Mobilizing Finance for Sustainable Development

24 June 2019

Vatcharin Sirimaneetham

Overview of the presentation

1. Introducing integrated national financing frameworks

2. Increasing tax revenues- Improving tax administration

- Expanding the tax base

3. Prudent sovereign borrowing from financial markets

4. Leveraging private funds through public-private partnerships (PPPs)

5. Enhancing the role of domestic capital markets

1. Introducing integrated national financing

frameworks

Integrated national financing frameworks: overview

- Many national development plans are not accompanied by financing strategies.

- Integrated national financing frameworks help:- Align financing with long-term priorities- Focus on binding constraints to mobilize resources- Identify targeted policies and reforms- Facilitate sequencing of reforms

Integrated national financing frameworks: building blocks

Source: FSDR 2019

Sources of finance and means of implementation

Source: FSDR 2019

2. Increasing tax revenue

Tax revenue collection improved recently in most Asia-Pacific countries…

Source: ESCAP Financing for Development in Asia-Pacific 2019

…but remains below potential in several economies

1.3

1.5

1.8

1.8

2.1

3.0

4.7

5.8

6.2

6.7

7.5

Malaysia

Philippines

China

Pakistan

Azerbaijan

Cambodia

Indonesia

Maldives

Afghanistan

Bhutan

Bangladesh

Estimated tax gaps in selected Asia-Pacific economies (% of GDP)

Source: ESCAP Survey 2014

The Tax Administration Index: components

Source: ESCAP Survey 2018

The Tax Administration Index: results

0102030405060708090

Tax AdministrationIndex

Autonomy of taxaurthorities

Managing taxcompliance

Legal andregulatoryframeworkDeveloping Asia-Pacific countries (14)

Other developing coutries (13)Developed countries (33)

Source: ESCAP Survey 2018

Better tax administration, higher tax revenue

China

Hong Kong, China

Indonesia

IndiaCambodia

Republic of Korea

Myanmar

MongoliaMalaysia

PhilippinesSingapore

Thailand

Tajikistan

Turkey

0

5

10

15

20

25

30

35

20 30 40 50 60 70 80 90 100

Tax

reve

nue-

to-G

DP

ratio

in 2

014

(%)

The value of Tax Administration IndexSource: ESCAP Survey 2018

Expanding tax base: tax expenditure on FDI incentives

5.8

3.2 3.1

1.0 1.0 0.80.5

0.50.1 0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0

1

2

3

4

5

6C

hina

Indi

a

Rus

sian

Fede

ratio

n

Mal

aysi

a

Thai

land

Indo

nesi

a

Phi

lippi

nes

Turk

ey

Vie

t Nam

% o

f GD

P

$ bi

llion

$billion (left axis)% of GDP (right axis)

Source: ESCAP Survey 2018

Expanding tax base: Introducing carbon taxes

1.7

0.6

0.7

0.8

0.9

1.2

4.5

5.9

27.0

Others (30 countries)

Malaysia

Kazakhstan

Thailand

Turkey

Indonesia

Russian Federation

India

China

$ bi

llion

Potential tax revenue from introducing a carbon tax ($ billion)

Source: ESCAP Survey 2018

3. Prudent sovereign borrowing from financial

markets

Public debt remains largely manageable in Asia-Pacific

0

10

20

30

40

50

60

70

80U

zbek

ista

nR

ussi

an F

eder

atio

nK

azak

hsta

nN

epal

Turk

eyIn

done

sia

Iran

(Isla

mic

Rep

ublic

of)

Ban

glad

esh

Phi

lippi

nes

Pap

ua N

ew G

uine

aM

yanm

arC

ambo

dia

Rep

ublic

of K

orea

Thai

land

Aze

rbai

jan

Chi

naTa

jikis

tan

Mal

aysi

aK

yrgy

zsta

nV

iet N

amLa

o P

DR

Pak

ista

nIn

dia

Sri

Lank

a

% o

f GD

P

2017 2022Public debt levels in 2017 and 2022

Source: ESCAP Survey 2018

Limited public borrowing due to poor credit ratings

0

1

2

3

4

5A

aaA

a1A

a2A

a3 A1

A2

A3

Baa

1B

aa2

Baa

3B

a1B

a2B

a3 B1

B2

B3

Caa

1C

aa2

Caa

3C

a C

(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

Num

ber o

f cou

ntrie

s

Source: www.tradingeconomics.com

Factors explaining Asia-Pacific government’s ability to issue domestic and foreign bonds

- Economic performance- Output growth, total debt

- External vulnerability- Current account, external debt, trade openness

- Fiscal performance - Fiscal balance

- Institutional variables- Financial sector development, legal and regulatory quality

4. Leveraging private funds through public-private

partnerships

PPP enabling environment index

More enabling policy environment, larger PPP value

Source: ESCAP Survey 2018

5. Enhancing the role of domestic capital markets

Bank loans dominate infrastructure finance in Asia-Pacific

0

20

40

60

80

100

120

140

2015 2016 2017 2018

Bill

ions

of U

S d

olla

r

Bank Loans Bonds Equity DFI Loans

Source: IJGlobal’s Infrastructure and Project Finance League Table

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9Kiribati

MaldivesMarshall Islands

SamoaSolomon Islands

TajikistanTimor-Leste

VanuatuMyanmar

CambodiaFiji

KyrgyzstanTurkmenistan

NepalArmeniaBhutan

BangladeshGeorgia

UzbekistanAzerbaijan

Lao PDRMacao, China

PakistanSri LankaMongolia

Brunei DarussalamPapua New Guinea

Viet NamIran, Islamic Rep.

Asia and PacificIndonesia

KazakhstanPhilippines

Russian FederationIndia

New ZealandTurkey

MalaysiaChina

SingaporeHong Kong, China

ThailandJapan

AustraliaRepublic of Korea

Capital market development levels in Asia-Pacific in 2016

Source: IMF

Policy options for capital market development- Ensuring an enabling economic environment

- Macroeconomic stability- Financial sector development- Legal and regulatory framework

- Strengthening bond market structure, intermediaries and architecture

- Deepening a sovereign bond market- Widening the investor base, e.g. institutional investors- Diversifying financial instruments, e.g. Islamic finance- Increasing market liquidity- Improving a risk transfer mechanism, e.g. state guarantees- Protecting investor rights

Takeaway messages- The prospects for mobilizing financing for development seem

promising.- Stronger tax administration - Expand the tax base - Public bond financing - Better policy environment for PPP

- Yet, careful policy efforts are needed. - Carbon tax: possible impacts on household income and

business tax burden- PPP: heightened fiscal contingent liability, users’ fees- Expanding investor base: financial instability from capital

account openness- State guarantees: cost and benefit analysis

Thank you!

Financing for Development in Asia and the Pacific 2019www.unescap.org/resources/financing-development-asia-and-pacific-highlights-context-addis-ababa-action-agenda-2019

Economic and Social Survey of Asia and the Pacific 2018www.unescap.org/publications/economic-and-social-survey-asia-and-pacific-2018

Financing for Sustainable Development Report 2019www.developmentfinance.un.org/fsdr2019