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SDGs (The Sustainable Development Goals) are underfinanced in developing countries, especially in low-income countries. This conclusion is based on a review of SDG financing needs and available financing sources - including international private finance, blended finance, remittances, domestic resource mobilization, ODA and debt financing. The underfinancing in low-income countries is substantial, but in a global perspective it constitutes only half a percentage point of world GDP in 2030. To address the underfunding of the SDGs, policy priorities and allocation decisions in developing as well as donor countries must change significantly. Whether this is possible depends on the local and international political contexts. Realistically not all SDGs will be fully funded. This is a DIIS Working Paper.
Ole Winckler Andersen and Ole Therkildsen
Ole Winckler Andersen and Ole Therkildsen
We would like to thank Thomas Juel Thomsen, who contributed to the initial
discussions of this paper. We also acknowledge numerous valuable comments
from colleagues at DIIS on an earlier draft version of this paper.
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Ole Winckler Andersen
Senior Analyst
Ole Therkildsen
Emeritus Researcher
DIIS · Danish Institute for International Studies
Østbanegade 117, DK-2100 Copenhagen, Denmark
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© Copenhagen 2019, the authors and DIIS
Introduction 2
A critical assessment of the SDG cost estimates 4
Estimation challenges 4
Findings 6
A critical assessment of estimates of SDG financing sources 8
Estimation challenges 8
Findings 8
Policy implications of the underfinancing of the SDGs 12
Conclusions 15
References 17
The answer to the first question in the title of this paper is no. The answer to the
second question is yes. This reflects concerns about the realism of reaching the
Sustainable Development Goals (SDGs) in Low-Income Countries (LICs)
. The
SDG agenda is a desirable vision not a strategy for reaching the goals.
As shown in this paper, the financing gap for the SDGs in most developing
countries and especially in LICs will be significant. This contrasts with the
optimism at the Financing for Development Conference in Addis Ababa in July
2015 and the UN General Assembly in September 2015, where the SDGs were
adopted. In preparation for these meetings, several cost estimates were produced
for achieving the SDGs. The results varied a great deal and led to discussions of
alternative estimation approaches. That the required financing for most
developing countries certainly for all LICs could be unrealistically high was
not much discussed.
LICs have different financing needs, opportunities and challenges than other
developing countries, but the significant and increasing variation among the LICs
should be born in mind (see e.g. Alonso, Cortez and Klasen, 2014). However,
while there are many references to LICs (and to Least Developed Countries) in the
Addis Ababa Action Agenda (United Nations, 2015), the specific financing
challenges facing LICs were not dealt with in detail. This paper discusses these
challenges. It has three purposes.
The first is to assess the reliability of the cost estimates for the SDGs in LICs and
the related financing needs. This shows that significant uncertainty is associated
with the existing SDG cost estimates especially for LICs. A key challenge is to
estimate the costs of the fundamental changes which the achievement of the SDGs
will require. Other challenges are to ensure that cost estimates reflect the economic
effects of financing the SDGs in LICs and that the LICs may not have the
administrative capacity to effectively and efficiently absorb investments of the
magnitude envisaged by the SDGs
. Despite these challenges, all analysts agree
that the SDG financing needs in LICs are substantial and that the additional costs
will be a significant share of their GDP, but with some variation between the
individual LICs.
The second purpose is to review the realism of the estimates of potential financing
sources for the SDGs in LICs. It shows, based on recent developments in both
private and public development finance, that the SDGs in LICs will be grossly
underfunded due to i.e. slower than expected economic growth, decreasing
For 2019, the World Bank has classified 34 countries as low-income countries (LICs) (GNI per capita of
USD 995 or less in 2017) and 47 countries as lower middle-income countries (LMICs) (GNI per capita
between USD 995 and 3,895 in 2017). As described in various analyses, there is significant overlap
between the groups of LICs and least developed countries (LDCs), which is the classification used by the
United Nations. 47 countries were classified as LDCs as of December 2018. Data are sometimes provided
for LICs and sometimes for LDCs, and we will in the following use data for both groups of developing
The implementation of the MDGs also faced significant capacity problems (Therkildsen, 2005).
international private investments, a low and decreasing share of provided official
development assistance and a weak tax base, which makes it difficult to ensure
significant increases in domestic resource mobilization. Financing this gap
through loans can be a risky strategy, but an increasing number of LICs have
increased their debt to levels which may not be sustainable
. However, access to
finance is not the only challenge for LICs’ efforts to achieve the SDGs. Conducive
policy frameworks will be important, and a critical issue will be to ensure that
access to finance is translated into results that contribute to the SDGs.
