SDG implementation: Financing and development cooperation

Shamsul Alam | Published: September 23, 2018 21:45:50 | Updated: September 24, 2018 21:33:00


Bangladesh has become a frontrunner in implementing Sustainable Development Goals (SDGs) by setting an example of the best practice in mainstreaming global goals and targets into the national plan. It is an effective drive in SDGs implementation by involving all stakeholders.

During the last decade, the change of the socio-economic landscape of Bangladesh has been evident. Bangladesh is now an emerging economy. It consistently maintained on an average above 7.0 per cent of growth over last three years. In the wake of global recession, Bangladesh economy proved to be resilient; the major economic indicators remained healthy during the period. In 2015, Bangladesh crossed the threshold of lower middle-income country status by fulfilling the income criteria set by the World Bank. Bangladesh has integrated global goals and targets into the national five year plan with an effective drive in SDG implementation by involving all the Ministries of the Government, private sector, civil society organisations, non-governmental organisations (NGOs), development partners and other stakeholders. This is called the "whole of society approach".

It is evident that challenges that concern countries worldwide, irrespective of how developed they are, such as climate-change, migration, conflict and emerging populism, cannot be dealt with isolated efforts by individual countries. This aspiring agenda is a reminder of the challenges the world faces to this date, as many countries were not able to make sufficient progress on every single goal under the Millennium Development Goals (MDGs). It is noteworthy that out of 169 targets of SDGs, 41 espouse the issue of international cooperation.

At this stage, it is crucial for Bangladesh to have a reasonable estimate of costing and mode of financing before jumping into the implementation of all-encompassing development agenda like SDGs. With the aim to assess the cost of implementation of SDGs, estimate goal-wise annual additional resource requirements and explore the financing strategy to bridge the resource gap, Bangladesh has done an estimate of overall additional costs as well. The "SDG Financing Strategy: Bangladesh Perspective" provides a well-defined work plan that highlights all the actions necessary to attain significant progress in the SDGs in Bangladesh. Bangladesh's SDGs financing strategy provides an estimate of the annual resource gap and an opportunity to revise the government interventions and public financing strategies accordingly.

The additional amount required over the current provision of investment related to SDGs by public sectors and external sources was estimated to be USD 928.48 billion at 2015-16 constant prices. This amount, which is 19.75 per cent of the accumulated gross domestic product (GDP) of the country, would be required for SDGs implementation over the period of FY 2017-FY 2030. The annual average cost of SDGs would be USD 66.32 billion (at constant prices) for this period.

Around 80 per cent of the 169 targets of SDGs are covered in the costing exercise. All the synergies and tradeoffs of the targets have been reviewed. Diversified method has been applied in the cost estimation. In some cases, multiple methodologies are used for different targets under the same goal. For most of the goals, Multiplicative Factor Analysis (MFA) procedure has been applied to calculate the total cost per annum. This costing procedure takes into account the cost required to achieve certain targets, while considering several factors including quantity, quality, efficiency, sustainability and capacity building. The other methods applied for this study include poverty gap analysis, Incremental Capital-Output Ratio (ICOR) analysis, investment requirement for certain sectors and block allocation for some targets. For a few goals and targets, current programmes under national budget have been used as the base for cost estimation and these programmes are considered to scale up for better coverage.

SOURCE OF FINANCING: Five potential sources of gap financing are indicated. They are: Private Sector Financing, Public Sector Financing, Public-Private Partnership (PPP), External Financing (foreign direct investment  or FDI, Foreign Aid and Grants), and finally, NGOs. The external source has an average share of around 15 per cent. On average, public sector would account for around 34 per cent of the financing requirement, whereas private sector has share of around 42 per cent during 2017-30 period. The average share of PPP is 6.0 per cent. External sources have an average share of around 15 per cent where the share of FDI is 10 per cent and foreign aid is five per cent. Finally, the NGOs would contribute around four per cent for the same period.

For, SDGs 1-4, 14, 16 and 17, public sector has a major responsibility. On the other hand, for SDG5, SDG (7,8,9), SDG10 and SDG11, private sector has the major role. There are few SDGs, i.e. SDG (7,8,9), SDG11 and SDG12, where Public Private Partnership is an option. Furthermore, external sources can play important role in SDG3, SDG6, SDG (7,8,9), SDG13, SDG14, SDG15, SDG16 and SDG17.  

CHALLENGES OF FINANCING: It is pertinent to shed light on the challenges related to the proper implementation of SDGs in Bangladesh. One of the main challenges in achieving SDGs is how to achieve improved implementation of projects and programmes. Delays in project implementation have deleterious impact on cost as well as on the intended benefits. It has been proposed to improve tax-effort by 9.0 percentage points over the next 13 years. New initiatives based on reforms, automation, capacity development and audit need to be undertaken  to improve revenue mobilisation in Bangladesh.

Access to climate funds critically depends on the country's capacity to negotiate with development partners. In this context, Bangladesh has identified the areas of negotiations. The 7FYP states that the international experience with the implementation of infrastructure through PPPs suggests that this policy has worked best when the legal framework is well-thought-out and management of the initiative has competent professional staff. The legal framework needs to lay down clear rules of engagement, the incentive framework and dispute resolution mechanism that compares favourably with international good practice. Focus should be placed on these two important areas.

