Assignment for Finance for Development, 2015. The World Bank Group

1. Creating Enabling Environment to Reduce Poverty in our World
Behailu Weldeyohannes
Finance for Development, 2015. The World Bank Group
The term development has been one of the most challenging terms to understand and define as
countries and institutions have been using their own specific and unique standards or terms to refer
their level of development. Most of the cases development was confused with economic growth,
which is only refers part of development. Despite differences on the definition of development, the
fact that growth was achieved in many countries at the cost of greater inequity, abuse of human
rights, higher unemployment, discrimination, loss of cultural identity, compromising the safety of our
environment, overconsumption of resources by compromising the need of the future generations
required to demarcate a border between economic growth and development. The concept of
development has to be seen within the framework of the sustainable development goals.
The sustainable development goals (SDGs) are a universal set of goals, targets and indicators that UN
member states are expected to use to frame their agendas and political policies over the coming
fifteen years. The SDGs comprise 17 objectives and 169 targets with the aim of tackling the dual
challenge of overcoming poverty and protecting the planet. A properly designed and implemented
social, economic, cultural, and environmental program can bring development and help to end all
forms of human sufferings.
Despite some positive news from recent reports in terms of success in reducing poverty, sadly a
significant number of people still live in ​extreme poverty​. Therefore, reducing extreme poverty is
become one of the goals of the SDGs. According to the first goal, by 2030 we need to reduce poverty
by
Source: ​http://www.un.org/sustainabledevelopment/inequality/
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2. half the proportion of of men, women, and children of all age living in poverty. The goal requires the
poor and the vulnerable to have access to economic resources, basic services ownership and control.
Achieving the SDGs related to poverty eradication requires a multi-trillion dollar financial guarantee
from the public, private, domestic, and international sources and a mechanism to address possible
challenges involved in scaling up financing to meet the goals in developing countries. Developing
countries are required to assess and use available financial options to ensure financing of all goals in
their respective countries. In this regard, policy makers should look into the options and opportunities
available in domestic public finance, international public finance, domestic private finance, and
international private finance to finance projects aimed to eradicate poverty, provide public goods and
services, and manage macroeconomic stability at the national level.
Raising sufficient finance to fund the cost of achieving development goal highly requires the existence
of competent and effective institutions and policies at the national, regional and international level.
Good policies and practices are very crucial to leverage sustainable development goals and reduce the
cost of achieving such goals. The task of raising sufficient finance and using it effectively requires
creating conducive enabling legal, organizational, fiscal, informational, political, and cultural
environments at the national and international level.
Source: reading materials for week one
This paper argues that enabling environment including laws, regulations, institutions, infrastructure,
as components of the enabling environment can help to raise finance to leverage the sustainable
development goals in the coming fifteen years. The paper further argues that finance raised from
national and international sources should be invested in a way that can combat corruption by
increasing the level of responsibility and accountability. While infrastructure and other forms of
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enabling environments are vital to reduce cost, time and labor, laws, regulations and institutions
additionally can play an important role to improve and ensure the competency and efficacy of public
and private institutions.
Enabling environments can encourage national governments and development agents to use
domestic resources to finance SDG in the developing countries. In the recent years, the total domestic
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https://www.worldbank.org/content/dam/Worldbank/document/Poverty%20documents/WB-PREM%20financing-fo
r-development-pub-10-11-13web.pdf
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3. sources of revenue are showing a growing tendency in developing countries. For example, the sector
grew in the 54 Sub-Saharan African countries from $100 billion in 2000 to nearly $513 billion in 2011
according to the African Economic Outlook. This is encouraging, but not enough. Therefore, policy
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makers should take additional steps by improving the enabling environment to raise additional billion
dollars from domestic sources to finance programs and projects aimed to reduce poverty.
For example, strengthening the national tax laws and the tax collection system will be essential to
provide governments with sustainable revenue sources to finance the post-2015 Sustainable
Development Goals and invest in development, get rid of poverty and deliver public services. As
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Effective taxation provides a reliable and sustainable source of revenues that is needed to promote
growth and offers an antidote to aid dependence in developing countries.
