Untapped funds can help pay for Sustainable Development Goals

Development Goals (SDGs) but poorer countries should exercise caution when borrowing money, Gail Hurley, a development finance expert with the UN Development Program (UNDP), told Xinhua.

“There’s a lot more finance available now—public and private, domestic and international — (but) a lot of it is loan finance, so we do have to exercise a lot of caution not to sow the seeds of future debt crises,” Hurley said in a recent interview.

The 193 UN member states are expected to sign up to the SDGs—a set of 17 economic, social and environmental goals—later this month.

Countries will be expected to work toward the goals between 2016 and 2030.

The SDGs are to replace the Millennium Development Goals, a set of eight anti-poverty targets with a deadline of the end of this year.

Back in July, member states met in Addis Ababa, Ethiopia, and discussed sources of financing, from aid and loans between countries, to tax cooperation, direct foreign investment and energy subsidies.

“I think there’s an increasing realization that aid is not sufficient to fund development by itself, but that aid will remain critical over the SDG period especially for the poorest countries,” Hurley said.

“In fact the most stable and the largest single source of funding comes through domestic (government’s own) resources.”

One way governments raise domestic resources is through taxes, an area that was high on the political agenda at Addis Ababa, said Hurley.

“(Tax) has become a huge political issue in recent years especially in the wake of the financial crisis,” she said.

“Developing countries—but also developed countries—are increasingly interested in to what extent tax avoidance practices by multinational corporations are reducing the amounts of revenues we’re able to raise.”

One way to help developing countries raise the funds they need to pay for the Sustainable Development Goals is by using aid money to help developing countries increase tax revenues.

“At the moment very little development aid—less than three percent overall—is actually allocated to supporting developing country tax administrations to increase their capacities,” she said.

According to the finance expert, using aid money to help developing countries detect and take action on tax avoidance and evasion—such as through the new Organization for Economic Cooperation and Development and UNDP initiative Tax Inspectors without Borders—could offer a very high return on investment for aid donors.

“If countries are actually able to detect tax avoidance and see their domestic revenues raised then that helps them to raise their own revenues for development,” said Hurley.

She said countries, such as Bolivia and Rwanda, have already begun looking at ways to grow their revenues, particularly from the extractive (mining) industries.

Meanwhile, in some cases, she noted, funding the SDGs will involve governments and businesses reprioritizing the way they spend money.

“When we think about financing for development and we think about financing the world’s new development goals, we tend to think about how can we raise more money, and where is this money going to come from, but of course it’s also about how can we use our existing resources more efficiently,” said the expert.

For example, energy subsidies may be an area where funds could be redirected toward sustainable development, Hurley said.

“Take subsidies for fossil fuels, oil, coal and so on, they are estimated at over 500 billion annually whereas subsidies for renewable energies are around 120 billion annually,” she said.

“So of course some countries argue, let’s reorient those subsidies for fossil fuels in different directions and that will help raise more resources for sustainable development.”

At the Addis conference, developed countries recommitted to the target of allocating 0.7 percent of gross national income to development aid.

But this goal has been around since the 1970s and only a handful of countries have so far reached the goal, she said.

Some countries have not made the commitment to spend 0.7 per cent of their gross national income on development aid.

“Over the next decade and a half I think countries like China, India, Brazil and others will in any case increase their contributions to development voluntarily and that’s positive,” she said.

However, she added, improving aid was also about increasing the amount of information available about where and how aid money flows between countries.

“For all international development donors, what’s really important is to increase transparency around the flows that are going from one country to another,” she said.

“It’s really important to know what countries are giving to other countries, for what purposes, on what terms and conditions so that we can ensure that that supports sustainable development to the maximum extent possible.”

Currently most of the aid financing for the SDGs is likely to be available on loan terms, unless there is a large increase in grant financing.

The Official Development Assistance or ODA, the official term used to describe aid, also includes loans given at a concessional rate.

Although in recent years the poorest countries have been able to reduce their debt—in part due to debt forgiveness—there was still a risk that these loans could lead to unsustainable debt for some poorer countries.

“There is a risk that some countries, in their efforts to increase investments to meet the Sustainable Development Goals, will actually (increase) their debt burdens and ultimately in some cases making them unsustainable,” she said.