Implementation of public-private partnership (PPP) remains a big challenge. The potential areas for PPP are power generation, infrastructure and urbanisation. Despite positive developments, PPP is yet to emerge as a major financing avenue in Bangladesh. Three factors that can be largely ascribed to slow progress in PPP include: (i) absence of a well-thought-out legal framework; (ii) lack of internationally competent professional and skilled project management staff; and (iii) lack of PPP-related capacity in ministries. The Bangladesh government has decided that 30 per cent of development spending should come from PPP funding.

MOVING FORWARD: The Economic and Social Commission for Asia and the Pacific (UNESCAP) estimated in 2016 that  initiating a social investment package will  cost by 2030,  10 per cent of GDP in India, 50 per cent of GDP in Nepal and 20 per cent of GDP in Bangladesh. South Asian countries require greater resources to meet the infrastructure gap. Larger domestic and external resources can be stimulated through the following strategies:

(i)         Domestic Resource Mobilisation: Improving the tax base and reinforcing tax administration and compliance can boost domestic resources. Also, identifying the loopholes and closing them to prevent tax leakages is essential.

(ii) Harnessing private investments and public-private partnerships for sustainable development: PPPs have shown considerable success in addressing specific urban infrastructure needs since they can contribute at enhancing public investments. Countries have also stimulated private sector which in turn contributed to corporate social responsibility to help human resource development.

(iii) Regional and international cooperation for sustainable financing: Potential for regional cooperation is immense in South Asia. This can be used to meet resource financing needs of the relatively less developed capital markets from the more developed capital markets. SAARC Development Fund, South Asian Development Bank and the New Development Bank can all contribute to raising capital.

ROLE OF PUBLIC SECTOR: Public sector would account for around 34 per cent of the financing requirement. The major role of the government will be to expand the resources and strengthen capacity to mobilise that resource.  

i) Enhancing SDG orientation of the Budget: The budget is expected to be more oriented on SDGs, as it is the main instrument for the government at hand in implementing SDGs action plan.

ii) Bond Financing: The government can buy foreign exchange reserves in the local currency and convert it into bonds and treasury bonds

iii) Deregulation of Energy Prices: A full deregulation involves - (i) determination of fuel prices according to the market demand and supply condition; and (ii) opening up the market to more than one agency. In the first stage, Bangladesh may adopt option (i) whereby fuel prices would be determined by the market forces. Such a move would not only reduce fiscal burden, it will also release public funds (to the tune of three per cent of GDP) for other priority activities including SDGs.

iv) Debt-Financing: Bangladesh is not a debt-ridden country. A debt level of 30-33 per cent perhaps suggests that SDG resource gap financing can be accomplished through increased debt financing.

v) Enhanced Tax Effort: Average tax effort indices show that the country's tax effort is lowest among comparators implying that Bangladesh lags far behind its tax revenue potential. Thus, tax effort may be increased further by two to three per cent of GDP by invoking appropriate reforms (including implementation of VAT laws).

vi) Intensify actions to attract FDI: The government has invited Japan, China and India to set up Special Economic Zones (SEZs). These countries have also shown their interests in doing so. If this materialises properly, these SEZs will have the potential to receive substantial FDIs from these countries and also from Singapore, USA, UK, Malaysia and Thailand among others. Setting up 100 Special Economic Zones is in progress and having one stop service for registration hopefully will allure accelerated flow of FDI's in the country.

ROLE OF PRIVATE SECTOR: Almost all past medium term development plans have relied on private financing to implement the plans. In the 7th FYP, private sector is expected to finance 77.3 per cent of the total outlays. It is thus envisaged that the largest portion of SDGs implementation resource gap would come from the private sector. Private sector is considered to contribute about 37.03 percent of total additional cost in FY2017 which will increase to 46.27 percent in FY2030. Private sector is estimated to contribute, on an average, 42 per cent of total financing.

ROLE OF DEVELOPMENT PARTNERS: Although the role of development partners in the development process has been shrinking over time, they are still considered a major player as far as socio economic development is concerned. Foreign aid is expected to contribute to five per cent of total SDG financing. It has been proposed that the development partners can:

  • Continue and upgrade support to Policy and Implementation;
  • Strengthen their roles in localisation of SDGs while realigning their country strategies with enhanced fund provisions;
  • Scale up investment in health and education sector (Supply side intervention);
  • Reinforce the action for building resilience against climate change and disaster;
  • Enhance support to capacity building and sustainability;
  • Promote actions that have lasting impact on the societal progress-particularly human development;

ROLE OF NGOs: NGOs can play a significant role in implementing SDGs at the grass-root levels by operating in the remote areas and helping people combat the adverse effects of climate change. It has been estimated that around five percent (on average) of the total additional resource requirement may be contributed by the NGOs by shifting focus on activities. In addition to micro-finance services, NGOs can be concentrated in the following sectors related to human development: (1) Health, Nutrition and Population; (2) Education; (3) Water, Sanitation and Hygiene; (4) Skills Development; (5) Disaster, Environment and Climate Change; (6) Rural Development; (7) Urban Development; (8) Agriculture and Food Security; (9) Migration; (10) Gender Justice and Women Empowerment; and (11) Poverty eradication

Dr. Shamsul Alam is an Economist and Member (Senior Secretary), General Economics Division, Bangladesh Planning Commission. He has been serving the Planning Commission as Member since 2009.

sabau47@yahoo.com

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