## Fiscal Policy and Development — Spending Needs for Achieving Selected SDGs

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**Canonical URL:** [Fiscal Policy and Development — Spending Needs for Achieving Selected SDGs](https://www.imf.org/-/media/files/topics/sdg/sdg-costing-un.pdf)

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### Overview and Key Questions
- Title and author: Fiscal Policy and Development — Spending Needs for Achieving Selected SDGs; Vitor Gaspar, Director Fiscal Affairs Department, International Monetary Fund, September 24, 2018.
- Primary questions addressed:
  - How much to spend on education, health, electricity, roads and water?
  - What role for national governments? How can the private sector, civil society, and the international community provide support?

### IMF Methodology for Estimating Spending Needs
- Coverage: 155 countries (34 AEs, 49 LIDCs, 72 EMEs).
- Three-step approach:
  1. Identify main cost drivers.
  2. Derive reference values for cost drivers consistent with high SDG sector performance.
  3. Estimate 2030 spending levels given reference values.
- Sectors: Three-step methodology applied to education and health. Different approach used for roads and electricity. World Bank model used for costing water and sanitation.

### Representative Country Case Findings (Additional Spending Needed in 2030 to Achieve High Outcomes in Selected Sectors — Percentage Points of GDP)
- Five country cases representative of most countries’ challenges:
  - Guatemala, Indonesia, Vietnam, Rwanda, Benin.
- Reported totals (Percentage points of GDP) for the country cases (stacked by sector: Education, Health, Roads, Electricity, Water, Total):
  - Rwanda total: 18.7
  - Benin total: 21.3
  - Vietnam total: 6.4
  - Indonesia total: 5.6
  - Guatemala total: 11.5

### LIDCs Face Enormous Spending Pressures
- Average (GDP-weighted) additional spending needed in 2030 to achieve high outcomes in selected sectors:
  - LIDCs total average: 14 (Percentage points of GDP)
  - EMEs shown for comparison (sectoral breakdowns listed in source figures).
- Variation across countries: case studies show differences between Non-fragile and Fragile states (IMF fragile-state definition noted: weak institutional capacity measured by CPIA score average of 3.2 or lower and/or experience of conflict signaled by peace-keeping/peace-building operation in most recent three-year period).
- Country examples with variation plotted: Benin, Rwanda, Vietnam.

### Alternative Perspectives on Aggregates and Global Scale
- LIDCs: Additional spending needed in 2030 expressed against different GDP aggregates:
  - Aggregate LIDCs GDP perspective: 14.4 (percent of different GDP aggregates as shown in source figure)
  - Half trillion US$ figure: 520 billion 2016 US$ (presented as equivalent aggregate need)
- Expressed also as share of Aggregate AEs GDP and World GDP in source visualizations.

### Growth Scenarios Matter for Financing Needs
- LIDCs: Additional spending needs in 2030 by growth scenarios:
  - Baseline growth approach: IMF-WEO growth projections 2018-2023, assuming 2023 growth is potential growth for 2024-2030.
  - High and low growth scenarios: add to baseline growth the difference between the median and the 5th and 95th percentiles of historic GDP growth from Penn World Tables.
- Aggregate financing gap shown in source figures: 520 (Billions of 2016 U.S. dollars) noted as a baseline aggregate estimate; scenario bands plotted as Percent of Global GDP and Billions of 2016 U.S. dollars.

### Financing Options — Tax Revenue Potential
- World distribution of tax-to-GDP ratio, 2017 (visualized by country groups AEs, EMs, LIDCs).
- Key quantitative finding:
  - In the medium term, countries could raise up to 5 percent of GDP in tax revenues implementing revenue strategies.
  - Further gains are possible through continuing economic development.

### Efficiency Gains and Sensitivity
- LIDCs and EMEs: Additional spending needs in 2030 under efficiency scenarios (Percentage points of GDP):
  - Scenarios: High Efficiency, Baseline, Low Efficiency.
  - LIDCs plotted values (Percentage points of GDP): Baseline and range up to 24 in figures.
  - EMEs plotted values (Percentage points of GDP): Baseline and range up to 14 in figures.
- Note on benchmarking:
  - Baseline scenario benchmarks to countries with good performance, which are on average more efficient than other countries in the same income group.
  - High efficiency scenario benchmarks to good performance countries, assuming all efficiency gaps are closed.
  - Low efficiency scenario benchmarks to good performance countries, assuming they become as efficient as the average country by income group.

### Official Development Assistance (ODA) Constraints
- Estimated ODA net disbursements from DAC countries, 1990-2017 (visualized as percent of DAC countries GDP and percent of global GDP).
- Key points:
  - 0.7 percent of GNI target has been agreed and re-endorsed frequently since the 1970s by Development Assistance Committee members.
  - List of eligible countries is broad, including low-and middle-income economies.
  - Only 4 of the 29 DAC countries are above the target.
  - Meeting the GNI target would add 228 billions of 2016 U.S. dollars (0.2 percent of global 2030 GDP).

### Combined Financing Illustration (LIDCs: Additional Spending Needs and Increased Tax Revenues in 2030)
- Visual summary in source: Additional needs net of increased tax revenues equals 0.3 percent of global GDP in the presented scenario.
- Aggregate baseline additional needs: 520 (Billions of 2016 U.S. dollars) shown in the source.

### Conclusions and Policy Implications
- Large efforts needed by both LIDCs and EMEs to fulfill the SDGs in education, health, roads, electricity and water by 2030.
- Additional spending needs for representative LIDC amount to 14 percentage points of GDP.
- Increasing tax capacity can help, but not enough for most LIDCs.
- Important role for private sector, official development assistance, and civil society.
- National ownership is key to SDG success and places strong emphasis on governance.
- Strong governance and focus needed also from the global community, donors, the private sector and civil society.
- Enabling national governments is fundamental for sustainable and inclusive development.

*Vitor Gaspar, Director Fiscal Affairs Department, International Monetary Fund, September 24, 2018.*

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_Source: https://www.imf.org/-/media/files/topics/sdg/sdg-costing-un.pdf_