Financing to Provide Sustainable Development to Developing Countries!
The world is facing serious environmental problems, which can be solved and controlled only when proper finances are available. The question is—who will pay? Naturally, those who are responsible for it, but at the same time, it is the responsibility of those developed countries, which are capable both technologically as well as financially. Efforts have been made in this direction but still there is long way to go.
Accepting sustainable management as an objective has been easier to achieve than that of the contentious issue of financing it. The available financial estimates vary in quality, and should be treated only as indicative and order of magnitude estimates. They do, however, provide the starting point for analysing financial requirements for sustainable estimates. This lack of robustness of the estimates also makes firm international agreements difficult to achieve.
Financing sustainable development involves following three interrelated issues:
a. The level or total amount of funding needed, depending on the scope of the overall programmes and targets to be achieved in specific areas;
b. Terms and conditions involved in the sharing of costs between countries specifically between the developed (high income) and the developing (low and middle income) countries; and
c. Country wise mobilisation of the requisite internal resources.
Funding necessary to provide sustainable development to the developing countries has been estimated in three different ways as discussed below:
The two conventions of UNCED (Framework Convention of Climatic Change and Convention on Biological Diversity) established the principle that the developing countries should be refunded the full agreed incremental costs associated with measures taken under them with the Global Environment Facility (GEF) as the interim funding mechanism, However, as environmental protection and development are inextricably linked, the term ‘full agreed incremental cost’ has proved to be difficult to define and operationalise. The two conventions did not mention any specific cost.
The GEF was endowed with an initial funding of $1.3 billion for a three-year period from July 1991 to June 1994. It concentrates on four key areas: global warming, biological diversity, pollution of international waters, and stratospheric ozone depletion. Since March 1994, the GEF has become a permanent financial mechanism.
The GEF is managed through a collaborative tripartite arrangement involving the World Bank, UNEP and the UNDP. In practice, the World Bank, where the facilities are located, had been the dominant partner. Up to 80 per cent of the GEF funds can be attached to the Bank’s sector loans. The GEF grants up to early 1996, totalled over $1 billion to fund 113 projects in 63 developing countries, with approximately 45 per cent of the total commitments funding biodiversity projects and a further 40 per cent funding projects dealing with climatic change.
A group of 30 wealthy donor countries is already committed to tripling the GEF core fund to $4 billion. The actual GEF funding of around $1 billion is regarded as too small, especially in comparison to the official development assistance ($51.7 billion in 1993) and private financial flows ($157.7 billion in 1993) to make a significant difference.
The supporters of the GEF argue that although the amount involved is small, it can act as a catalyst for global sustainability. For example, by providing only the incremental cost for financing more eco-friendly technology, the GEF can optimise its leverage from the limited resources, and have a much larger impact that its own resources would suggest.
The UNCED secretariat estimated the average annual (over the 1993-2000 periods) cost of implementing21 programmes for the developing countries.
The estimates were based on incomplete supporting documents and not reviewed by the national governments. The estimated annual cost was just below $600 billion, with $130 billion (22%) provided through grant or concessional requirements. This amount is put in perspective when the GDP of all low-income and middle-income countries is noted: $5,276 billion in 1994. The $470 billion ($600-$ 130 billion) cost to be borne by the developing countries is 8.9 per cent of their 1994 GDP.
The $130 billion concessional element to be funded by the high-income countries is 0.65 per cent of their 1994 GDP of $20,120 billion. However, the total official long-term net resource flows to developing countries in 1993 was only $51.7 billion, or 40 per cent of the estimated $130 billion. The private net flows of 1993 to the developing countries were $157.7 billion. Thus, the importance of official flows is now much less than that of private flows.
Even if the newly industrialised countries, such as: Taiwan, South Korea and Singapore, begin making overdue contributions to net official flows of assistance to the developing countries, the requisite amount is unlikely to be realised. The fiscal stringency being faced by the high-income countries, along with the ideological shift towards the private sector as opposed to the public sector solutions, makes it unlikely that the estimated concessional resource flows would be forthcoming.
The UNCED secretariat estimates were carried out according to the programme areas of Agenda 21. The largest sums were for the following areas: human settlements ($215 billion), fresh water ($55 billion), human health ($51 billion), agriculture ($32 billion), deforestation ($31 billon), poverty ($30 billion), biotechnology ($20 billion), and education, public awareness and training ($15 billion). It should be stressed that Agenda 21 takes a broader view of the environment and therefore poverty reduction, trade liberalisation, health care, shelter, etc., are included as part of the environmental management effort.
The 1992 World Development Report was devoted to the development and environment. It estimated that in 2000 AD the additional investment in selected environmental programmes would amount to $75 billion or about 1.4 per cent of the GDP of developing countries for that year. The major items of additional investments are soil conservation and afforestation ($15-20 billion), reducing emissions, effluents and wastes from industry ($10-15 billion), controlling main pollutants from vehicles ($10 billion) and family planning ($7 billion).
The report also recommended that such investments should be made on a self-financing basis to the extent consistent with equity and other objectives.
The above three examples of financial estimates suggest that clarity in this area is much below the desired level, in spite of its crucial importance. The methods used to arrive at these estimates not always being explicit, their robustness cannot be determined. It is not clear whether in kind services are included in the estimates and what is the level of efficiency assumed in carrying out environmental projects.
Financial resources and mechanism play a key role in the implementation of Agenda 21. In general, the financing for the implementation of Agenda 21 will come from a country’s own public and private sectors. For developing countries, ODA is the main source of external funding and substantial new and additional funding for sustainable development. Renewed efforts are essential to ensure that all sources of funding contribute to economic growth, social development and environmental protection.