Beyond Addis: How Can We Finance the SDGs?

This contribution is published as part of the Think Piece Series The Road To Addis and Beyond, launched to coincide with the third and final drafting session of the outcome document of this summer's Third International Conference on Financing for Development. In this Series, global experts discuss a range of topics complementary to the UNRISD research project on the Politics of Domestic Resource Mobilization on how to fund social development and raise provocative or alternative perspectives that can generate further ideas and debates. Please share your thoughts on this article in the comments space below.

This contribution examines what the Third International Conference on Financing for Development, which took place in Addis Ababa in July 2015, means for financing the Sustainable Development Goals (SDGs), and what we need to do next to ensure they are fully financed. It emphasizes the need to double tax revenues, double aid, provide US$500 billion a year of innovative finance, and establish strong debt crisis prevention and resolution mechanisms. It then discusses how each of these could be achieved. Finally it quantifies the public spending needs for the SDGs, emphasizing the need for country leadership, anti-inequality focus, and transparency and accountability, for strong monitoring of post-2015 means of implementation in terms of inputs (spending, aid, tax), and for all sides to redouble their efforts to mobilize the money.

Matthew Martin is Director of Development Finance International (DFI), and he also co-directs the DFI-Oxfam initiative Government Spending Watch.

As many people in this series have already provided assessments of the Addis conference outcome (see my views here), this think piece looks forward to what it means for how the SDGs might be financed, and what we need to do next to ensure they are fully financed.

The Addis conference was an exhausting week. I was advising 28 francophone developing country Finance Ministers, who are part of a network chaired by Senegal, on behalf of the Organisation internationale de la Francophonie. They had clear positions on financing for development issues (such as tax, innovative financing, aid and debt), and had been pushing these strongly since the first input sessions last November and December (2014), and throughout the January-June negotiations.

Financing an expensive agenda

These positions had a common theme, informed by their reactions to the IMF-World Bank Annual Meetings in October 2014. There, sessions on financing for development had appeared to conclude that the SDGs would cost three times as much as the Millenium Development Goals (MDGs), and require doubling public (that is developing country government) spending, but there would be “no more aid” due to the global economic slowdown. As one Minister said to me, “Well, that means we have to either abandon half of the SDGs immediately, or go bankrupt trying to finance them using much more expensive private finance!”

So the Francophone Finance Ministers worked together with many other governments, international organizations and non-government stakeholders to create an informal coalition to press for public finance for the SDGs. This revolved around three key asks:

• Doubling developing country tax revenues. Research DFI conducted for them indicates this will require a 10% of GDP increase in their tax revenues, even faster than the 8% during the MDGs.
• Doubling aid flows. Our research also showed this would require DAC donors to meet their longstanding 0.7% of GNI pledge by 2025, and South-South cooperation to continue to rise at the same rate as during the MDGs—a staggering 300%.
• Providing US$500 billion a year of innovative financing. This could include solidarity levies on carbon emissions and fuels, and financial transactions, as well as issuing IMF Special Drawing Rights (as the IMF has suggested).

Put together, these measures would allow low income countries and low- and middle-income countries to fund the SDGs sustainably.

All of these issues were discussed in Addis, but it was striking—and in sharp contrast to the Monterrey and Doha UN Financing for Development Conferences—to what extent tax dominated the agenda. Objectively, as DFI has pointed out in helping Action Aid write its third “Real Aid” report, this was a positive development, because funding their development increasingly from tax revenue will reduce developing country dependence on donor aid, and on borrowing. But in practice this focus seemed to reflect two factors: that developing countries and global civil society had chosen tax as their key issue for discussion (and the G77 made reinforcing the UN Tax Committee’s say on global tax policy their key negotiating sticking point for the Addis outcome document); and that more global cooperation on tax, and an increase in tax-raising technical assistance seemed to be one of the few concrete (and low-cost) things all donors and international organizations could commit to. On the other hand, aid, innovative financing and especially debt were barely mentioned—with only two side events each, compared to more than 20 on tax!

Did Addis deliver?

So, did Addis deliver? How you judge this depends on your expectations. Many civil society organizations (CSOs) or developing countries who had hoped the conference would mobilize enough financing to fund the SDGs were sorely disappointed. As Winnie Byanyima of Oxfam said in a side-event on the final day, “We must all admit that we have failed to finance the SDGs”. My expectations were never that high. Of the two previous UN Financing for Development Conferences, Monterrey (2002) was a high point, with most governments in the world committed to delivering more financing for the then recently-agreed MDGs. Even so, it was successful mainly in starting processes which have subsequently borne fruit by increasing amounts and effectiveness of aid, accelerating and deepening debt relief, and mobilizing more innovative finance. On the other hand, Doha (2008) was a low point, with nobody interested in providing any money as the financial crisis was hitting—and when the MDGs were more than halfway over.

Especially given the global swing towards fiscal conservatism, where many countries do not need to cut their aid budgets but are doing so to achieve budget surpluses, Addis was a mild success. Nobody expected EU countries to commit to reaching 0.7% (even with a faraway deadline of 2030, it still gives us something to hold them accountable for). CSO and developing country pressure on tax led to major pledges of technical assistance to help countries increase tax revenues, and even some policy changes on tax exemptions and treaties by the Dutch, Norwegians and Swedes. The outcome document also opened doors for increasing technology transfer, and for improving the contributions of private development cooperation (from NGOs and foundations) and “blended” cooperation (mixed public and private money) to meeting the SDGs.