The third purpose is to discuss the importance and potential policy implications of
these main findings. The political aspects of the implementation of the SDG
agenda have attracted less attention in the discussions so far. However, given that
LICs may not be able to mobilize enough funding to achieve the SDGs, both LICs
and donor countries will have to consider their respective policies and strategies.
To the extent that the SDGs influence domestic policies and strategies, the LICs
will face difficult trade-offs between individual SDGs. How LICs deal with these
trade-offs will be determined not only by domestic politics but also by the relation
to international actors
. For donors, it may imply a need for better targeting of
development assistance, including mobilized private finance, to LICs and
probably also to specific sectors and activities. Moreover, donor efforts should
reflect the policy response of LICs to the SDGs and their insufficient financing. The
paper concludes by arguing that it may be politically difficult to start discussions
of the substantial underfinancing just a few years after the adoption of the SDGs,
but without radical change in available funding both LICs and donor countries
will have to face up to decisions on which SDGs to prioritize and which to neglect.
The method used in this paper is straightforward. The paper provides no new
estimates of SDG costs or financing. Instead, analyses of SDG costs are based on a
review of often quoted estimates, while the analyses of financing needs rely on
recent work by international institutions such as the OECD, the World Bank and
the UN. In the analysis of the potential policy implications of the underfunding of
the SDGs, a distinction is made between the international and national levels as
well as between donors and developing countries. As a framework for
understanding the political economy of SDG funding and implementation at
country level, a political settlement perspective
is suggested and briefly
In addition to this introduction, the paper consists of four sections. Section 2
focuses on estimates of SDG costs and discusses the relevance of applied
estimation approaches for the estimation of the SDG costs in LICs. In section 3,
estimates of the role of various financing sources in LICs are reviewed. Section 4
discusses some potential policy implications of the SDG cost and financing
estimates for both LICs and donors. Section 5 concludes the paper.
IMF, 2018; Mustapha and Prizzon, 2018.
In addition to the focus on the SDGs and development finance, the role the SDGs may play in
international governance has led to discussion (see e.g. Kanie and Biermann (eds.), 2017). This discussion
will not be dealt with in this paper.
For an introduction see Behuria, Buur and Gray, 2017.
As mentioned, several estimates exist of the costs of the SDGs. This section
identifies five specific estimation challenges, which are particularly critical for the
estimation of the SDG costs in LICs. This is followed by a review of some often-
quoted estimates of the SDG costs in developing countries. Despite these estimates
being associated with significant uncertainty, it is concluded that the SDG costs in
developing countries will be substantial, especially as a share of GDP in LICs.
Estimation challenges
Current discussions of financing the SDGs rely to a large degree on estimates
produced before the adoption of the SDGs in 2015 despite their, often, preliminary
character. Moreover, it is generally difficult to compare the estimates, as they are
not based on the same assumptions. Estimating the SDG costs of LICs involves
specific, but difficult challenges. At least five general estimation challenges have
specific implications for the estimation of financing needs in LICs, namely (i) the
cost implications of specific interactions between the SDGs; (ii) a need for more
fundamental changes to reach the SDGs; (iii) the existence of stronger economic
effects due to the required significant increase in development finance; (iv)
insufficient administrative capacity; (v) specific challenges related to climate
change and adaptation. Each is discussed in turn.
First, the individual SDGs are not well-defined cost areas, and the SDGs are not
mutually exclusive. Thus, there are significant interactions between the goals
which lead to potential overlaps between individual cost areas and a risk of
double counting (Schmidt-Traub, 2015, p. 27). Financing one area or goal will
often have implications for other goals, and overall estimates should,
consequently, not be made just by aggregating sector needs. An example is that
investments in infrastructure (roads, energy, water and sanitation) are a
prerequisite for achieving other SDGs (United Nations, 2018, p. 15). Another, often
mentioned example, is the synergy between water and health, but there will also
be trade-offs which can both be within and between sectors
. A main challenge is
how to assess the cost implications of these synergies and trade-offs as well as
various cross-cutting issues (poverty reduction, inequality, gender, etc.), which
This paper uses ‘costs’ instead of ‘investments’ (compare with Schmidt-Traub, 2015, p. 12) in order to
signal the importance of including operation and maintenance costs in estimations of the costs of the
SDGs. For a brief discussion of the use of the concept of ‘costs’, see also UNTT (2013, p. 3). The
importance of considering the operation and maintenance costs of the SDG is emphasized in recent
reports, e.g. United Nations (2018). Neglect of this issue was also a major problem for the MDGs
(Therkildsen, 2010; Therkildsen and Buur, 2010). In general, it is difficult to compare various estimates as
they rely on different cost and financing concepts (e.g. costs, investments, additional costs, financing
needs, etc.).
