Financing the SDGs- A collaboration between sectors

Achieving goals as ambitious as the Sustainable Development Goals (SDGs) requires a big investment from countries. The financing of SDGs is one of the core requirements for nations to meet their targets and goals by 2030. Close to two hundred United Nations members states signed the agreement in 2015. However, less than 20 nations are on track to meet the deadline set for 2023. Financing is a major barrier for many countries, particularly for developing countries who face many domestic challenges.

Challenges of SDG financing in emerging economies

Previously, development goals were financed by foreign aid. However, the financing landscape changed during the 2008 financial crises when many donors had to critically evaluate development projects. This presented a barrier for developing countries who lacked the resources, knowledge and awareness of goals and how to execute and report on them. Poor reporting makes it difficult to design projects, monitor funding, as well as track progress made. This lack of data limits policymakers and other stakeholders on making the decisions and prioritising the most urgent development projects. Challenges on reporting and data collection are not just evident in developing countries. International organisations such as The International Organisations of Securities have voiced their concerns regarding the lack of data collection procedures and lack of transparency in reporting mechanisms.

It is estimated that the annual costs of financing the SDGs is close to four trillion dollars a year which translates to about $1 179 and $1 383 per person, per year. For many developing countries, this financial obligation is too big to carry. Many developing countries simply do not have the financial muscle to fund development goals. To add to this, investors whose primary focus is on sustainability have reported about restrictions related to risk-based capital requirements. This makes it difficult for investors to allocate resources in developing countries.

Funding of the SDGs has proven to be difficult from a coordination point of view with donors struggling to allocate funds to deserving development projects. Natural crises, fluctuating currencies and different policies are adding further strain on existing financial resources. Mitigating and adapting to climate change requires a substantial financial investment that countries are yet to navigate.

What are the solutions?

Collaboration between the private sector, public sectors as well as international agencies is the key towards realignment and the attraction of efficient allocation of resources. Donors are refocusing their efforts into platforms such as blended finance which is a more strategic use of development finance. If finance can offer solutions such as risk sharing, attract commercial capital towards projects and contribute towards the SDGs, then why not use it? In a 2020 report by the International Finance Corporation (IFC) found that blended finance contributed to export growth and helped projects to achieve sustainable growth amongst other things.

Tax as an alternative funding has been explored by many  countries recently. In 2021, the United Nations Development Programme (UNDP) launched “Tax for SDGs” – ‘a new initiative to help countries leverage taxation and mobilise more domestic resources to make progress on the SDGs). In 2019, members of the development community gathered in Addis Ababa to discuss how domestic revenue mobilisation can be used to finance the SDGs. A big part of this conversation is how developing countries can and should improve their tax collection efforts. But this means giving low-income countries a voice in international tax decisions that impact their tax policies. Effective use of tax as a funding mechanism means countries must be clear on data about tax collection, tax policy decisions must be transparent and administrative practices must be efficient.

A rethink is needed on how the public sector and the private sector can work together to achieve SDGs by 2030. A clear understanding of each country’s dynamics, challenges and capabilities is important. The needs of developing countries whose focus is on poverty, addressing unemployment and inequalities, and supporting health and education present a unique challenge for SDG financing.

As the deadline is fast approaching, the need for countries to meet their targets has never been clearer. It was Anu Peltola who said that merely increasing funds will not guarantee success; “governments, companies, investors and institutions need to strategically allocate their resources.”

 

References

Accessed 19 December 2023 https://news.un.org/en/story/2023/09/1140997

Mawdsley, E. (2018). ‘From billions to trillions’: Financing the SDGs in a world ‘beyond aid’. Dialogues in Human Geography, 8(2), 191-195. https://doi-org.ezproxy.is.ed.ac.uk/10.1177/2043820618780789

Accessed 23 January 2024 https://ieg.worldbankgroup.org/sites/default/files/Data/Evaluation/files/IFC_blended_finance.pdf

Accessed 23 January 2024 https://www.undp.org/uzbekistan/projects/tax-sdgs#:~:text=In%202021%20UNDP%20launched%20“Tax,Sustainable%20Development%20Goals%20(SDGs)

Mawdsley, E. (2018). ‘From billions to trillions’: Financing the SDGs in a world ‘beyond aid’. Dialogues in Human Geography, 8(2), 191-195. https://doi-org.ezproxy.is.ed.ac.uk/10.1177/2043820618780789

 

By Nqobile Khumalo 

Assistant Community Manager at Digital Frontiers