But the success of Addis will lie in how well we follow it up. Priority number 1 should be tax. We will need concerted global action to get corporations to pay tax in the countries where they extract resources, to eliminate tax exemptions, to fight against a global ‘race to the bottom’ in tax rates, and to combat evasion, avoidance and illicit flows—as well as national action to increase or introduce progressive taxes on income, wealth and land. In a side-event organized by the Organisation internationale de la Francophonie, on behalf of 29 countries Mauritania, Senegal and the Seychelles committed to reinforcing their tax efforts—and will carry on pressing the international community to do the same, including at the IMF/World Bank Annual Meetings in Lima in October 2015.

Priority 2 should be international public finance. A Swedish-sponsored side-event reiterated how vital aid will be for the SDGs, and all the things it can do which private finance will not (focusing on reducing poverty and inequality and empowering the poor, providing public goods, targeting the most marginalized countries and citizens), and recommitted several governments to pushing for higher aid levels. An event sponsored by Chile and France announced several new pledges on innovative financing, notably an initiative to spend mining tax revenues on promoting smallholder agriculture to end malnutrition. It also launched a global declaration committing more than 30 countries to work harder to introduce global solidarity levies to fund the SDGs building on the European Financial Transaction Tax, and paving the way for a possible introduction of carbon taxes before and after the United Nations Conference on Climate Change (COP21), taking place in Paris in December 2015. These are all initiatives which deserve strong support if we are to fund the SDGs sustainably.

Priority 3 should be to ensure that private development cooperation (from foundations and CSOs), and blended (mixed public and private sector cooperation) maximize their contributions to the SDGs. A study DFI has just written for the UN Development Cooperation Forum, urging coordinated monitoring of strong standards, was very well received by all types of stakeholders who agreed that, if we are to finance a large share of the SDGs through private sector resources, and to use official money to “blend” with and encourage private flows, they need to work together to track the effectiveness and impact of these flows.

And priority 4 is a strong debt crisis prevention and resolution process. As research DFI has recently done for the African Development Bank shows, around 40 developing countries are spending between 20 and 50 percent of their budget on debt service. They are already experiencing debt crises—notably small island states and countries like Kenya which got too little debt relief in the past. If we carry on funding development the way we have since 2010 (by increasing borrowing, and resorting to the most expensive and risky money via public-private partnerships), virtually every developing country could be driven into a debt crisis or forced to abandon most of the SDGs.

Addis is just the start

The other key message out of Addis was that the MDGs have been very successful stories—but we need to redouble our efforts for the SDGs. This is not just public relations “whitewash”—work by UNDP , ODI and many others have already documented the massive acceleration of global development progress since 2005. At Government Spending Watch (GSW), DFI has just been compiling a database of progress by individual countries as of the end of 2014, and overall it looks impressive. The usual “donor darlings” are prominent, but there are also some stand-out unexpected countries with great progress, like Armenia, Samoa and Sao Tome, and pre-earthquake Nepal. And some countries which only emerged from conflict or instability during the MDGs, like El Salvador, Guatemala, Fiji and Timor Leste, are also faring unexpectedly well.

This progress is based on a high and growing level of commitment to spending large portions of government budgets on the MDG/SDG sectors. It was striking in Addis how much more advanced sector experts (on education, food, health, social protection as well as from the water, sanitation and hygiene sector, or WASH) are in costing the spending needed post-2015 than they were back in 2000. Many side events—on issues like African health spending, education for all and WASH—showed that experts in these sectors have a clear idea of how much needs to be spent, and have strong evidence that higher spending can bring greater results. Analysis by the Sustainable Development Solutions Network shows that we will need US$1.5 trillion more public spending a year to fund the SDGs in low and middle-income countries. As the GSW 2015 report shows, to get this spending delivered, it needs to be country-designed and led, oriented carefully to fight inequality, and made fully transparent so that governments and donors are accountable for outcomes.

All of the financing and spending will require coordinated real-time monitoring at global level, through the “means of implementation”, or MoIs, for the SDGs. Setting strong, clear indicators for the MoIs, and creating a robust process for monitoring them, is the next vital step—and we have some detailed recommendations on this in the GSW 2015 report.

So Addis is only a start. As a development community, we must build on these initiatives and mobilize together to make sure solidarity levies, tax revenue and aid are sufficient to fund the extra public spending we need. And while we are mobilizing this money, we must empower developing countries to design comprehensive SDG plans and cost their spending priorities as decided by their citizens. Then we must get OECD governments to sign up to country compacts in which developing countries promise to spend more on the SDGs, and donors promise aid, innovative finance and to help countries double their tax revenues. And finally all sides must undertake to be more transparent and accountable to their citizens. If we don’t succeed, as an African Finance Minister said to me at the end of the Addis conference, “we might as well throw the SDGs in the bin.” If we do manage, then Addis will have been worthwhile, and the SDGs will be at least as successful as the MDGs.

ABOUT THE AUTHOR

Matthew Martin is Director of Development Finance International (DFI), a non-profit organization which has helped more than 55 developing countries build their capacity to mobilize the best financing for development, and advises multiple international organizations, donors and CSOs on the same issues. He also co-directs Government Spending Watch, a DFI-Oxfam initiative to track, analyse and campaign for MDG/SDG spending funded by progressive taxation.