See International Council for Science (2017), which contains a systematic analysis of the interactions
between the individual SDGs. See also Le Blanc (2015) and the discussion in OECD (2018c).
See e.g. Kenny (2018, pp. 19-20) for examples.
will have to be dealt with directly and indirectly in most of the cost areas
(Schmidt-Traub, 2015, pp. 29-32)
The fact that these synergies and trade-offs may vary between countries together
with differences in the ways in which the SDGs can be achieved due to differences
in local contexts has not led to any systematic attempts to consider if specific
overlaps and interactions between the individual SDGs are present in developing
countries or in LICs. Moreover, there are very few attempts to try to operationalize
the interlinkages between the goals. A better understanding is therefore needed of
how the various goals are interrelated in developing countries especially in LICs.
Such an understanding, which would have implications for estimates of costs and
financing, could also include issues like sequencing of activities and design of
coordinating policies (Kenny, 2018), and how to ensure that the allocation of
investments both between and within sectors reflects the absorption capacity of
the implementing organizations (UNCTAD, 2014, p. xi). This recognition of
heterogeneity between countries has been presented as an argument for using
national instead of international needs assessments as the basis for SDG cost
estimates (UNTT, 2013; Schmidt-Traub, 2015).
Second, cost estimates depend on assumptions about SDG implementation
strategies and ‘production functions’ (Schmidt-Traub, 2015) across sectors and
countries. In several areas, new ‘production functions’ may have to be developed;
e.g. to make the production more sustainable (energy and electrification are an
example), and to introduce new technology; e.g. in the education sector (Kenny
and Snyder, 2017, p. 2)
or in the health sector (Schmidt-Traub, 2015, p. 47). It has
been argued that without technological change the SDGs will not be achieved
(Kenny and Patel, 2017, p. 1)
, and change is especially relevant for LICs, which
are more distant from achieving the goals. Obviously, such changes are difficult to
predict and therefore difficult to address in budget estimates in the medium and
long term, but simple extrapolations based on average unit costs of the past are
clearly problematic.
Several other factors may influence ‘production functions’ and the costs of the
SDGs. Per capita costs may increase in some countries, if due to the commitment
of ‘leaving no one behind’ the goal is to have (close to) 100 percent coverage
The reason is that it may be costlier to reach marginal groups (Schmidt-Traub
(2015, p. 40). Another issue is that starting points differ, which leads to additional
costs in some countries. Road infrastructure is an obvious example, but it may also
be an issue in other sectors. Such infrastructure costs are often calculated as a
percentage of GDP (Schmidt-Traub, 2015, p. 66), which can lead to significant
estimation errors. More specific assessments of the needs are therefore required.
See also the discussion on cross-cutting issues in United Nations (2018, p. 2), which mentions the
implications of gender equality as an example.
See e.g. International Commission on Financing Global Education (2016, p. 18.)
Kenny and Patel (2017, pp. 2-3) use both a broad and a partial definition of ’technology’. The key role of
new technologies is also mentioned in United Nations (2018).
In practice, the coverage will not be 100 percent and estimates often assume a lower coverage (see e.g.
Stenberg et al., 2017).
Third, there may be economy-wider effects of financing the SDGs. Significantly
increased investments (and increased operation and maintenance costs) will
influence economic categories like wages, exchange rates and prices as well as
more dynamic effects
. For instance, there will be a mutual relationship between
economic growth and many of the SDGs. As the envisaged increase in investments
is higher in the developing countries, it might be expected that these effects would
be stronger there, but only few analyses have dealt with these effects of financing
the SDGs. An analysis mentions some main characteristics of the LICs and
discusses how these can influence the feasibility of financing the SDGs. It
concludes that the available fiscal space will not be sufficient in these countries
(Baum et al., 2017)
Fourth, as mentioned earlier, cost estimates also depend on the administrative
capacity to absorb increasing inflows of financing including aid. Analyses have
focused on developing countries’ ability to effectively and efficiently turning
inputs into outputs and have mentioned supply constraints and diminishing
returns to scale, which will have significant implications for the ‘production
functions’. Analyses have questioned the degree to which developing countries
have the institutional structures in place to ensure efficient public investments and
have also indicated that this issue could be more pronounced in LICs (Gupta et al.,
with implications for the SDG cost estimates. Whether volatility in these
investments can impact on their efficiency could be an additional issue (see
Museru et al., 2014).
