In our August blog poll, we asked readers what they believe to be the priority sources of funding for the new Sustainable Development Goals (SDGs) set to be implemented on 1 January 2016. ADB has been getting prepared ahead of time, especially on the financing question.
For instance, many wonder what will be the role of foreign aid, which was the funding anchor for the Millennium Development Goals that expire on 31 December. What about domestic tax revenues? Fiscal revenues are used for SDG-type investments, but given the huge ambition of the SDGs, should sustainable development be limited to what tax revenues can afford? Other than these two public sources, domestic or foreign, could we consider business – domestic private businesses and foreign direct investment (FDI)? To what extent will the for-profit sector invest in long-term, socially significant projects? And what about individual foreign exchange remittances from overseas workers? Can such dispersed savings be pooled into sufficiently significant sums for public investments? Maybe there are even other options.
The majority of respondents (40%) picked tax revenues, which indicates a clear preference for governments taking responsibility for financing the SDGs. The private sector came in second with 36%, possibly a recognition that businesses too can—and should—do their share beyond what they pay as taxes. FDI received one-third of the vote share of what tax revenues got (13%), with ODA following far behind with 9%, indicating some reliance on foreign sources but much more on foreign market options than on aid. Remittance money was considered almost irrelevant (1%). The option “other” had no takers.
Overall, if the tax revenues and private sector are combined, there is a clear preference for domestic sources – countries taking charge of their own financing needs through a combination of public and private funds. But there is also recognition of international options, with a slight preference for FDI over ODA.
And now we ask, how do the quick survey results compare with estimates of funds actually available, as well as what some of the key challenges are in tapping the funds for financing sustainable development investments? We look at each question in turn.
Figure 1. Estimates of funds that could be considered for the SDGs, 2012-2014 (annual, billions of $).
To help us with the first question, let’s look at Figure 1 with information on estimates of funds available. Of the five identified sources, tax revenues and private sector are a clear match on prioritizing domestic options. At the other end, ODA and remittances are also the bottom two among the sums available. FDI is ranked three under both. So the quick survey respondents indeed are spot on thus far, with some minor reversals in ranking. However, there are also some very interesting differences.
The differences are revealed by unpacking the “other” option. Once we bring in this category, we see that it ranks a high second in the share of the sums available—a very significant 32% plus of the moneys—but gets no votes at all. Readers didn’t use the “other” option and we too did not give other choicess to choose from—the very significant longer-term sources like pension funds and insurance premiums, or even sovereign wealth funds that some countries have used very effectively. If some of the regulatory bottlenecks are addressed to protect the safety and value of these sources, they could be unlocked for long-term sustainable development investments.
On the second question, Table 2 presents the results of another survey among experts and practitioners from Asia and the Pacific on articulating the region’s priorities in implementing the SDGs. On financing, it turns out, while tax revenues are indeed seen as important, the top two challenges are inefficiencies in public expenditure management, and low tax efforts, ranked 1 and 2. The private sector is next, mainly not using the full potential of businesses and underdeveloped capital markets. Failure to deliver on ODA commitments and earmarked aid causing fragmentation are challenges that follow. Finally, after considering the challenges from other sources like natural resources, sovereign wealth funds, cross-border illicit financial flows, and new donors, comes the high cost of remittances and the limited capacity to leverage them for development.
What, then can we conclude? Reader responses closely match the sums available, overall, but some of the hitherto untapped options have not been considered by the respondents. These options can be unlocked, going forward. While domestic sources, both public and private, are the most significant, they also face the most significant challenges. Awareness about the source-specific challenges provides clear directions for moving forward in financing the SDGs.