The comprehensive and ambitious agenda of the SDGs will require significant investment. Accomplishing the SDGs main goals, namely ending poverty and hunger and achieving sustainable development, is estimated to require as much as 2-3tn USD a year, or 10-15tn USD over the 15-year timeframe. In this context, the Addis Ababa Action Agenda lays out the steps the international community promises to take to fund the world’s new sustainable development agenda.
How are the SDGs being financed?
The Addis Ababa Action Agenda (AAAA) was agreed upon in 2015 by 193 UN member states during the third International Conference on Financing for Development in Addis Ababa, Ethiopia. it lays down a holistic approach to financing the SDGs that relies on “both domestic actions and a commitment to create an enabling international environment that supports national efforts.” (UN rep: p.3)
More concretely, the AAAA’s integrated approach addresses the need for mobilizing both national and international sources of finance through seven action areas:
- domestic public resources and combating illicit financial flows,
- domestic and international private business and finance;
- international development cooperation;
- debt sustainability;
- systemic issues and
- science, technology, innovation, capacity building.
These seven action areas entail more than a hundred measures to be implemented by states through national financial frameworks and policies, which, among other things, intend to:
- improve national tax administration and public financial management in order to increase public funding;
- enhance public policies and regulation which can attract private sector investment and activity;
- stimulate official development assistance (ODA), South-South cooperation and development bank lending to foster development in the least-developed countries (LDCs);
- promote export-oriented growth strategies in developing countries and make trade more inclusive;
- decrease public and corporate debt;
- avoid risks for the global economy;
- spread technological development evenly across countries.
Challenges in the context of global economic slowdown
2016, the first year of the implementation of the AAAA, showcased some of the challenges that a difficult global economic environment can have on national efforts to finance the SDGs. These challenges are particularly potent with regards to the Goals’ aim of “leaving no one behind” (UN rep: p2).
Parties to the AAAA have recognized that the SDGs should be met by all nations and delivered throughout all societal segments, including vulnerable groups such as women, youth, the elderly, LGBTI, persons with disabilities and indigenous peoples, thus leaving no one behind. By this, countries have committed to a new ‘social compact’ in which they pledge to set up social protection systems, backed by national spending targets for essential services like health and education. Also, countries that cannot funds these through domestic resources have been promised official development assistance (ODA) by the international community.
However, sluggish global growth impacts negatively both trade and development assistance which are to provide evenly and fairly for the needs of all people. In this background, export-orientated growth strategies yield limited results in LDCs. If current growth trajectories remain as they are, extreme poverty will not be eradicated until 2030 nor will the SDGs be achieved, leaving LDCs far behind. Moreover, vulnerable groups are to remain marginalized if ODA does not rise and measures are not taken to combat increasing global unemployment. (UN Rep: p8)
The role of parliaments and the way ahead
In the backdrop of slow global economic growth, countries will need to reduce their reliance on export-driven strategies and ODA to finance the SDGs and eradicate global poverty without “leaving no one behind”. This is where parliaments need to step in. The latter are responsible for adopting national development plans on the SDGs and acting upon two of the AAAA’s action areas:
- domestic public resources and combating illicit financial flows and
- domestic and international private business and finance.
Parliaments have several tools at their disposal to foster mobilization and help optimize domestic public resources for the purpose of implementing the SDGs. Their power in the fields of tax administration is of particular relevance for developing countries. For example, one of the main lessons of the “Panama papers" scandal was that illicit financial flows can deprive states of significant shares of revenue, which could otherwise be committed to the realization of national development plans. In this context, parliaments of LDCs can advocate, sign and ratify agreements establishing international tax regimes, which prevent the outflow of illicit funds that can be used for financing the SDGs. Furthermore, parliaments also have power over domestic taxation which is subject to legislative approval, be it through the annual budget proposal or a separate tax code. Finally, parliaments in developing countries can also make sure that enough revenue is raised to finance national SDG strategies by requesting independent audits scrutinizing the actions of government in this area.
Besides adopting taxation systems and requesting audits to ensure that governments raise appropriate revenue, parliaments can also deliver on the expenditure side and finance the SDGs through their role in countries’ public financial management.
One of the ways in which parliaments can lock-in stable long-term public financial management is by advocating the use of conservative revenue projections. Especially in countries whose economies rely on volatile sectors such as natural resource extraction, keeping a stable money supply through conservative revenue projections has several virtues. For once, it eliminates the possibility of projecting high revenue and increasing government expenditure during boom periods, which lead to budget insolvency and the borrowing of foreign debt at times of busts. Moreover, by using conservative revenue projections, countries can structure their budget to paid off foreign debt during boom periods. This renders a country macroeconomically stable, attracting investors who on the one hand have confidence in the health of a country’s economy and on the other hand, do not have to fear being crowded out by sudden government expenditure programs. In such a financial climate, it is more likely that investors will finance national SDG-related targets.
On the expenditure side of the spectrum, legislatures can use their power of the purse and condition the approval of annual budgets and multi-annual financial frameworks on the inclusion of fiscal and other economic policies that contribute to the achieving of national SDG strategies. In this respect, parliaments can insist on the allocation of revenue across expenditure programmes related to the SDGs, which are integrated in the annual budget. For instance, parliaments in countries which lack road infrastructure (SDG 9) can assign tax revenue to the construction of highways.
Moreover, parliament of LDCs that often rely on exporting non-renewable resources can set up national resource funds (NRFs) that transfer accumulated resource revenues to expenditure programs financing country-specific SDG targets. In this manner, such countries can fund programmes in the fields of poverty-reduction (SDG 1) and education and health (SDG 3 & 4), which benefit the disadvantaged segments of society, helping future generation and “leaving no one behind”. However, setting up NRFs requires the active involvement of parliament from the start. The legislature needs to instigate public debate on the goals and structure of the fund before the latter’s approval in the plenary. Furthermore, after an NRFs goals and structure has been formulated, parliaments need to further condition their legislative approval of the fund on the release of regular publicly-available information about the latter’s activities. Transparency ensures the adequate management on both the revenue and expenditure side, allowing both the public and business to reason management of the fund and its contribution to financing the SDGs.
A different way in which parliaments can finance the SDGs is by attracting domestic and international private sector finance. When they initiate legislation, parliaments can discuss proposals in committees and then vote laws in the plenary, enhancing public policies and regulation so as to attract private sector investment and activity related to the SDGs. To achieve this, parliaments need to have an understanding of the overall incentives structure of the private sector and offer the latter predictable public support through national development plans, both of which require sufficient staff and expertise. Such measures can be of high utility for developing countries especially in the field of infrastructure, industrialization and innovation (SDG 9).
Finally, oversight by parliaments over the executive can certify that governmental policies and programs are carried out in an effective and legal manner capable of financing a country’s SDG strategy. This could be done by closely monitoring and evaluating government policies and actions with regards to tax administration, public financial management and regulation and public policies through the various oversight tools at the disposal of the parliament. These include, among others, committee work, the question period, public hearings, parliamentary debates, audit agencies and so on.
For more detailed information on the financing the SDGs, stay tuned for the launch of our e-learning on SDG16, budgets and parliaments where you will find information on financing the SDGs.