, delivered in October 2018, argues that “we need substantially greater impact in helping countries achieve sustainable development and inclusive growth, and in managing the growing pressures in the global commons. The current pace of change will not get us there.”

The EPG report outlines reforms to position multilateral institutions at the center of a “cooperative international order suited to the 21st century.” Only in a global context that is decentralized, yet resilient, can national policies align with international initiatives. Individual countries need such a system to achieve the universally-agreed set of UN Sustainable Development Goals (SDGs) by 2030. The world needs such a system if it is not to be overwhelmed by the challenges it confronts—climate change, low productivity growth and wage growth and sustainable infrastructure accessible to all.

The returns could be considerable; one study estimates that achieving the SDGs would unlock $12 trillion in new opportunities in just four economic systems—food and agriculture, cities, energy and materials, and health and well-being.

The thrust of the report’s recommendations are that a much larger scale of private investment will be needed if we are to meet the sustainable development goals and tackle the pressing global challenges confronting the world in the coming two decades, including climate change. Multilateral institutions have a unique set of strengths to help unlock investment opportunities and mitigate risks to the private sector. They can assist countries to put in place better policies, regulations, governance, logistics and human capital. They can help countries prepare sustainable, bankable projects, especially where some government finance is required. They can construct country platforms to bring investments to scale. They can catalyze and mobilize finance using their own resources, and by deploying new financial instruments, like first-loss guarantees and co-investment vehicles to crowd-in the private sector.

Fitting Puzzle Pieces Together

The EPG report calls on international institutions to “embark on system-wide insurance and diversification of risk, to create a large-scale [infrastructure] asset class and mobilize significantly greater private sector participation.” The scope for unlocking investments through system-wide cooperation applies across all sectors. The returns could be considerable; one study estimates that achieving the SDGs would unlock $12 trillion in new opportunities in just four economic systems—food and agriculture, cities, energy and materials, and health and well-being.

Japanese leaders have understood these opportunities. Prime Minister Abe has outlined Japan’s priorities for the G20. They include: infrastructure for development; global health; climate change; and advancement of the SDGs. The recommendations in the EPG report will promote these same priorities by creating an environment where business itself can find opportunities that are profitable and that generate desirable social and environmental outcomes.

The EPG report outlines reforms to position multilateral institutions at the center of a “cooperative international order suited to the 21st century.” Only in a global context that is decentralized, yet resilient, can national policies align with international initiatives.

The business community should care deeply about the construction of a cooperative international order that fosters a more efficient global allocation of public and private capital. But an open, interconnected world requires a modernization of international financial institutions and a strengthening of global financial systems. The EPG report provides a roadmap that would allow every country to become more prosperous by embracing smart growth, and for a new multilateralism that can deliver win-win outcomes in a multipolar and more complex world with shared opportunities and unprecedented challenges.

Amar Bhattacharya is senior fellow at the Global Economy and Development Program at Brookings Institution. His focus areas are the global economy, development finance, global governance, and the links between climate and development.

From April 2007 until September 2014 he was Director of the Group of 24, an intergovernmental group of developing country Finance Ministers and Central Bank Governors. In that capacity he led the work program of the Group, supported the deliberations of the Ministers, and was the principal point of interface with other organizations including the G20. He has therefore been an active participant in the global economic discussions and a key representative of the views of developing countries.

Prior to taking up his position with the G24, Mr. Bhattacharya had a long-standing career in the World Bank. His last position was as Senior Advisor and Head of the International Policy and Partnership Group. In this capacity, he was the focal point for the Bank’s engagement with key international groupings and institutions such as the G7/G8, G20, IMF, OECD and the Commonwealth Secretariat.

Homi Kharas is the Interim Vice President and Director of the Global Economy and Development program. In that capacity, he studies policies and trends influencing developing countries, including aid to poor countries, the emergence of the middle class, and global governance and the G-20.

He has served as the lead author and executive secretary of the secretariat supporting the High Level Panel, co-chaired by President Sirleaf, President Yudhoyono and Prime Minister Cameron, advising the U.N. Secretary General on the post-2015 development agenda (2012-2013). The report, “A New Global Partnership: Eradicate Poverty and Transform Economies through Sustainable Development” was presented on May 30, 2013.

His most recent co-authored/edited books are The Imperative of Development (The Wolfensohn Center at Brookings, 2017), The Last Mile in Ending Extreme Poverty (Brookings Press, 2015), Getting to Scale: How to Bring Development Solutions to Millions of Poor People (Brookings Press, 2013); After the Spring: Economic Transitions in the Arab World (Oxford University Press, 2012); and Catalyzing Development: A New Vision for Aid (Brookings Press, 2011). He has published articles, book chapters and opinion pieces on global development policy, global trends, the global food crisis, international organizations, the G20, the DAC and private philanthropy.

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