Fifth, the costs of climate change mitigation and adaption may lead to major
challenges for developing countries the LICs in particular and estimates may
“understate the true needs” (Schmidt-Traub, 2015, p. 7; see also pp. 37-38).
Especially in the LICs, comprehensive efforts are needed both to address climate
adaptation, but also to transform production and consumption patterns to avoid
just reproducing the unsustainable production and consumption patterns of
developed countries. The magnitude of these challenges in the LICs will also
depend on the behavior of developed countries. The costs of the needed
transformative changes will therefore be difficult to estimate.
As the SDGs are universal and more ambitious than the MDGs, the costs of the
SDGs cannot be compared to the costs of the MDGs. Therefore, it is not possible,
when estimating the SDG costs, to rely on estimates for the MDGs.
While the cost estimates for the MDGs were in the range of USD 20-200 billion
(UNTT, 2013, p. 7), but vary a great deal, the estimated costs of the SDGs are in
trillions of USD. An often-cited estimate is from UNCTAD (2014). It estimates
based on a review of various analyses that total global investment
needs will be
Mongardini and Samake (2009). See also Schmidt-Traub (2015).
See also Shen et al. (2015).
Compare also with IMF (2016a) and IMF (2016b).
As UNCTAD’s estimate is based on analyses which to varying degrees include operation and
maintenance costs, ‘investments’ is used here instead of costs.
USD 5-7 trillion annually. The figure for developing countries
is USD 3.3-4.5
trillion annually. With present annual spending in these countries being around
USD 1.4 trillion, this implies an annual financing gap of USD 1.9-3.1 trillion
(UNCTAD, 2014, p. xi). This seems to be the preferred figure by several
organizations, including the OECD, which often refers to an annual financing gap
of approximately USD 2.0 trillion in developing countries. UNCTAD (2014, pp.
146-47) does not provide an estimate for SDG financing needs in LICs, but in
LDCs where it is estimated that total investment needs will start at an annual USD
120 billion increasing to USD 240 billion in 2030. UNCTAD provides various
financing scenarios based on this investment estimate as well as on alternative
assumptions of private sector investments in SDGs in LDCs. The scenarios show
that even under the assumption of continued growth in the private sector share of
the SDG investments in LDCs, their annual public investments, including Official
Development Assistance (ODA), will have to increase between 3 and 9 times
compared to the level of public investments in 2013 (UNCTAD, 2014, pp. 146-147).
Another estimate is from Schmidt-Traub (2015), who critically reviews several
previous analyses, including many of the analyses used by UNCTAD (2014). He
shows that there are significant variations in the assessment approaches used and
in their quality. His estimate indicates that the SDGs will require average
additional costs in LICs of USD 343-360 billion annually
and in lower middle-
income countries (LMICs) of USD 900-944 billion annually in 2015-2030. Together,
the estimated total additional costs in LICs and LMICs are approximately USD 1.4
trillion annually. This estimate comprises costs for eight investment areas as well
as for climate mitigation and adaptation (Schmidt-Traub, 2015, p. 10), but does not
cover the total costs
. According to this estimate, public budgets will have to be
increased by up to 30 percent of GDP annually (Schmidt-Traub, 2015, p. 107) in
LICs compared to ‘only’ 5-6 percent in LMICs
Thus, differences between the various existing cost and financing estimates are
significant, but comparisons are difficult due to differences in estimation
approaches. The overall tendencies are, however, that estimates of the SDG costs
imply that in all sectors significant additional expenses are required measured as a
share of GDP especially in LICs.
See UNCTAD (2014) for country groups used in the report.
A recent IMF Study estimates that additional USD 0.5 trillion will be needed in 2030 for five key SDG
areas (Gaspar et al., 2019) or on average 15 percentage points of GDP in LICs. Further, the study
estimates that countries could benefit as much from public sector efficiency gains as from tax reforms.
