Financial Daily from THE HINDU group of publications
Monday, Sep 27, 2004
Industry & Economy
`Innovative funding sources needed for achieving Millennium Development Goals'
New Delhi , Sept. 26
AS mobilising additional finance to meet the challenges of the Millennium Development Goals remains a priority, increased funding (private and public)by tapping new sources is needed to invest in basic services and infrastructure for human development in the world's poorest countries.
This is the broad conclusion of a policy brief by the Helsinki-based UN University World Institute for Development Economics Research (UNU-WIDER) made by Prof A.B. Atkinson, Project Director and Warden of Nuffield College, University of Oxford.
The study said substantial external funding needs to be mobilised to achieve the Millennium Development Goals. It noted that estimates differ, but a `ballpark' figure is an annual increase of $50 billion. This can be achieved by doubling official development assistance. Though welcome steps have been made in this direction, this could take time, it said, and proposed seven innovative sources of funding.
The sources range from global environmental taxes (carbon use tax), tax on currency flows (the Tobin tax), creation of new Special Drawing Rights (SDR), International Finance Facility to global lottery and global premium bond and increased remittances from emigrants.
The study contended that the two global taxes could yield revenue of the magnitude required (tax on carbon use) or at least half the requirement (the Tobin tax). Besides, the tax rates for this purpose are in magnitude smaller than the tax rates proposed by those advocating these taxes on allocational grounds.
The Tobin taxes, proposed to discourage excessive currency speculation, have been 10 or 20 basis points, whereas what is envisaged by the study is a rate of two basis points. The energy tax has a rate of one-tenth or one-twentieth of that typically considered in the literature on global warming.
The International Finance Facility proposed by the UK Government could, if it attracts sufficient backing from other major donors, yield flows over the crucial period up to 2015.
The creation of SDRs for development has been envisaged to raise $25 billion-$30 billion. This implies that though it can contribute a significant part of the total, it must be complemented with other measures.
One such additional source is global lottery, if agreements could be hammered out with national lotteries. A global premium bond can provide a flow of loan funding not otherwise available. Supporting roles can be played by enhanced remittances from emigrants and, on a more modest scale, increased private donations, the study said.
The study said serious barriers exist to the enactment of the proposals for new sources of funding and they could be overcome by re-design, to make the proposals more compelling.
In the case of global lottery, for instance, the prize structure can be constructed in such a way that it helps differentiate the product from that of national lotteries and avoids the possible negative effects of very large prizes.
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