Key ways tech can enhance development finance: new report

A new report issued Friday by the United Nations Inter-agency Task Force on Financing for Development provides an update on financing for the UN’s Sustainable Development Goals (SDGs) and suggests policy solutions to increase development financing and improve its effectiveness.

The report notes that most development financing flows increased in 2017 as a result of a dynamic world economy. However, it warns that the economic upturn masks systemic social and economic weaknesses that could derail development efforts. Such weaknesses mentioned in the report include: insufficient financing; an excessive focus on short-term profits and political considerations; and persistently high levels of inequality.

Importantly, the report also highlights how new technologies have the power to address some of these weaknesses, and thereby accelerate the achievement of the SDGs. For example:

• New technologies can help channel financing to all segments of the economy. The digitalization of business has potential to widen the tax base, improve tax revenue collection, identify and prosecute tax evaders, and combat illicit financial flows.
• Digital financial services can increase access to financial resources for those currently underserved. By lowering the cost of banking services and remittances, digital financial services delivered via mobile phone can provide a boost to developing countries that receive significant remittances from overseas, and can help to meet the financing needs of Micro, Small and Medium Entreprises (MSMEs).
• The labour market’s increasing requirement for advanced digital skills represents both a risk and an opportunity for development. To ensure that technology dividends are shared broadly, countries should put in place policies to support lifelong learning and skills acquisition for all.
• E-commerce may provide untapped potential for further enhancing inclusive trade growth in developing countries.

View or download the report here:

 

Opening possibilities, creating opportunities

“Fast-evolving technologies are rapidly changing the development landscape. They open new possibilities to address long-standing development challenges across the SDGs — from poverty and hunger, access to health care and education, to low-carbon energy, combatting climate change, and financial inclusion,” says the report. “They are also changing the development finance landscape, creating opportunities across the action areas of the Addis Ababa Action Agenda (hereafter, Addis Agenda).”

“Advances in information and communication technologies (ICTs) are at the heart of this technological change. They have vastly increased digital interconnectedness, digital data storage and analytics capabilities at declining cost,” the report continues. “Artificial intelligence (AI) in particular, which allows machines and computers to learn to solve problems on their own, could have transformative effects across many sectors of the economy, making it essential that innovations are in the public interest and guided by the 2030 Agenda for Sustainable Development and the Addis Agenda.”

A few warnings about risks and regulation

The authors warn, however, that the promise that new technologies hold for sustainable development will be realized only if risks are addressed and benefits distributed equally. Otherwise, they risk deepening the divide between the haves and the have-nots.

“Financial system regulation needs to take fintech into consideration.”

The report also cautions that “effective regulation is necessary to monitor systemic or consumer risks that may arise from digitization of finance” and that “the potential for anonymity with the use of new technologies such as blockchain and digital currencies can heighten the risk of illicit finance.”

The report also recommends that “financial system regulation needs to take fintech into consideration.” And it points out the need for different national regulatory authorities to collaborate.

As an example of such dialogue, the report specifically mentions the Financial Inclusion Global Initiative (FIGI) launched last year by ITU and the World Bank Group and the Committee on Payments and Market Infrastructures to accelerate digital financial inclusion in developing countries.

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