See Schmidt-Traub (2015, p. 9 footnote 1). See also p. 101 and p. 108, where several caveats are
This obviously depends on growth assumptions, and lower than expected economic growth will require
that these estimates be revised accordingly.
How will the substantial SDG financing gap be financed? The Addis Ababa Action
Agenda of 2015 (United Nations, 2015) stressed that all financing sources (public,
private and blended finance) should be mobilized, but it did not state in any detail
which role the different sources should play or how the role of individual
financing sources could vary between sectors and between different groups of
countries, including LICs. This is the focus of this section, where the overall
finding is that funding is not forthcoming as expected in 2015. Consequently, the
SDGs will be grossly underfunded, and the poorest developing countries face
particular challenges.
Estimation challenges
Obviously, analyses of potential SDG financing sources in developing countries
are based on assumptions about the future composition of sources of finance at
both national and sector level. A critical assumption is that the composition of
SDG financing in developing countries will gradually reflect the composition of
finance in developed countries. It has, for example, been estimated that more than
50 percent of the financing resources in LICs could come from public finance with
the implication that the other half of the SDG costs would be covered by private
finance, but with significant variation between sectors (Schmidt-Traub, 2015).
Furthermore, analyses have used the same share of private finance in LICs and in
LMICs (Schmidt-Traub, 2015), which implies the same private sector interest in
the two groups of countries and would require significant growth in private
investments. Finally, it seems at least implicitly to be assumed that the
composition of development finance at sector level would be like the composition
in developed countries. This, despite the fact that the present composition of
finance in developing countries differs from that of developed countries in several
sectors. For developing countries, it is estimated that 70 percent of infrastructure
costs are presently funded by the public sector, while the opposite is the case for
developed countries. There are, however, significant differences between sectors,
and e.g. energy and transportation are mostly publicly funded in many
developing countries, in contrast to several developed countries (United Nations,
2017, p. 12). On the other hand, in the education sector the present share of private
finance is estimated to be around 20-30 percent, which is higher than in developed
countries (Schmidt-Traub, 2015, p. 50). Such assumptions are problematic and,
obviously, they will affect not only the analytical results but potentially also policy
making in developing countries.
The various estimates of SDG financing are based on GDP growth assumptions,
and a critical element is, how the international economy develops. Analyses have
concluded (see e.g. United Nations, 2018) that prospects for LICs are less positive
than a few years ago. Many poor countries have low or negative per capita
growth. A recent analysis estimates the growth rate in LICs in 2018 to be 5.6
percent, but with significant variations between countries, and only with a slight
increase in following years (World Bank, 2019). Thus, prospects for the coming
years indicate increased growth, but under the SDG growth target of 7 percent
(United Nations, 2018, p. 9).
The important role of (especially foreign) private finance as a source of SDG
finance was emphasized in the Addis Ababa Action Agenda (United Nations,
2015, paragraphs 35-49), while domestic private finance is mentioned in more
general terms or in connection with insufficient access to financial services
(paragraphs 38-39). Thus, a distinction between various forms of domestic private
finance was not made. Nevertheless, there is an increasing recognition of the
potential role of domestic pension funds. A recent report also highlighted user
investments and charges as financing sources for operation and maintenance
costs, although this may have equity implications (United Nations, 2018).
International private investments have, however, shown a declining trend and
have largely target-specific sectors. They constitute at present only approximately
5 percent of GDP in LICs and about a third of government revenues (OECD,
2018b). As the investment needs for SDGs are huge, private finance will have to
increase very significantly in order to cover the above-mentioned share of close to
50 percent.
Due to a higher risk of investing in the poorest developing countries, blended
finance was seen as a particularly important instrument and a way to improve
risk-return profiles. A recent report concludes, however, that the amount of funds
mobilized by blending is low, and from 2012 to 2015, only 7 percent were for
LDCs (UNCDF, 2018)
. There are various reasons for this, including a lack of
bankable projects, small economies, weak institutional frameworks and enabling
environments, etc. This clearly indicates that it is difficult for LICs to attract
private finance, including blended finance (OECD, 2018a).
