FINANCING FOR SUSTAINABLE DEVELOPMENT: SOLUTIONS OF WORLD SUMMIT ON SUSTAINABLE DEVELOPMENT

Abstract

The World Summit on Sustainable Development (WSSD) held in Johannesburg, SouthAfrica 2002 has given significant priority to finance and trade issues since funding hasbeen identified as key constraints for the implementation of Agenda 21. The Summitadopted some ambitious programs specifically for poverty eradication such as halving theproportion of the world's people whose income is less than $1 a day, proportion of peoplewho suffer from hunger, proportion of people who are without access to safe drinkingwater and sanitation by 2015. Obvious.y, the implementation of all its decisions dependson the success of addressing development finance issues that covers a vast range, fromofficial development assistance to tommercialloans by multilateral financial institutionsand private banks, foreign direct investment, domestic credits, investment and governmenttransfers. The objective of this paper is to investigate whether the WSSD presents asolution to the financing for sustainable development taking Sri Lanka as a case study.

The study observed that between 1992-2000 Official Development Assistant (ODA) hasfallen steadily from 0.33 % of donor country GNP to 0.22 % although at the Earth Summitdeveloped countries agreed to provide 0,7% of GNP as ODA This decline has affected theleast developed countries (LDCs), who arc highly dependant on ODA, which constitutes onthe average almost 90'% of their total long term capital inflows. However during thisperiod, Foreign Direct Investment (FDI) has significantly increased. FDI to developingcountries has increased from US$ 36 billion in 1991 to US$ 185 billion in 1999, butdeclined to US$ 175 billion in 2000. This is however is only a small portion of the globalFDI flows, which amounted to US$ 1.1 trillion in 2000. In 2000, 80% of FDI went to onlyten developing countries and LDCs attracted only 2.5 % of all FDI flows to developingcountries. In Sri Lanka, foreign direct investments have dropped from US$ 129 Mn ill1977 to US$ 82 Mn 2001. Total outstanding foreign debt has rose from Rs. 235,358 Mn in1992 to Rs. 634,622 Mn in 2001. This indicates serious debt crises in developing countries,which is not a favorable condition for attracting further FDI to developing countries.

At the same time measures taken by the international community to treat the excessive debtburdens of 41 heavily indebted poor countries (HIPe) have not delivered the expectedresults. Thought the IMF and the World Bank have approved debt reduction programs for22 countries in December 2000, only' Uganda was able to clear the prerequisite thecreditors. This evidently suggests that the proposed financing measures at the WSSD willalso face implementation problems. Unless all debtors and creditors work positivelywithout demanding unreasonable prerequisite for debt relief measures, the objectives of theWSSD cannot be achieved.