Resource Mobilization and Structural Transformation

Abdoulie Sireh-JallowLead Economist, IsDB

2011 African Economic Conference Green Economy and Structural Transformation

Format of presentation

• Structural Transformation• Resource Mobilization - Fiscal Space Expansion• Traditional (the Usual)• Non-Traditional sources (Ethiopian Case)

• Conclusion

Definition

•Structural TransformationLarge scale transfer of resources from some sectors to others in a system, necessitated by fundamental changes in policies or objectives.

• Why Transfer? How about Creation?• Transitioning into a Green economy is a

structural transformation•How can we fund this?

Resource Mobilization• From where????• Traditional Sources (the Usual Workhorses)• Tax and Non-Tax Revenue• ODA• Borrowing (External or internal)

• Efficient management of what we already have

And if these are NOT Enough?

• Non-Traditional Sources of Development Finance to COMPLEMENT traditional ones

• WHAT is Non-traditional??

• Lets look at the Tax Landscape in SSA

Revenue sources as % of GDP - SSA

Source: Raising Domestic Revenue for MDGs, Terry Mckinley, IPC, UNDP using IMF Statistics

Estimated Tax Effort

Source: Revenue Mobilization in Developing Countries, IMF (March 2011)

Government Revenue as % of GDP in SSA

Source: Regional Economic Outlook: Sub Saharan Africa, IMF (Apr, 2011)

• Very country-specific• What is N-T to country A may be Traditional in Country B• Examples• Carbon Sequestration and Trading• Diaspora Bonds• Trade in Services • Centers of Excellence – Trading Services in the Social Sectors • Tourism

• You can only own your development when you FUND it yourself.

What are Non-Traditional Sources?

The Case for Ethiopia

Source: Min of Finance, Ethiopia, UNDP MP, IMF, Own computations

ODA – Gleneagles Scenario

Source: Min of Finance, Ethiopia, OECD, Own computation

Food and Fuel Crisis FEC

Carbon Trading Scenario

Total Change of Forest Cover (1990-2005) (Hactares) 2,114,000.00Annual Change of Forest Cover (1990-2005) (Hactares) 140,933.33

Potential CO2 sequestered by 1 Hactre of Forest Cover 200.00 Metric TonsCost of a Metric Ton (US$) 10.00

US$ M Birr M % of GDPFiscal space with 50% reduction in Deforestation rate 140.93 1,550.27 0.63Fiscal space with 25% reduction in Deforestation rate 70.47 775.13 0.32Fiscal space with 10% reduction in Deforestation rate 28.19 310.05 0.13Fiscal space with 1% reduction in Deforestation rate 2.82 31.01 0.01

Tax Revenue as % of GDP 9.70Non-Tax Revenue as % of GDP 2.40Grants as % of GDP 4.00

Table 2 - Potential fiscal space from deforestation for Ethiopia

Source: www.Mongabay.com and own computations

Potential Fiscal Space (Select N-T Sources)

US$ M % of GDPCarbon Sequestration 141 0.60Tourism 83 0.30Diasphora Bonds 175 0.70

Total 399 1.60

Potential Fiscal Space Creation (US$ M)

Source: Prospects of Non-Traditional Sources of Development Finance in Ethiopia, UNDP Ethiopia (2010)(Unpublished)

Solar Energy Potential

Source: Millennium AG

Fiscal space expansion helps in relaxing binding constraints induced growth Catch-22 cycle

Conclusion

• YES WE CAN! • YES AFRICA CAN!

• Analytical Study in only ONE step, the next is a STRATEGIC ACTION PLAN to implement the study recommendations

• Let us explore and exploit Non-Traditional Sources of Development Finance (Country-specific).

• The more you can fund your development, the more you own your development.

Thank You

Reference documents

Revenue Mobilization in Developing Countries, IMF (March 2011)

Regional Economic Outlook: Sub Saharan Africa, IMF (Apr, 2011)

Raising Domestic Revenue for MDGs. Why wait for 2015? Terry Mckinley, IPC, UNDP (2007)

Prospects of Non-Traditional Sources of Development Finance in Ethiopia, UNDP Ethiopia and CDPR, SOAS (2010)

Fiscal Space and Carbon Sequestration in Ethiopia: a potential non-traditional source of development finance to meet the MDGs, Abdoulie Sireh-Jallow (2010)