Rethinking finance for sustainable development: Challenges and progress
Four years after the global leaders came together to commit to the 17 Sustainable Development Goals (SDGs) to end poverty, fight inequalities, tackle climate change, and ensure that no one is left behind, an important question remains: How can the world finance such an ambitious agenda?
This question is at the core of global efforts to finance the SDGs. On the one hand, financing these goals should not be too difficult. After all, this would mean only an additional investment of $1.5 trillion for Asia-Pacific developing countries, out of the combined GDP of approximately $30 trillion. Nonetheless, financing the SDGs is a complicated task as it would need unprecedented coordination between public and private sectors. It would also require significant efforts to reform global financial regulation and financial institutions, not to mention meaningful commitment from all stakeholders.
Until today, the transition in the financial sector to support more sustainable growth is not happening at the intended scale. Systemic risk is also rising amidst uncertainty about the global economy from increasing debt burden and increasing turn of the trade policy towards protectionism.
The United Nations system and partner international organizations have recently raised the alarm over the scale and urgency of these challenges in the 2019 Financing for Sustainable Development Report. The report calls for revamping the global institutional architecture, making the global economy and global finance more sustainable, and introducing integrated national financing frameworks as a tool for aligning financing policies with national strategies and priorities.
In this context, it is recommended that countries take a different approach in achieving the SDGs, by shifting the financing perspective from short-term to longer-term investment. With this change of mindset, countries would have more and better resources to finance the 2030 Agenda by improving their domestic public resources, partnering with the private sector, and enhancing international development cooperation.
For Asia and the Pacific, the recent ESCAP report on the Financing for Development in Asia and the Pacific, reveals positive developments in financing the 2030 Agenda. On domestic public resources, a number of countries have made remarkable progress in tax revenue mobilization in the last five years from 2012 to 2017. Maldives, for example, increased their tax revenue level by 70 per cent, while Nepal, Cambodia, Myanmar, the Philippines, Samoa, Tonga, and Sri Lanka also brought up their tax revenue by a significant margin during the same period. Most progress was achieved through comprehensive tax reforms that prioritized tax base broadening, improvement in tax administration, and tax education. These reforms have helped countries to have fiscal space much needed to finance SDG related projects.
Partnership with domestic and international private business and finance is also vital in financing sustainable development. Countries in Asia and the Pacific have made much progress in their private financing efforts through various means, including via public-private partnership for infrastructure investment in nearly three quarters of countries in the region with China as a leading example. There are also promising developments on the capital market front. Fiji and Indonesia, for instance, have become the first issuers of sovereign green bonds among developing countries, and Thailand has successfully launched the Thailand Future Fund as a new way to raise private capital for infrastructure investment.
Finally, international development cooperation remains an important source of finance for SDGs in developing countries, especially for least developed countries (LDCs). Efforts in increasing official development assistance (ODA) and south-south cooperation need to be stepped up amid the current uncertainty about the global economic situation. Aligning multilateral aid strategies towards achieving the 2030 Agenda as implemented by the Republic of Korea, Japan, India, and the Russian Federation, could help sustainable development projects across the developing world with an emphasis on LDCs and small island developing states.
Climate finance is one important example that could benefit from international cooperation through bilateral and multilateral ODA, and through dedicated climate funds such as the Green Climate Fund or the Global Environment Facility. Coordinated policy actions are needed to enhance countries readiness for climate finance across the region. In addition, increasing effort to move more funding proposals into implementation and improving the leverage ratios of public climate finance through blended finance instruments are vital.
2019 is a critical year for the 2030 Agenda for Sustainable Development and financing the SDGs presents a compelling call to action. With 11 years to go, we are at an important juncture to urgently reform the global financial system and to change the mindset of all those involved towards longer-term and sustainable goals. Addressing these issues is not only the right thing to do, but it presents tremendous growth opportunities as well as drives positive change in the world.