SDGs – Virtual Economics

More and better financing for development will be required in order to end poverty by 2030 and achieve the proposed Sustainable Development Goals. The UN and member countries are currently working to reach agreement on priorities for reform ahead of a major meeting in July. This article looks at the ongoing debate.

The United Nations has circulated a discussion paper on financing for development, which is guiding debate on the financing framework for the Sustainable Development Goals (SDGs). The financing framework is due to be considered in Addis Ababa on 13-16 July, and the SDGs themselves at the UN General Assembly in September.

Seven elements of the financing framework

The discussion paper canvasses a broad range of sources of finance to support the achievement of the SDGs, and proposes seven ’elements’, which are broadly as follows.

The first is domestic public finance. On the revenue side, this refers to the taxes and government income generated by developing countries themselves. Despite increases in revenue over the past decade, they are insufficient and problematic: tax can have a negative impact on inequality; it can be difficult to capture resource rents; and tax evasion and avoidance lead to large losses. On the expenditure side, budget processes are often weak and efforts to tackle corruption insufficient.

The second element is domestic and international private finance, which have both increased substantially over the last decade. Nevertheless, it is recognised that these flows are primarily profit-motivated and as a consequence leave gaps (e.g. there are important market failures in the provision of public goods). Remittances are important, but the cost of sending money is often high. Finally, financial markets are often inadequate, leading to limited access to finance for poor people, especially women, and small businesses.

The third element is international public finance. Net Official Development Assistance (ODA) has increased significantly over the past decade, but remains below commitments (especially if climate finance is netted out), often doesn’t reach the poorest countries, and further efforts are needed to improve effectiveness (e.g. through results-based aid, and ‘smarter’ aid that leverages other flows).

The fourth element, trade, has been an ‘engine’ of development in many advanced and emerging economies, yet it has been elusive for many poor countries and small island states, who face capacity constraints, struggle against subsidies in trading partners, and need to tackle tough trade rules and fragmented agreements.

The remaining three elements cover:

Technology, innovation and capacity building, which are constraints in many poor countries and negatively affect the productivity of the aforementioned flows.
Sovereign debt and the challenge of balancing debt financing against the need to prevent debt crises.
Systemic issues in global financial markets, essentially the need to be aware of the impact of liquidity, and prudential and regulatory policies on poor countries.

Towards an agreement on financing for development

The seven elements form the framework for specific commitments that are contained in the draft outcome document. There has been extensive consultation on the discussion paper and outcome document, and a number of countries, UN organisations and NGOs have provided comments (which are available here).

Clearly a one-size-fits-all approach won’t work

It’s beyond the scope of this post to fully review all of these. Nevertheless, it is instructive to consider some of the comments on the broad elements, especially ODA.

Broad elements

There seems to be general acceptance of the broad elements being proposed. At a very high level, they are hard to argue with, but important differences emerge in the emphasis, contextualisation and details.

There is debate in the various submissions about the relative emphasis on public versus private flows. There is also debate about the applicability of different flows to different country contexts (e.g. the scope of domestic resource mobilisation in small island states, or private investment in conflict-affected states). And there is debate about the detail, including who does what. Some countries, such as India, point out that the ‘South’ is being asked to do a lot, whereas the ‘North’ needs to offer to do much more (e.g. on trade, tax avoidance and climate finance).

ODA targets

There is a clear consensus that ODA has an important role to play in helping developing countries, especially the poorest countries, initiate and push faster rates of public spending to improve infrastructure and social services.

Given the important role that ODA plays, there is significant support across developing countries and civil society for the 0.7% aid target, with 0.15 to 0.2% of GNI to be directed to the least development countries.

Views diverge among donors though. For example, the EU, led by the UK and Scandinavians, reaffirms its commitment to the 0.7% aid target. While Australia, perhaps unsurprisingly, goes to great lengths to talk up the role that ODA can make in ‘leveraging’ other flows, whilst simultaneously sidestepping the issue of the aid target.

Another thorny issue is quantitative aid targets for emerging economies: something that the BRICS have baulked at so far, while at the same time enthusiastically pushing targets for advanced economies.

Rescheduling past aid commitments

Recipients are clearly aware that commitments to aid targets have not been honoured in the past.

The G77+China group have come up with an interesting proposal:

[T]he unfulfilled ODA commitments on the unfinished MDGs should be carried forward and be estimated in the context of the review of the implementation of the Monterrey Consensus and Doha declaration as a matter of urgency.

It’s a novel idea, and one that is sure to get the attention of donors—especially the more recalcitrant ones. But it is actually a milder form of my April Fool’s Day proposal, and no more likely to be accepted.

Aid predictability and monitoring

Developing countries and NGOs continue to express concerns that aid predictability is a problem.

NGOs have suggested the International Aid Transparency Initiative (IATI), should be reflected in the framework. There are also calls for donors to make clear, time-bound commitments: both in aggregate and for individual countries.

India has suggested that this is an area where the multilateral system can help, and where independent monitoring of aid commitments could provide valuable feedback. More generally, there is a need to ensure that some countries do not get overlooked by the international aid system. This can especially be a concern for fragile states, which present more pressing challenges for donors to do business with. Monitoring of aid commitments needs to keep a close eye on these countries and draw attention to unmet needs, if some countries look like being ‘left behind’.

Final thoughts

The ‘elements’ and discussion paper provided a sound starting point for the debate on financing for development. The consultations that followed illustrate the importance of the issues, as well as some of the tensions and challenges.

Clearly a one-size-fits-all approach won’t work, but the framework provides enough scope for tailoring to the country context. So long as common sense prevails, then it can be applied in practice.

