{"id":6366,"date":"2023-12-20T14:17:36","date_gmt":"2023-12-20T14:17:36","guid":{"rendered":"https:\/\/globaldev.blog\/?p=6366"},"modified":"2023-12-20T14:18:11","modified_gmt":"2023-12-20T14:18:11","slug":"financing-development-goals-in-times-of-crisis","status":"publish","type":"post","link":"https:\/\/globaldev.blog\/financing-development-goals-in-times-of-crisis\/","title":{"rendered":"Financing development goals in times of crisis"},"content":{"rendered":"\n
Pursuing the global development agenda will require genuine commitment from political leaders and significant stepping-up of government efforts. But, above all, it will require increased financial resources. Where will these resources come from?<\/strong><\/em><\/p>\n\n\n\n We are at the mid-point of the 2030 Agenda for Sustainable Development<\/a> and governments are grappling with multiple crises<\/a>, the most evident of these being the economic aftermath of the COVID-19 pandemic, climate change and the ongoing conflicts in Ukraine and Palestine.<\/p>\n\n\n\n Nobody can precisely quantify the crises\u2019 net effects or predict when they will end, but almost everyone agrees that they represent significant headwinds for the global development agenda. According to the 2022 Sustainable Development Goals Report by the UN<\/a>, progress on many targets may be slowing or even reversing as a result of the crises.<\/p>\n\n\n\n The challenge of financing the Sustainable Development Goals<\/strong><\/p>\n\n\n\n The 2023 OECD outlook on financing the SDGs<\/a> <\/strong>estimates that the COVID-19 pandemic has caused a decrease in nearly all sources of finance for development, amounting to a 17% drop over 2019-2020. This leaves the poorest countries with an increasing shortfall.<\/p>\n\n\n\n Foreign aid is, and will likely remain, an important source of development finance. However, these are not normal times for development cooperation. Official Development Assistance (ODA) was at record levels in 2020 and 2021<\/a>, but only due to COVID-19 related expenses. Apart from that, contributions have been stagnant over the last few years, and there is no increase in sight as rising military spending in Europe most probably diverts resources away from development aid. <\/p>\n\n\n\n Normally, loans provide an alternative to foreign aid for poorer countries. But rising interest rates, high debt loads, and uncertainty in capital markets make borrowing more costly. The \u2018polycrisis\u2019 means that resorting to debt may not be a good option now for many Global South countries. Indeed, the world may be facing a new debt crisis<\/a>, with a high likelihood of painful fiscal adjustments and reduced fiscal space – in other words, policies that add up to austerity.<\/p>\n\n\n\n Taxation matters, but how do states learn to tax?<\/strong><\/p>\n\n\n\n With foreign aid and borrowing becoming less prominent, what other finance options do less developed countries have to drive their development? Taxation is key. It is a fundamental part of how states provide crucial public goods and services that support development, such as universal education, public health systems, and an effective administration of justice.<\/p>\n\n\n\n Improving the ability of developing countries to generate resources for development spending is now part of SDG 17: Partnerships for the goals<\/a>, where Target 17.1<\/a> requires \u2018strengthening domestic resource mobilization\u2019. Progress on this target is measured by \u2018Total government revenue as a proportion of GDP\u2019 and the \u2018Proportion of domestic budget funded by taxes\u2019.<\/p>\n\n\n\n This choice of target and indicators may turn out to be a particularly timely one, not only because the SDGs agenda is much more ambitious than that of the previous Millennium Development Goals (MDGs<\/a>). In the current climate, where development financing faces new headwinds, governments may have to increasingly focus on domestic revenues and, in particular, tax revenues.<\/p>\n\n\n\n This is not without challenges. With stagnant or declining economic activity, tax revenues may decline too. To address this, tax policies may have to be adjusted. For example, the OECD finds that significant resources may come from \u201cstopping the leaks\u201d by recalibrating tax breaks on aid<\/a>. Similarly, a significant amount of tax revenues may be recovered with a crackdown on tax havens<\/a>. This would no doubt help.<\/p>\n\n\n\n One, however, should also reflect on the capabilities of states to tax. Improvements on this front, by building fiscal capacity<\/em>, may have long-lasting effects that stretch well beyond the development goals cycle. But how do states learn to tax? The formation and organizational performance of public finance institutions, and national revenue administrations in particular, depends on a number of structural factors, including the economic and historical conditions that help to build and consolidate a tax systems<\/a> that is capable of regularly raising revenues from across the population through a broad tax like income tax.<\/p>\n\n\n\n