National tax policies, tax regulations and tax governance frameworks can help to avoid or minimize
tax avoidance by ensuring good governance in the tax system by increasing state capacity,
accountability and responsiveness by providing a platform to governments to engage with their
citizens.
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Besides helping governments to raise finance from domestic sources, enabling environments can help
to ensure an effective public expenditure regime by identifying identify how the efficiency of public
spending is achieved. For example, public expenditure can be improved through improving the design
and management of public programs, and cutting low priority or poorly-designed spending. Persistent
corruption and lack of transparency in both developing and developed countries can inhibit tax
payers’ willingness to comply with tax laws and proves that more attention needs to be paid to enable
the anti-corruption wing to guarantee the safety of the tax system.
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Enabling environments can increase development impact and free up resources for additional
development-focused outlays by introducing and requiring strong performance metrics, effective
monitoring, better policies, and reforms in procurement and in subsidy regimes.
Enabling environments are very crucial to increase the flow of finance from international public
finance sources, such as the official development assistance and investment. Official Development
Assistance, in which funding is concessional in character and is provided by governments and official
agencies to finance development in low and middle income countries, requires the existence of
capable and accountable institutions at the national level.
Some countries, for example U.S. and other liberal countries, attach their development assistance
programs with the complementary aims of promoting democracy, good governance and greater
respect for human rights to ensure the stability and development of developing countries. Most of
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the time, the aid and development assistance policies and programs of such countries require the
application of test on enabling environment in the aid receiving countries to determine which
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Daniel F. Runde, Conor M. Savoy, Paying for Development: Domestic Resource Mobilization, . Web. <
http://csis.org/publication/paying-development-domestic-resource-mobilization​>
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Strengthening Tax Systems to Mobilise Domestic Resources in the Post-2015 Development Agenda. OECD. Web.
http://www.oecd.org/dac/Post%202015%20Domestic%20Resource%20Mobilisation.pdf​.
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Ibid.
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Ibid.
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USAID. https://www.usaid.gov/results-and-data/budget-spending
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4. regions/countries and sectors should receive priority by them and what assistance should be
emphasized.
Therefore, enabling the enabling environment in developing countries can help to boost the
development cooperation with developed countries. The existence of effective enabling environment
will help developing countries by increasing the flow of aid or development assistance to support
long-term, cost-effective development projects. It can also help to solve the costs incurred and trusts
lost because of the overly ambitious or unrealistic time tables that developing countries usually
blamed for. Enabling environments can help to reduce the operational costs, and poor budgetary
issues and political factors caused by fragmented institutions and policies which normally are
preventing the effective delivery and use of international development cooperation.
The existence of strong and dependable enabling environments in developing countries is one of the
drivers’ private finance or investment which is very crucial to support development and related
projects and programs in developing countries. It is a general truth that the drivers of private finance
are different from the motivations of public finance. Private sector firms seek investment
opportunities based on risk/return considerations, which in return requires an effective enabling
system in developing countries to foster the needed private investment.
Government measures either decrease perceived risk or increase anticipated returns from private
investment. Governments have a fundamental role in providing a conducive investment climate:
through supportive governance structures; competition policy; hard and soft infrastructure; and
instruments that foster healthy, commercially sustainable markets. At the same time, businesses
realize that economic success occurs alongside social progress. Risk/return considerations increasingly
take into account the need to ensure sustainability throughout supply chains and the benefits of
increasing the customer base which is highly dependent on the type of enabling system that the
countries would have.
As highlighted in the course, financing development is an important driver of domestic growth, job
creation and ensures sustainable development. In order to enlist these flows to support sustainable
development we need to get the policy environment right – across many different dimensions, and in
both developing countries and advanced economies. Enabling environments that requires and
ensures policy coherence is critical to this effort – countries need to understand how sustainable
development goals can be reflected across government, to create an enabling environment for
domestic resource mobilization, ODA, philanthropy, remittances, and capital investment, among
others to reduce poverty before the end of 2030.
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