Monday, August 26th, 2019

Decreasing foreign aid dependence, funding development without debt is possible

The world today needs new sources of revenue. Emerging nations have very little means to finance their development and achieve sustainable economic growth.

Economic growth is the most powerful instrument for reducing poverty and improving the quality of life in developing countries. Both cross-country research and country case studies provide overwhelming evidence that rapid and sustained growth is critical to making faster progress towards the Millennium Development Goals – and not just the first goal of halving the global proportion of people living on less than $1 a day.

Growth can generate virtuous circles of prosperity and opportunity. Strong growth and employment opportunities improve incentives for parents to invest in their children’s education by sending them to school. This may lead to the emergence of a strong and growing group of entrepreneurs, which should generate pressure for improved governance. Strong economic growth, therefore, advances human development, which, in turn, promotes economic growth.

For emerging nations, however, it is not as simple. It requires investment in major development projects, so the question for many emerging nations is how to fund these much-needed development projects. The most common solution is to approach multi-lateral organisations, the World Bank, the IMF and other development banks. However, this does mean increasing a country’s debt levels, and it might not be enough. This is when Innovative Financing is a good solution, as it allows governments to fill the development finance gap.

However, and perhaps most importantly, is the ability to create new revenue streams and to break the cycle of dependence on foreign aid. Innovative Finance is a sustainable and secure way of providing the funds needed for development. This mechanism uses a country’s resources without increasing foreign aid by placing micro-contributions on transactions. Some of these activities are financial transactions, mobile telecommunications, airline tickets and many others, creating dependable new revenue streams.

My company, LSL World Initiative (LSL), specialises in Innovative Finance and has a solid track record of partnering with governments to set up and operate national strategic development initiatives tailored to the local context and in line with each country’s national development priorities.

Funding development without debt is not impossible, there is little impact on the local users and service providers, and a great number of untapped resources can be mobilised in this way. Micro-contributions on enormous volumes of transactions, aggregated, make a mega difference.

Some examples of what is possible are UNITAIDHaiti, and Jamaica.

One of the first Innovative Finance initiatives was the international solidarity levy on air tickets (or airline ticket tax). Most of the revenues from this are channelled into UNITAID, an agency specifically created to distribute the revenues raised to projects and programmes for the treatment and care of those affected by HIV/AIDS, tuberculosis and malaria—all prevalent in emerging countries.

Jamaica is stimulating entrepreneurship and boosting small business development by financing universal access to the information superhighway through its Universal Service Fund.

Haiti created a comprehensive free education programme—sending 1.4 million needy Haitian children to school free of charge and increasing elementary school attendance.

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