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November 16, 2018

Financing the SDGs will require fresh budgetary reallocations

Even as the curtain falls on the Millennium Development Goals after 15 years of being used to measure global development progress, chances are many people may not have heard of such a term. Come January 2016 when the Sustainable Development Goals take effect for another 15 years, many people will be unaware that a new global agenda is in place. However, to set goals and give terminologies is only the easy part; it is the implementation that will give the relevance.

The 17 Sustainable Development Goals that set in the new global agenda are both comprehensive and relevant, especially for developing countries. While priorities may differ between countries, their relevance cuts across virtually all.

It will however be the responsibility of each country to localise and align its country agenda with the global agenda, including policies and budgetary spending in order to obtain value that will flow from a global agenda of such magnitude.

It is estimated that the Sustainable Development Goals will require at least $1.5 trillion a year. The more endowed countries have committed to increase official assistance with a target to commit 0.7 per cent of their gross national income to the developing countries by 2025. But this will not be enough, especially where country specific interventions are required, and more importantly when specific countries want more autonomy of their development agenda.

To ensure more funding is available, individual countries will need to pursue more innovative means to spar both private and public financing. The increase in public financing may require increase in tax revenues through the review of tax rules and regulations.

Even on an international level, global tax regulations may need to be overhauled to ensure that less developed countries are not disadvantaged. This may involve allocating tax rights primarily to source countries of raw materials, redesigning tax treaties and reducing tax exemptions for multinationals. It may also require seeking a more inclusive global governance of cooperation in tax matters, for instance in a reinforced UN tax committee, to give developing countries equal decision-making power.

Locally, there is the need to explore more public financing options such as issuing significantly longer term public bonds in the capital markets for both the national and county governments. As mentioned in a previous article in this column, the bond market in Kenya was launched at a time the donor community had withdrawn its support for development projects at the height of the infamous structural adjustment programmes of the 1990s. Threatened with a near close-down of government, the bond market was a key source of public financing. Today, Kenya prides itself as one of the few African countries with a vibrant bond market. This alone demonstrates the potential for innovation even in the less developed countries. The capital market holds enormous potential, not only in raising public capital, but also private capital.

Even though the SDGs are led by governments, successful implementation will require partnering with the private sector. Access to credit remains a significant barrier to the growth of the private sector and consequently to economic development and realisation of the SDGs. The need to pursue the development of a credit market that is supportive of SDGs is a priority for many developing countries where the cost of credit remains at double digit even as developed countries face near zero interest rates. Unless this is addressed, realisation of goal 8; to promote sustained inclusive and sustainable economic growth, full and productive employment and decent work for all will be a challenge.

The alignment of country specific agenda with the global agenda will also have public budgetary implications. For instance in many developing countries, government spending rose rapidly in 2012 to 2014 but revenues did not. Consequently, public finances were diverted to servicing debt, crowding out spending on the MDGs in 21 out of 66 countries. As much as 40 per cent of government extra spending was absorbed by debt servicing, with infrastructure taking another 35 per cent and only 25 per cent committed to MDG goals. The realisation of the SDGs will therefore require more targeted budgetary allocation.

Budget allocations to sectors which are particularly critical and important for the achievement of SDGs will need to be increased.

In 2003 African governments meeting in Maputo committed to spending at least 10 per cent of their budgets on agriculture within five years. In 2014 budget, Kenya is reported to have committed only four per cent on agriculture. This becomes more outrageous when you consider that agriculture contributes over 20 per cent to GDP. It is also no coincidence that Malawi is among the few food sufficient countries in Africa, considering their spending on agriculture averaged 15 per cent over several years. The hunger related goal two of SDGs not only commits to ending hunger but also improving nutrition and promoting sustainable agriculture. This will require more budgetary allocation to agriculture to be realised.

On health, in 2002 in Abuja, African Heads of State committed themselves to allocate 15 per cent of government expenditure to health. In 2014, Kenya is reported to have spent only six per cent of its budget on health, much less than what is needed. The SDGs goal three on health is much more ambitious than the MDGs. The new agenda targets universal access to healthcare, and greater focus on accelerating reductions in maternal and child mortality and increasing access to sexual and reproductive health services. This requires a significant scale-up of public spending.

The international benchmarks for spending on education are six per cent of GDP and 20 per cent of overall budget spending. In 2014, Kenya spent 17 per cent of its overall budget and four per cent of its GDP on education, both of which were off target. The SDGs goal four on education commits to lifelong learning, going beyond pre-primary/primary/secondary, vocational, technical and tertiary education. It also has a greater focus on quality. This will require a higher level of funding than currently committed.

Going forward, for the SDGs to be achieved, more funding will need to be directed to critical sectors, particularly those that directly address poverty reduction and promote equality. The credit market will also need to be realigned to play its role as a catalyst for private sector development.

 

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