M’sia on right track in sustainable financing

PUTRAJAYA: Sustainable financing in the Asean region has been advancing quickly, with investors seeking investments that can create positive impact and help efforts in climate mitigation and adaptation sooner rather than later.

According to the “2024 United Nations Development Programme (UNDP) Trends Report”, on a global scale, green bonds have raised US$2.5 trillion with one of the latest being Hong Kong’s Tokenised Green Bond which was launched in 2023.

That’s not all, since 2016 there have been an influx of emerging markets from Chile to Uzbekistan that have issued green, social and sustainable bonds to fund climate action.

Despite all these efforts, significant financing gaps have been recorded all over the world, including right here in Malaysia.

United Nations Assistant Secretary-General and Associate Administrator of the United Nations Development Programme (UNDP) Haoliang Xu said while the Covid-19 pandemic added an additional burden for crisis recovery and response, the world has since left the pandemic behind and realised some very different estimates when it comes to sustainable development goals (SDG) financing.

“A prevailing estimate shows that there is a gap of between US$5 trillion and US$7 trillion annually for developing nations.

“This is highly significant in explaining why even smooth developing countries today have heavy debt burdens,” he told StarBiz in an interview yesterday.

According to Xu, when it comes to financing there are particular challenges in debt sustainability, which includes not only borrowing but also the process of raising a viable means of financing.

“A study conducted in 2022 showed that 46 developed countries were paying 10% of their country’s government budget as interest payments for public debts.

“This means money that could have gone into infrastructure or any economic need was used to pay off the interest on debts. These issues are quite striking and more needs to be done to fix them,” he said.

Xu added one way to solve this problem is to ensure that financing comes from both the public and private sector.

He said the UNDP is a strong advocate of promoting the need for public resources from domestic and international sources.

“For instance, in climate financing debt, both the private and public sectors need to step up.

“Domestic resources come from areas like tax revenue from the government, whereby international resources could come from foreign direct investment or FDI,” he said.

Xu said some of the issues to discuss based on financing through tax revenue would include how efficient or effective the taxes were and whether there was potential to raise more.

For a country like Malaysia where there have been ongoing debates about the sales and service tax or the goods and services tax, this could potentially pose a problem.

Nevertheless, Xu said accountability, transparency and policy matters must be worked out diligently.

“For Malaysia, I can say the importance of debt is limited. The country has a strong domestic financial base, which means wealthier nations which are the traditional donors are not prioritising Malaysia because they need to focus more on the lesser-developed countries,” he noted.

However, the larger issues he said lay within the right policy mix and incentives.

Xu remarked that despite a number of agencies or ways to attain SDG financing, the take-up rate here was relatively low.

“To understand why, we need to involve the relevant stakeholders as part of the solution. Every country is bound to be different, and it is a local solution that is needed,” he said.

Meanwhile, Xu said Malaysia is not lagging behind when it comes to development, something the nation should be proud of.

He said an example of a good policy instrument that was the result of the UNDP working together with the government was the Ecological Fiscal Transfers (EFT).

Xu explained this instrument is aimed at distributing a share of funds between the state and local governments, where protected areas are the main targets.

“This instrument will allow local governments to not only have access, but will serve as an incentive to not conduct deforestation or logging of land,” he said.

Since the 1990s, Brazil, Portugal, France, India and China have established, adopted and implemented the concept of ecological fiscal transfers.