Delays in implementing the Paris Agreement on climate change and 2030 Agenda increasingly appear to come partly from unmet financing needs as well as the inability and unwillingness of the G20 to move away from fossil fuel subsidies.
The current state of play reflects the international financial architecture’s failure to channel resources to the world’s most vulnerable economies at the necessary scale and speed.
A study by IDOS, IDDRI, and SEI finds effective SDG financing is possible when four main conditions are met.
By Damien Barchiche, Ivonne Lobos, Niels Keijzer, George Marbuah, and Elise Dufief
The many tumultuous events that the world has faced since the adoption of the 2030 Agenda for Sustainable Development and the sheer challenge of the transformative changes it foresees underline that no country can finance the SDGs and other development agendas by freeing up more financial resources alone. Instead of such ‘business-as-usual’ efforts, systemic changes are needed in public and private finance towards achievement of the SDGs.
Delays in implementing the Paris Agreement on climate change and 2030 Agenda increasingly appear to come partly from unmet financing needs as well as the inability and unwillingness of the Group of 20 (G20) to move away from fossil fuel subsidies. The current state of play reflects the international financial architecture’s failure to channel resources to the world’s most vulnerable economies at the necessary scale and speed.
For the UN Secretary-General, this failure poses a growing and systemic threat to the multilateral system itself, as it leads to increased disparities, geo-economic fragmentation, and geopolitical divides across the globe. At the beginning of 2023, UNDP reports, 52 low- and middle-income countries (LMICs), representing more than 40% of the world’s poorest population, were either in debt distress or at high risk of debt distress, and 25 of these countries have external debt service repayments in excess of 20% of their total revenues.
To enable developing countries to deliver on the SDGs, the Secretary-General has called for an SDG Stimulus: an additional USD 500 billion per year to be delivered through a combination of concessional and non-concessional finance. The plan calls for the international community and multilateral development banks (MDBs) in particular to significantly scale up funding for global public goods, and for countries to align all forms of finance with the SDGs, including by utilizing Integrated National Financing Frameworks (INFFs).
As part of an effort to elevate the debate on financing the SDGs in developing countries, IDOS, IDDRI, and SEI have joined forces to conduct a study that enables better analysis of concrete challenges to address SDG financing in developing economies. The study focuses on the global picture and analyzes the state of play, recent initiatives, and prospects for financing the SDGs in Ghana, Indonesia, Mexico, and Senegal. We seek to answer the following question: how and under what conditions can partner countries further align their development plans and policies with the 2030 Agenda and the SDGs to better finance their objectives? As the UN Secretary-General states, more money needs to be made available globally for vulnerable countries, which is one of the key challenges today. However, it is also important to support countries in their ability to express their needs for investments for sustainable development, so that the money flows and is attracted to the right investments. The study’s main conclusion is that this alignment and effective SDG financing are possible when four main conditions are met.
Condition number one: Avoiding SDG-incompatible finance. While SDG financing gaps need to be considered and addressed, it should not be forgotten that for many countries – notably Organisation for Economic Co-operation and Development (OECD) and BRICS (Brazil, the Russian Federation, India, China, and South Africa) states – realizing the 2030 Agenda is just as much about financing less as it is about financing more. Examples include less financing for approaches that compromise specific SDGs (e.g., fossil fuel subsidies) and making difficult policy decisions that require short-term costs to achieve long-term sustainability gains.
Condition number two: Long-term financing needs to be combined with long-term planning. Development financing strategies, operationalized through the INFFs or other frameworks, provide public and private investors with clarity and predictability. This allows key actors to better grasp the sequence of investments across relief, recovery, and long-term structural transformation. If conducted in an integrated manner, such financing strategies could allow for easier and more affordable access to financing by countries. Planning efforts should also seek to avoid lock-in situations and path dependencies where short-term recovery expenditure could hamper long-term goals of reducing inequalities or advancing environmental protection, and even increase vulnerabilities.
Condition number three: Governments, MDBs, the private sector, and other actors need a better understanding of the cost and benefits of SDG financing at country level. A clear understanding of allocation and spending on public services and public investments that contribute to the SDGs can provide information to identify the scale of funding shortfalls for the SDGs. When calculating costs, double-counting investment needs should be avoided while the identification of synergies between different types of investment should be prioritized. In view of the competing short-term claims on public budgets as witnessed in recent years, including COVID-19-related costs as well as public debt challenges, the benefits of SDG financing will also have to be concretized to justify and defend the long-term investments made. Ghana, Indonesia, Mexico, and Senegal all have a wealth of plans and strategies related to financing sustainable development. These should not be added to but rather finetuned and further operationalized where appropriate. Further progress can be made in connecting those plans to develop detailed and targeted financing plans to support their development objectives.
Condition number four: SDG financing instruments – and international support for these – need to be fully aligned with the country’s needs and priorities. The various tools developed for SDG budgeting, be it the development of INFFs or SDG bonds, can help improve access to and impact of funding and lead to better implementation to achieve the Goals, but only if developed in support of country-owned processes. In practice, they can be the cornerstone of strengthening financing for the SDGs in countries and establish more coherent links between the SDGs and development strategies, as well as their implementation. However, the case studies demonstrated, these tools only prove relevant if they do not add complexity to the administration but are well integrated into and supportive of existing national processes. To achieve this, they should also be sufficiently concretized and operational through dedicated targets and quantifiable indicators. One of the shared challenges across countries is to link these tools together according to local needs, to reinforce and consolidate national or local strategies for financing the SDGs. International partners should fully recognize, follow, and align to such national strategies in their dialogue with governments on international support to national SDG financing efforts.
Way forward
To internationalize and guarantee these four conditions, it is critical that financing stakeholders and governments acknowledge the nature of the situation and the urgency to act. This requires that they acknowledge that the current international architecture is failing to fulfil its essential mission to support stable long-term financing for the SDGs. International actors should further support fundamental reforms and redesign of the international financing system, particularly by providing ways to secure long-term financing.
The 2023 Global Summit of Public Development Banks and the SDG Summit, both taking place in September, the IMF-World Bank annual meetings in October, as well as the 2024 G20 Summit in Brazil, are crucial platforms to discuss and further the design of key financial institutions in a manner that supports effective change at country level. We hope that leaders participating in these meetings will advance concrete and ambitious commitments and agreements in this regard.
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