Analyses have also shown that the sector distribution of private development
finance is focused on a few sectors. International private investments, including
mobilized private finance, mostly target industry, mining, construction, energy,
banking and business. Other sectors, including the social sectors (education and
, have mobilized a limited amount of private development finance
(UNCDF, 2018; OECD, 2018c), which implies that the financing needs of these
other sectors will have to be covered by other financing sources, including the
public sector and ODA.
Remittances were at a very high level in 2017 (USD 466 billion (OECD 2018b))
with an increasing trend over several years, but this is also the only source of
development finance which has grown significantly. Only a minor share of the
There seems, however, to be a slightly increasing trend in mobilized private finance by blending
(UNCDF, 2018).
If full coverage of health and education services is the goal, it may be assumed to become increasingly
difficult to rely on private funding as more marginalized groups will have to be covered. Although there
has been some progress in private investments in infrastructure in developing countries, this development
has only to a limited extent comprised LICs (see United Nations, 2017, p. 14).
remittances – 4-5 percent or USD 17 billion is, however, going to LICs (OECD,
The important role of domestic public financial resources in financing the SDGs
was also emphasized in the Addis Ababa Action Agenda (United Nations, 2015,
paragraphs 20-34), where various areas were mentioned such as improved tax
systems, more efficient tax collection (paragraph 22), reduced illicit financial flows
(paragraph 23), and prevention of corruption (paragraph 25). The need for
improved domestic resource mobilization has been reiterated in several reports
after the meeting in Addis Ababa (see e.g. United Nations, 2018). Tax revenues in
LICs have increased in the last decade, but at a very moderate pace, and as shown
in various analyses improvements in tax systems are especially difficult to achieve
in LICs (e.g. Moore and Prichard, 2017), where taxes on average constitute only 15
percent of GDP compared to around 25 percent in LMICs. To this can be added
that the present tax systems in LICs may be regressive implying that, without tax
reforms, increased taxes may have undesirable distributional implications (Lustig,
2017). However, a significant increase, e.g. up to 20 percent of GDP, which might
be difficult to achieve, would only provide around additional USD 60-70 billion
Other elements of public financing comprise ODA and debt financing. Trends in
aid flows are not encouraging either. ODA has been rather constant in recent years
(0.31 percent of GNI in 2017) and is thus far below commitments. In addition, over
the last decade, a decreasing share has gone to LICs (and LDCs) although with a
slight reversal in 2017 (OECD, 2018a; OECD, 2018b)
. This has been followed by
an apparent decrease in support for policy and institutional reforms (OECD,
2018c), which is critical for the poorest developing countries with often less
capacity and weaker institutional structures. The present level of ODA from
members of the OECD’s Development Assistance Committee is around USD 150
billion annually
, much less than needed to close the financing gap in developing
. An unrealistic doubling of ODA would only cover approximately 10
percent of the financing gap, using the above estimate by Schmidt-Traub (2015) as
a reference. For the LICs, receiving a low and decreasing share of the provided
ODA in the last decade, the situation is even more critical. The LICs receive
around USD 25 billion annually in ODA. Assuming a financing gap of USD 350
billion in LICs, an ODA doubling would therefore cover significantly less than 10
percent of the gap.
The fact that several developing countries have difficulties in financing their
development with own resources is illustrated by increasing debt levels in recent
years to levels which may not be sustainable (IMF, 2018; Mustapha and Prizzon,
For a similar rough calculation, see Plant (2018). The central role of domestic resource mobilization is
also highlighted in target 17.1 of the SDGs, which focuses on strengthening domestic resource
In 2016, ODA to LCDs constituted 0.09 percent of gross national income in donor countries compared to
the target of 0.15-0.20 percent.
This constitutes 4-5 percent of GDP in these countries.
Development assistance provided by emerging donors and through South-South co-operation is
growing but still constitutes a relatively small amount.
2018). The government debt in LICs as a ratio of GDP increased by more than 20
percentage points from 2013 to 2017 and was over 50 percent in 2017 (World Bank,
2019), and financing the SDGs with loans is not a realistic option. To this can be
added that the composition of the debt has changed. An increasing share is on
non-concessional terms and in foreign currency, resulting in higher risks (World
Bank, 2018).
The evidence of substantial underfinancing of the SDGs especially in LICs is
compelling despite inevitable uncertainties about the future and justified
questions about the assumptions behind the estimates. The fact that the degree of
underfunding varies not only between developing countries, but also between
sectors further complicates assessments of the (potential) policy implications of
these trends. One thing is certain, however: some SDGs will in practice receive
much more political support than others. The implication is that domestic politics
in developing countries will be especially influential in determining the outcomes
as illustrated in the following brief political economy analyses.
