Home Today's Paper Most Popular Video Gallery Photo Gallery
Subscription Blog Signin Register
Logo
Thursday, June 29, 2017 04:43:57 AM
Follow Us On: Facebook Twitter Twitter Twitter Twitter

Most financial inflows not developmental

By
19th-Mar-2017       Readers ( 107 )   0 Comments
Comments
Share your thought
Post a comment »
Read all (0) »

Anis Chowdhury and Jomo Kwame Sundaram :
Recent disturbing trends in international finance have particularly problematic implications, especially for developing countries. The recently released United Nations report, World Economic Situation and Prospects 2017 (WESP 2017) is the only recent report of a multilateral inter-governmental organization to recognize these problems, especially as they are relevant to the financing requirements for achieving the Sustainable Development Goals (SDGs).
Resource outflows rising
Developing countries have long experienced net resource transfers abroad. Capital has flowed from developing to developed countries for many years, peaking at US$800 billion in 2008 when the financial crisis erupted. Net transfers from developing countries in 2016 came close to US$500 billion, slightly more than in 2015.
Most financial flows to developing and transition economies initially rebounded following the 2008 crisis, peaking at US$615 billion in 2010, but began to slow thereafter, turning negative from 2014. Such a multi-year reversal in global flows has not been seen since 1990.
Negative net resource transfers from developing countries are largely due to investments abroad, mainly in safe, low-yielding US Treasury bonds. In the first quarter of 2016, 64 per cent of official reserves were held in US$-denominated assets, up from 61 per cent in 2014.
High opportunity costs
By investing abroad, developing countries may avoid currency appreciation due to rising foreign reserves, and thus maintain international cost competitiveness. But such investment choices involve substantial opportunity costs as such resources could instead be used to build infrastructure, or for social investments to improve education and healthcare.
The African Development Bank estimates that African countries held between US$165.5 and US$193.6 billion in reserves on average between 2000 and 2011, much more than the infrastructure financing gap estimated at US$93 billion yearly. The social costs of holding such reserves range from 0.35% to 1.67% of GDP. Investing about half these reserves would go a long way to meeting infrastructure financing needs on the continent.
This high opportunity cost is due to the biased nature of the international financial system in which the US dollar is the preferred reserve currency. As there is no fair and adequate international financial safety-net for short-term liquidity crises, many developing countries, especially in Asia, have been accumulating foreign reserves for 'self-insurance', or more accurately, protection against sudden capital outflows or speculative currency attacks which triggered the 1997-1998 Asian financial crisis.
Foreign capital inflows falling
Less volatile than short-term capital flows, foreign direct investment (FDI) in developing countries was rising from 2000, peaking at US$474 billion in 2011. But since then, FDI has been falling to US$209 billion in 2016, less than half the US$431 billion in 2015.
Most FDI to developing countries continues to go to Asia and Latin America, while falling commodity prices since 2014 have depressed FDI in resource rich Sub-Saharan and South American countries. Falling commodity prices are also likely to reduce FDI flows to least developed countries (LDCs), which need resource transfers most, but only receive a small positive net transfer of resources.
Bank lending to developing countries has been declining since mid-2014, while long-term bank lending to developing countries has been stagnant since 2008. The latest Basel capital adequacy rules also raise the costs of both risky and long-term lending for investments.
Portfolio flows to developing countries have also turned negative in recent years. Developing countries and economies in transition experienced net outflows of US$425 billion in 2015 and US$217 billion in 2016. The expected US interest rate rise and poorer growth prospects in developing countries are likely to cause further short-term capital outflows and greater exchange rate volatility.
Aid trends disappointing
Although aid flows have increased, aid's share of GDP has declined after 2009. The recent increase has been more than offset by counting expenditure on refugees from developing countries as aid. When refugee expenditures are excluded from the aid numbers, the 6.9 per cent increase in 2015 falls to a meagre 1.7 per cent. In five DAC countries, aid numbers fell once refugee costs were omitted. Thus, WESP 2017 emphasizes the importance of decomposing aid components and of separately tracking country programmable aid (CPA).
At 0.30 per cent of the gross national income (GNI) of OECD DAC members, official aid falls far short of the 1970 commitment by developed countries to provide aid equivalent to 0.7 per cent of GNI. Only six OECD countries - namely Denmark, Luxembourg, Netherlands, Norway, Sweden and the United Kingdom - met or exceeded the UN target in 2015. But aid to LDCs has been declining since 2010; even bilateral aid declined by 16 per cent in 2014.
Meanwhile, disbursements by multilateral development banks only increased marginally in 2015 while new commitments declined. Commitments by the World Bank's concessional lending arm, the International Development Association (IDA), which relies on donor contributions to provide concessional credits and grants to low-income countries, declined in real terms during 2014-2015.
Reversing resource outflows
Developing countries also lost an estimated US$7.8 trillion in illicit financial flows (IFFs) between 2004 and 2013 through tax avoidance, transfer-pricing, trade mis-invoicing and profit shifting by transnational corporations (TNCs). Over the past decade, IFFs were often greater than combined aid and FDI flows to poor countries.
Hence, WESP 2017 calls for a complete revamp of the international financial system to address these development finance issues and ensure needed resource transfers to developing countries. Failing to do so will put the SDGs at risk.

