To be effective, actions and initiatives to achieve MDG 1 need to be adequately funded through a combination of public and private resources. Several initiatives bring the promise of a substantial increase in future resources available for the achievement of the MDGs. In conformity with the Millennium Compact, NEPAD is giving priority to improved governance, with an emphasis on inclusiveness, conflict prevention and anti-corruption activities. Its African Peer Review Mechanism has been endorsed by the African Union as a key means for region-wide peer pressure for positive change. In the Maputo Declaration, African Heads of State and Government made a commitment to raise the share of their national budgets allocated to agriculture and rural development to 10 percent within five years. Many African countries have programmes and strategies in place to revitalize agriculture.
Many donor countries are pledging a substantial increase in development assistance: On 24 May 2005, the European Union announced that its Member States - which now provide about US$37 billion in ODA - would double ODA to developing countries by 2015. An agreement was recently reached by the G8 under which the World Bank, the International Monetary Fund and the African Development Bank will immediately cancel all debts, amounting to about US$40 billion, owed to them by the 18 countries that have completed their Poverty Reduction Strategy Papers (PRSPs), with more countries to be included in this list in the future.
These encouraging initiatives have still to be translated into concrete financing strategies. The following general issues and principles need to be considered in this context:
Increasing effectiveness of official development assistance. It is widely recognized that there is ample scope for increasing the effectiveness of ODA. The Paris Declaration on Aid Effectiveness, adopted in March 2005, calls for: ownership, i.e. aid should reflect recipient rather than donor priorities; alignment, i.e. aid should be aligned with recipient countries' budgetary cycles and behind national strategies and programmes; and harmonization, i.e. there should be more donor coordination to exploit complementarities, combined with simplified procedures for disbursement.
Ensuring complementarity of public resources, domestic and international. Given the common purpose, ODA and public domestic resources for reducing poverty and hunger should be well coordinated and targeted. The key notion should be mutual accountability of donor and partner countries for development results. Therefore, recipient countries would strive to involve all stakeholders, including parliaments, in the formulation of national development strategies in a participatory manner. Donors would commit to providing timely, transparent and untied aid flows to allow partners to manage these resources more effectively.
Ensuring additionality in public financing for development. It is important to ensure “additionality” in financing for development, whether cash or food aid, i.e. such aid should not reduce other resources available to the recipient country or other developing countries and should not jeopardize the long-term financial viability of international financial institutions.
Creating an environment conducive to private investment. Public investments must be accompanied by policies that induce complementary flows of private investment. The quality and transparency of governance and public administration, political stability, reliance on market signals, and macroeconomic discipline and stability are essential for stimulating private investment.
Increasing resources for agricultural and rural development. It is urgent that the apparent consensus over the importance of agricultural and rural development for growth and poverty reduction is translated into commensurate resource commitments. Over the past 20 years, we have witnessed a 57 percent decline in resources for these sectors: from an average of US$5.14 billion per year in 1983–1987 (2002 prices) to US$2.22 billion in 1998–2002. Lending from international financial institutions and domestic public investment followed a similar pattern. To make matters worse, development-oriented food assistance has fallen significantly. Moreover, there is a growing recognition of the need for a better balance between social sector development and infrastructure investment in the allocation of both domestic and external resources.
Making PRSPs more inclusive in addressing food security and rural development. Hunger reduction strategies have to be implemented in the context of PRSPs, the framework for national development and poverty reduction efforts. However the implementation of the PRSPs in many countries still lacks focus on food insecurity and a clear appreciation of the potential of agricultural and rural development in reducing poverty. The result is insufficient budgetary allocations for these key areas. The dilution of institutional responsibilities for rural development and the inadequate empowerment of rural stakeholders have to be addressed in order to strengthen the political leverage for increased “rural” resources. Furthermore, there is a need for a greater integration and coordination of PRSPs and existing national food security and rural development policies and strategies.
Dealing with instability inherent in agricultural and other rural activities. Financial instruments and risk management tools are needed which address the particular volatility of production, prices and incomes in agriculture, to enhance incentives for private investment in agriculture and to reduce the vulnerability of small farmers to various shocks. Partnerships among donors, governments, local communities and civil society hold the promise of strengthening the provision of rural financial services, mobilisation of savings and remittances and the enhanced access to rural credit by small farms and firms. Resource flows should support diversification and other risk-reducing strategies of small farmers.
Ensure effectiveness and efficiency of food aid. Non-market distorting food aid, carefully targeted to the needs of food-insecure and vulnerable households and used to finance food for assets or food for education, qualifies as a form of development finance. Therefore, the general principles of funding for development also apply to food aid. In keeping with the twin track-strategy, food aid should be focused on direct assistance to the most vulnerable, particularly women and children.
Using debt relief for poverty and hunger reduction. Debt relief holds the potential of substantially increasing investment in key sectors for achieving the MDGs, including education, health, participatory rural development, integrated nutrition programmes and other rural poverty and hunger reduction initiatives.