Kathmandu, November 20: The United Nations Conference on Trade and Development (UNCTAD) has said that the least developed countries (LDCs) in the world must proactively ensure that external finance generated from all sources are directed to national development priorities.
According to its latest report, this approach is the best way to manage their aid dependency and eventually escape from it. The LDCs are said to account for 15 of the 20 most aid-dependent countries in the world due to persistent shortfalls in their domestic savings, among other factors.
“For LDCs to attain the Sustainable Development Goals (SDGs) and escape aid dependency, they need external finance that is targeted at the structural transformation of their economies,” the report quoted UNCTAD Secretary-General Mukhisa Kituyi as saying.
“An LDC like Nepal should take ownership of their development agenda and manage the allocation of external development finance in alignment with their national development priorities. The international community also needs to step up its support towards this common goal,” the report points out.
It suggested the LDCs to utilize official development funds in a manner that will help leverage private funds through blended finance, or public-private partnership. “The number of players in external financing has increased, with the emerging developing country donors, non-profit organizations, and private commercial sources entering the field,” states the report. “LDCs need to mobilize and allocate the financing required for long-term investment in new productive sectors and activities, as well as the investments undertaken for the technological and organizational upgrading of existing sectors and producing units.”
Additionally, the report suggests such nations to establish and strengthen institutions necessary to undertake the financial analysis and planning and coordination for structural transformation, as well as those responsible for mobilization of domestic financial resources.
While release the report in Nepal, Ayshanie Medagangoda-Labe, resident representative of United Nations Development Programme, said, “ Nepal needs to receive more external sources and finance to achieve Sustainable SDGs as well as to graduate from the LDC status, “ adding, “Critically, the linkage between external development finance and national development priorities is weakening.”
Moreover, this funding diversity has not translated into a meaningful increase in development finance from all sources. Rather it has expanded the number of actors and instruments.
Official development assistance (ODA) disbursements to LDCs have increased by only 2% annually since the Istanbul Programme of Action of 2011 and remain far from internationally agreed targets, as per the report.
The sectoral composition of ODA continues to be biased towards social sectors, which absorb 45% of total aid, compared to economic infrastructure and production sectors, which receive only 14% and 8% respectively.
Modern development finance is also characterized by a growing number of complex instruments and declining concessionality – a measure of the “softness” of a credit reflecting the benefit to the borrower compared to a loan at the market rate.
The net result is that LDCs have increasingly resorted to debt financing, more than doubling their external debt stock from US$146 billion to $313 billion between 2007 and 2017. Currently, one-third of LDCs are in debt distress or at high risk of debt distress.
“This threatens debt sustainability and economic development potential. These developments are further weakening the limited state capacities of LDCs,” the report says.
In order to cope p with this situation, the UNCTAD urges LDCs to strengthen the management of their development finance. This could be achieved by establishing or reinforcing aid coordination mechanisms, as has been exemplified by some LDCs, such as Rwanda and Lao PDR.
It also mentions that bold international actions are needed for the effective implementation of the agendas.