(Anis Chowdhury, a former professor of economics at the University of Western Sydney, held senior United Nations positions during 2008-2015 in New York and Bangkok. Jomo Kwame Sundaram, a former economics professor and United Nations Assistant Secretary-General for Economic Development, received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought in 2007).

0 Comments. Share your thoughts also.
Write a comment
Tariff
Add Rate

News Archive

Inside The New Nation

Cricket »

Sabbir Rahman in top ten T20I list


Sports Reporter  :The three-match T20 I series between England and South Africa was concluded recently. After the series, International Cricket Council (ICC) announced the top ten T20 I batsmen, bowlers and all-rounders.According to the latest ICC ranking Sabbir Rahman has taken the tenth spot in the list of the T20 ...

Editorial »

The worsening human trafficking situation


HUMAN trafficking has worsened in Bangladesh from Tier 2 in the previous five consecutive years to Tier 2 'Watch List' this time.  The US Human Trafficking Report -2017 released by the State Department on Tuesday made the point making it clear that Bangladesh government is not doing enough to stop ...

Entertainment »

Nazmul Huda Bachchu passes away


Entertainment Report :Veteran film and television actor Nazmul Huda Bachchu has passed away. The 78-year-old died while undergoing treatment at city’s Square Hospital around 4:00am on Wednesday. Bachchu was down with fever two days before Eid after returning from a shoot, said his wife Lina. He was admitted to the ...

City »

KISHOREGANJ: Country`s biggest Eid congregation was held at the historic Sholakiya Eidgah Maidan in Kishoreganj on Monday. Noted Islamic thinker Moulana Farid Uddin Masud led the 190th Eid Jamaat .


International »

Qatar condemns Saudi refusal to negotiate over demands


BBC Online :Qatar's foreign minister has condemned its Gulf neighbours for refusing to negotiate over their demands for restoring air, sea and land links.Sheikh Mohammed Al Thani said the stance was "contrary to the principles" of international relations.Saudi Arabia, the United Arab Emirates, Bahrain and Egypt accuse Qatar of aiding ...

Editorial »

Eid Mubarak


THE nation is set to celebrate EID-UL-FITR on Monday subject to sighting of the moon of Shawal. It is also known as the 'Feast of Breaking the Fast' through the whole month of Ramzan. Preparations are afoot throughout the country to end the fasting through festivities. Eid is an important ...

Cricket »

Danielle Hazell claimed the wicket of Punam Raut in the match of the ICC Women`s World Cup between England and India in Derby on Saturday.


.

City »

BNP Standing Committee Member Gayeshwar Chandra Roy speaking at a protest rally organised by Jatiyatabadi Projanmo Dal at the Jatiya Press Club on Saturday demanding release of BNP leader Barkat Ullah Bulu.


.

Entertainment »

Shahrukh is not doing a cameo in Jagga Jasoos


It was recently reported that Shah Rukh Khan will do a cameo in Ranbir Kapoor’s Jagga Jasoos, however contrary to the rumours it emerges that Shah Rukh Khan will not be seen in Anurag Basu’s musical adventure featuring Ranbir Kapoor and Katrina Kaif. Sources close to the film rubbishes the ...

International »

Ivanka ordered to testify in dispute with shoe company


AP, New York :Ivanka Trump must testify in a dispute with an Italian shoemaker over one of her company's shoe designs, a judge said Friday.U.S. District Judge Katherine Forrest rejected a request by the senior White House aide's lawyers that she be blocked from submitting to a deposition in the ...

Editorial »

Safety on highway must be high on card


AS the Eid-ul-Fitr is knocking the door, home-bound passengers are taking long journey on highways and using Railways and Waterways to reach families overnight. There is acrimonious scene all over and we must say the government must ensure discipline at critical places to avoid mishap. The weather is however good ...

Back Page »

Iftar Mahfil welfare approach


Abdul Muqit Chowdhury :Iftar Mahfil has become a tradition in the Holy Ramzan. Such gathering, if it is a positive approach to contribute to fraternal relation in the society, is surely acceptable. Sharing the joy of fasting irrespective of social status and class is praiseworthy.This reflects allegiance to the Islamic ...

City »

BNP Standing Committee Member Barrister Moudud Ahmed, among others, at a discussion on 'Attack on Mirza Fakhrul Islam Alamgir and Amir Khasru Mahmud Chowdhury and Future of Clean Politics of Bangladesh' organised by Swadhinata Forum at the Jatiya Press Club on Friday.


.

Entertainment »

Alia is Raazi for Meghna Gulzar`s next


Alia Bhatt is all set to feature in Meghna Gulzar’s next, Raazi. The actress would be seen playing a Kashmiri girl marries to a Pakistani army officer in the espionage thriller. Raazi portrays the story of a Kashmiri girl married to a Pakistani army officer who would provide Indian intelligence ...

International »

Senate Republicans unveil Obamacare replacement bill after months of closed-door crafting


Reuters, Washington :U.S. Senate Republicans on Thursday unveiled their version of legislation that would replace Obamacare, proposing to kill a tax on the wealthy that pays for it and reduce aid to the poor to cut costs.With Democrats deeply opposed to Republican attempts to overhaul former President Barack Obama's signature ...

 
Items that you save may be read at any time on your computer, iPad, iPhone or Android devices.
 
Are you new to our website? Do you have already an account at our website?
Create An Account Log in here
Email this news to a friend or like someone
Email:
Write a comment to this news