On aid targets, I share some of the concerns expressed by developing counties and civil society that some rich countries are using the framework to divert attention away from their failure to honour aid commitments, and that there are risks going forward. This needs to be managed by pressing for individual and binding commitments, especially for aid to least developed countries, and backed up by independent monitoring.

Looking beyond aid, the proposals to stimulate trade and non-aid financial flows look like they need more substance. In particular, I would like to see more tangible commitments from the major economies (i.e. G20) on actions to deal with tax avoidance and tax evasion, including in the resource sector; what steps they will take to tackle trade barriers, such as subsidies and standards; and how they will encourage their major companies to honour their corporate responsibilities when investing in developing countries. None of these issues are new, but past efforts have been insufficient.

Overall, I am cautiously hopeful though—not for a perfect plan, but for an evolution of existing commitments and a stronger consensus on financing for development

A distant debate on the global agenda for sustainable development may seem far removed from the day-to-day realities of Pacific island countries, but it is an important discussion and one which will shape the way the rest of the world engages with the Pacific over the next decade or so. It is also an opportunity to get the rest of the World to pay attention to the issues that matter most to Pacific Islanders.

In 2000, most of the world’s countries, including Pacific island nations, signed up to an ambitious development agenda—the Millennium Development Goals (or MDGs for short)—which set poverty reduction targets to be achieved by 2015. There were seven goals that corresponded to various dimensions of economic and social development and an eighth goal that put in place a global partnership to accelerate development efforts.

Fifteen years later much progress has been made: many of the goals have been met (if not at the national level, then at a global level), many lessons have been learnt, but a lot more remains to be done.

It is against this backdrop that experts have been meeting in New York and around the world to discuss how the sustainable development agenda should be taken forward during the period 2016 to 2030. The plan is for United Nations General Assembly to formally adopt the Sustainable Development Goals(SDGs) in New York later this year.

Unlike other global fora, such as the World Bank, IMF or G20, where the Pacific has little or no voice, the United Nations General Assembly provides the equal voting rights for all countries, so Vanuatu, for example, has the same number of votes as much bigger countries such as Australia, the UK and the US.

This is important, because it means that small island states can potentially have a big say on global issues, and that is what the Pacific Institute of Public Policy has been supporting over the last year: bridging some of the distance between the Pacific and the debates in New York.

As ‘Open Working Group’ has help the United Nations to put forward a proposal for 17 Sustainable Development Goals, which are listed below:

Goal 1: End poverty in all its forms everywhere
Goal 2: End hunger, achieve food security and improved nutrition and promote sustainable agriculture
Goal 3: Ensure healthy lives and promote well-being for all at all ages
Goal 4: Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
Goal 5: Achieve gender equality and empower all women and girls
Goal 6: Ensure availability and sustainable management of water and sanitation for all
Goal 7: Ensure access to affordable, reliable, sustainable and modern energy for all
Goal 8: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all
Goal 9: Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation
Goal 10: Reduce inequality within and among countries
Goal 11: Make cities and human settlements inclusive, safe, resilient and sustainable
Goal 12: Ensure sustainable consumption and production patterns
Goal 13: Take urgent action to combat climate change and its impacts*
Goal 14: Conserve and sustainably use the oceans, seas and marine resources for sustainable development
Goal 15: Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss
Goal 16: Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels
Goal 17: Strengthen the means of implementation and revitalize the global partnership for sustainable development

At first sight the proposed goals and targets are a bit cumbersome, but they are ambitious and broad and build upon the MDGs.

Building on MDGs. Those familiar with the existing MDGs will notice straightway that many of the goals build on MDG targets: for example halving income poverty has become ending poverty in all forms, universal access to education has become quality education and lifelong learning for all etc. (For those interested in seeking how the SDGs compare to the MDGs, the diagram below provides a useful summary that you can explore further.)

A broader development agenda. The proposed SDGs are much broader than the MDGs, including more extensive goals and targets on climate change, environmental issues, including for managing forests, oceans, and marine resources. It also fleshes out in more details what is required to support economic growth, as a foundation for sustainable development.

Clearer intermediate steps. One of things that some commentators didn’t like about the MDGs was that they focused too much on development outcomes and not enough on the actions required to achieve them. This is being addressed in proposed SDGs through explicit goals on the steps for achieving development outcomes (e.g. improvements in governance and investment in infrastructure, including energy) as well as intermediate outcomes (such as economic growth) Whilst some might argue that this has made the SDGs more cumbersome, it also makes them more relevant and practical.

Global partnership. A big step forward, from a developing country prospective is that there is much more meat on the ‘global partnership’. In particular, it is good to see that the 0.7% of GNI target has been included in the goals themselves—though whether countries ultimately sign up to this or deliver it remains to be seen. The UK has enshrined the 0.7% target in law, whilst Australia has retreated the other way in the last year. From a developing countries perspective, and for NGOs, it will be important to keep pressure on rich countries to (re)commit to the 0.7% target—as an easily verifiable indicator of a global partnership. But more importantly will be the improvement to the ‘quality’ of aid, and ideally this would involve an overhaul of aid modalities and their archaic architecture—something that the IFIs, UN and donors themselves have long struggled to do.

Beyond aid, there is a lot more that can be done to improve the way that capital is allocated and used globally: action on money laundering, tax evasion, transnational crime, regulation of banks, as well as corruption in both developed and developing countries. These are not new items on the global agenda, but ones that sovereign states and global agencies have been either unwilling or unable to address—collective action on the provision of such global public goods (and others such as conflict prevention and climate change mitigation) are a core weakness of the UN/IFIs etc.

The proposed SDGs and the ideas on financing for development are a good starting point. They set out a bold vision for sustainable development, and without doubt the world has the resources and the know-how to make it a reality, but the question remains whether global institutions and sovereign states can rise to the challenge—the world will be a much better place if they can.

Tag: SDGs

Financing for Development: this year’s big debate