The challenges of SDG financing
It is now agreed by all that financing the 2030 Agenda for Sustainable Development programme to reach the SDG targets will be a tough challenge. On September 24, the Secretary-General of the United Nations, António Guterres, unfurled his vision of "Financing the 2030 Agenda of the Sustainable Development Goals" at a high-level meeting in New York City that he co-chaired with Christine Lagarde, the Managing Director of the IMF. Guterres has been relentless in his attempt to rally the world's political and business leaders to come up with a plan to marshal the resources needed to meet the SDG resource gap that now appears to be well in excess of USD 5 trillion annually. We already passed the three-year milestone, and by all accounts the SDG programme is off to a slow start. At different sessions of the ongoing 73rd UN General Assembly meeting (GA73), the Secretary-General (SG) has urged all heads of international agencies, regional banks, the public sectors, and non-profit groups to shake off the take-it-easy attitude and come up with a viable, sustained, and sustainable financing plan within the next three years. However, he, more than anyone else, is aware that the global community truly faces an uphill battle.
First, the world environment has changed since 2017. The SG reiterated his faith in the Addis Ababa Action Agenda (AAAA) adopted in 2015 when the global situation was slightly different. Since then, globalism has gradually taken a back seat with the Brexit referendum in the UK and the recent trade war between the US and its trading partners. According to the WTO's latest World Trade Outlook Indicator (WTOI) and trade forecast, the global trade is likely to slow down next year and will also bring down investment. Thus, it needs to be seen if the rosy picture envisioned in 2015 can withstand the current headwind it faces from nationalist forces. Even the usually restrained New Yorker magazine struck a sombre note saying the theme throughout US President Donald Trump's speech at GA73 was that "nations are better off going it alone."
Secondly, AAAA envisaged that official development assistance (ODA) will play a small role in financing SDG, and recognised other sources of finance: public and private, domestic and international, and most importantly, a symbiotic relationship between financial inflows and public policies. In other words, to reach the goals, adequate financing is not enough—there needs to be an enabling environment in each country, and each country has primary responsibility for its economic and social development, while "committing the international community to create an enabling environment for their development." However, most delegates I met on the GA73 sidelines were unanimous that there has been very little progress on the institutional framework discussed at previous gatherings and outlined in SDG 16 and SDG 17. While there is no prescribed or recommended institutional models for the national level, AAAA outlines principles that institutions should strive to achieve, such as "effectiveness, inclusiveness, and accountability" (SDG 16), "responsive, inclusive, participatory and representative decision-making at all levels" (target 16.7) and "policy coherence" (target 17.14).
Thirdly, the SG sounded the alarm that the international community is now falling behind in its commitment to provide support for the Least Developed Countries (LDCs). Only three Scandinavian countries have met their commitment to transfer 0.7 percent of GDP to developing countries. He invited the international community for the 2019 High-level Dialogue on Financing for Development in September 2019.
Fourthly, in the international financial community, there is a concern that SDG might leave many developing countries with a high debt burden. There are signs that LDC debt has been rising fast, both in absolute terms and in relation to economic indicators such as GDP, export earnings, and government revenue. In an article titled "Managing Debt Vulnerabilities in Low-Income and Developing Countries", IMF's Deputy Managing Director Tao Zheng writes that "40 percent of low-income countries face high risk of debt distress or are unable to service their debt fully." While Bangladesh is certainly not in the high-risk category listed by Tao Zheng, his blog on the IMF site posts a photo of a Dhaka street scene with the caption: "Congested streets in Dhaka, Bangladesh. In a third of low-income countries, including Bangladesh, government deficits finance investment in much needed infrastructure."
Finally, since the financing gap is significant, a major challenge in the coming years will be attracting and directing public and private investments to areas that support the achievement of the SDGs. There are other various competing agenda that countries such as Bangladesh have on their plates, and many of them require action by a host of agents which don't always work towards the same goals. These diverse actors, however, have to work in a collaborative way which has not yet progressed in the fashion envisioned in AAAA. The SG in his speech called out to governments to foster enabling environments for financing and investment; the private sector to mobilise for long-term investment; and champions of innovation to develop new solutions for financing the SDGs.
A report by the UN's Department of Economic and Social Affairs (DESA) identified low tax revenue and weak international support as potential hurdles in the path of SDG achievement. "A key problem is that many of these countries are not able to raise enough public revenue. There are many reasons for this—narrow tax bases, continued over-reliance on extractive industries, and weak tax administration. But tax evasion is also part of the problem. The low tax take in low-income developing countries—where the median tax revenue is just 13.3 percent of GDP—can be traced in part to informality and tax evasion," it said. In Bangladesh, the tax to GDP ratio, i.e., 9 percent, is lower than the median, and we face many of the same issues including a low tax base.
This article erroneously stated that Bangladesh's tax to GDP ratio is 16 percent. According to Center for Policy Dialogue calculations, the tax-GDP ratio in FY2016-17 was 9.0% (revenue-GDP ratio was 10.2%) and for FY2017-18, the preliminary estimate of tax-GDP ratio is 9.6%. Dr. Shibli wishes to thank to Prof. Mustafizur Rahman of CPD for detecting the mistake and for bringing it to his attention.
Dr Abdullah Shibli is an economist, and Senior Research Fellow, International Sustainable Development Institute (ISDI), a think-tank in Boston, USA. His new book Economic Crosscurrents will be published later this year.