Mind the Gap in SDG Financing

IMF Blog, January 31, 2019

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Progress in achieving the Sustainable Development Goals (SDGs) requires scaling up spending in areas like health, education, and infrastructure.
The required scale-up varies widely across countries:
- For emerging market economies, the average additional annual spending required in 2030 to reach key SDGs stands at 4 percentage points of GDP.
- For the average low-income developing country, the average additional annual spending required in 2030 to reach key SDGs stands at 15 percentage points of GDP.
Low-income countries’ combined needs amount to half a trillion, or 0.5 percent of global GDP.
If extra tax revenues are successfully realized, they could finance one-third of the total additional needs for low-income countries, leaving a gap of 0.3 percent of global GDP.

Many developing countries still collect very little tax revenue; building tax capacity is the first line of action.
Increasing the tax-to-GDP ratio by 5 percentage points of GDP in the next decade is described as an ambitious but reasonable target in many countries.
For most emerging market economies, this additional tax revenue would be sufficient to finance the increase in spending.
Achieving this requires strong administrative and policy reforms, where the IMF and other development partners can play a supporting role.

Closing the remaining gap requires more than revenue increases:
- Increasing the efficiency of public spending can result in significant savings and ensure spending is redirected to areas with the greatest impact.
- Developing political and societal consensus and building strong and effective public institutions are necessary to ensure spending is both increased and efficient.
- Principles to instill include transparency, accountability, and responsiveness across public and private sectors.
A variety of global public goods will be important, including geopolitical stability, open trade, and climate initiatives.
Addressing corruption requires tackling both supply and demand elements.

Low-income developing countries must own responsibility for achieving the SDGs.
The private sector, official development assistance, philanthropists, and international financing institutions can help accelerate efforts to close the remaining gap.
The piece calls for joint action by all stakeholders.

IMF staff study: Fiscal Policy and Development: Human, Social, and Physical Investment for the SDGs, authored by Vitor Gaspar, David Amaglobeli, Mercedes Garcia-Escribano, Delphine Prady, and Mauricio Soto.

Mind the Gap in SDG Financing — IMF blog, January 31, 2019.