Development Advocate Pakistan: Volume 3, Issue 3
Financing the Sustainable Development Agenda
In 2015, the international community adopted the Sustainable Development Goals (SDGs) as a new global development agenda, encompassing the economic, social and environmental dimensions of sustainable development for all. For the goals to be met requires international, national and local commitments, partnerships and innovative thinking. But it also requires money. To achieve the ambitious targets, estimates suggest that USD 5–7 trillion per year will be needed globally. Pakistan also requires phenomenal resources given its population and development status, and funds are needed from multiple sources including the government, private sector, international development partners and local philanthropy, who must all come together and coordinate to fnd the funds.
Pakistan has already shown strong commitment to the SDGs, adopting them as Pakistan's National Development Goals. National and sub-national planning and financing frameworks are being aligned to the SDG agenda. New frameworks are being established to track related expenditures, while district-level frameworks are being piloted to highlight priorities, especially those related to health and education.
Official Development Assistance (ODA) was the cornerstone of earlier development agendas. Yet, while developed countries agreed to allocate 0.7 percent of their gross national incomes (GNI) to developing countries, in reality their contributions reached merely 0.32 percent in 2016. Pakistan is amongst the top ten ODA recipients globally, but ODA only accounts for 1.3 percent of its GNI. While ODA will remain critical to achieving the SDGs, relying on international aid will not help Pakistan achieve its ambitious objectives. Domestic resources need to be mobilized more by policymakers to finance development.
This poses a major challenge. Despite recent improvements, Pakistan's tax to GDP ratio is only 12.6 percent, amongst the lowest in South Asia. This narrow tax base, a large untaxed informal sector (which could potentially contribute an additional USD 8 billion), a partially taxed agriculture sector (contributing one percent of tax receipts), and preferential treatment (benefiting specific taxpayers through targeted deductions or exemptions) continue to hamper revenue mobilization. By addressing these, Pakistan can take the lead in financing its own development.
Pakistan has historically maintained high fiscal deficits. Public debt servicing stands at 40.4 percent of revenue, constraining its capacity to finance SDG achievement. Thus, the private sector must step up to meet this national challenge. Through public-private partnerships, the private sector can become a true partner, complementing government efforts to provide essential infrastructure and public services, without increasing the government's fiscal burden. With responsible and sustainable business practices, the private sector can contribute to inclusive growth; creating livelihoods, reducing poverty, generating taxes, introducing innovations and reducing reliance on imports. The private sector can also provide pro-poor products and services such as access to credit through micro-finance as in the case of Grameen Bank in Bangladesh. Other examples from across the world where private sector has contributed to sustainable development and has potential to be replicated in Pakistan includes crop insurance for small-scale farmers (Sompo Japan), low-cost housing (Echale a tu casa Mexico), and affordable clean energy (D light in Kenya), to name a few. Considering the generous nature of the Pakistani population and millions generated in philanthropy, it is an emerging and important component of the SDG agenda that can help mobilize resources for SDG initiatives.
Cooperation among countries of the Global South can help finance development by exchanging low-cost solutions, with mutual benefits for both lender and recipient. Through the China-Pakistan Economic Corridor (CPEC), for example, China is investing USD 46 billion to address Pakistan's infrastructural bottlenecks whilst promoting its own strategic and economic interests.
Innovative development financing can help achieve sustainable development. In Bangladesh, microcredit has accounted for a 10 percent (2.5 million people) reduction in rural poverty over the past two decades. Microfinance there covers 32 million recipients, extending USD 7.2 billion annually. In contrast, Pakistan has only 3.6 million microfinance borrowers. With a supportive policy environment and strong regulation, microfinance can be expanded to accelerate Pakistan's progress towards achieving many SDGs: reducing poverty and hunger, achieving good health and quality education, promoting gender equality and access to water, sanitation and energy, amongst others.
While additional resources are required, there is also a need to improve planning, budgeting and resource allocation, to target long-ignored social sectors such as education and health, geographical areas, and disadvantaged groups. Historically, Pakistan has allocated limited resources towards social sector development expenditures: for example, in FY 2015–2016, allocating 2.3 percent for education and 0.76 percent for health. Preliminary estimates from the federal and provincial budgets 2016-17 reflect improved allocations; 9.11 percent for education and 5.63 percent for health. The Planning Commission's Multi-dimensional Poverty Index (MPI) reveals that whilst poverty has declined overall, there are wide disparities between districts. District-level analysis through the MPI gives us a tool to influence National and Provincial Finance Commissions to increase allocations to lagging districts. In the past twenty years, outcome-based and participatory budgeting has been used globally to ensure that budgeted funds achieve their intended results. Such instruments can achieve the transformation in governance that is necessary to achieve the SDGs.
The world community has realized the need for holistic efforts to finance and adopt the SDG agenda. The Addis Ababa Action Agenda (2015) provides a foundation for implementing this roadmap, collecting more than 100 concrete measures to support financing for development, including domestic resource mobilization, private investment and improved policy and regulatory frameworks for effective resource utilization. In view of the magnitude of resources required to attain SDGs, now is a good time for Pakistan to develop a multi-pronged financing approach, harnessing the potential that exists in both public and non-public sectors.