First, the discussions of the SDGs and potential funding have primarily taken
place at international level, whereas the influence of the adopted SDGs on various
actors’ priorities in LICs is, at best, unclear and have not been thoroughly
analyzed. Developing countries may officially have embraced the whole SDG
package in the hope that it would increase aid funding. Such support is typically
expressed in the relevant international SDG fora only without being an
important part of the domestic public debate. How well known the SDGs are, and
the degree of ‘ownership’ that individual LIC-based actors feel for the goals has
not yet been systematically analyzed
. If SDGs are mostly known in small
development circles, they may not have the expected influence on domestic policy
making (Kharas and Rogerson, 2017, p. 19).
The underfunding of the SDGs, assuming there is no radical change in available
development finance for the SDGs, may at some point lead to international
discussions of whether and how to adapt the SDG agenda to available funding
A step in that direction has been taken by requesting transparent and systematic
monitoring of the implementation of the SDGs and of current revisions of both
cost and financing estimates. Monitoring is done by the Inter-Agency Task Force
on Financing for Development (United Nations, 2016; United Nations, 2017;
United Nations, 2018), but has so far not resulted in new estimates and financing
Another recurrent recommendation is to develop national SDG strategies and
financing frameworks as recommended in the Addis Ababa Action Agenda
(United Nations, 2015) and reiterated in a recent UN report (United Nations, 2018,
p. 1). It will, however, be a challenge how the uncertainty related to the costs and
financing of the SDG should be addressed in planning and budgeting processes in
developing countries (Kenny and Snyder, 2017, p. 16)
Tracking East African newspapers from August to November 2018 shows that articles on SDGs are
rather few. A brief review of African government websites found only a limited number of references to
the SDGs. For a review of how African countries score on the different SDGs, see The Sustainable
Development Goals Center for Africa and Sustainable Development Solutions Network (2018).
See e.g. UNESCO (2017, 12): “... the education SDG targets will be unattainable “unless rates of
improvement dramatically shift””. See also Lee (2019).
The integration of the SDGs into national budgets encompasses several political, financial and technical
issues. A few studies (see e.g. Hege and Brimont, 2018) have made attempts to summarize the
preliminary experience, but they mostly focus on developed or middle-income countries.
Second, and related to the first point, a key question is how the SDGs and the
available funding will impact on policy priorities and allocation decisions in
developing countries. SDGs mayor may not have raised citizens’ expectations
about achieving the new targets, but most SDGs are not new priorities
, and a
situation with SDG underfunding will necessitate that difficult priorities are made
between sectors or SDGs.
Political settlement perspectives on analyses of such policy decisions in
developing country contexts have gained prominence lately (see e.g. Behuria et al.,
2017). The key argument also applicable to the SDGs is that a mixture of
distribution of power and institutional contexts will strongly influence the
outcome of SDG-relevant policy decision, and that this may spell out differently in
different countries and sectors (see e.g. Whitfield et al., 2015). Whether these
political settlement perspectives can also be used to understand the overall
management of the economic policy, including the fiscal policy and the degree to
which financing by debt is an acceptable strategy, is an interesting area for further
Analyses show that domestically rooted path dependency is strong. Political
settlement theory predicts that only SDGs with influential domestic constituencies
may attract significant domestic funding (and other resources). Specific SDGs are
pursued if they fit prevailing norms/expectations and if their implementation
helps to strengthen the coalition from which the ruling elite/opposition needs
support in order to maintain/get political power. This proposition holds for both
democratising and authoritarian countries. Political elites in both regime types
will respond to political pressures in favour of specific SDGs. In the real world,
trade-offs will therefore be made between different SDGs, although this is against
the idea of the SDGs being an indivisible package and a reflection of a common
global vision for the future.
Third, how donors will react to the underfunding of the SDGs, especially in LICs,
requires further analysis, including of the political economy of donor behavior,
but the above analysis lead to different suggestions of which the most important
are: (i) Donors could consider the balance between financial support and support
for policy and institutional reform, especially for LICs, because policy and
institutional frameworks and related absorption capacity have attracted less
attention than SDG finance since 2015. This has led to a decrease in support for
these areasa trend, which is particularly critical for LICs with comparatively
weaker institutional capacity. The low level of international private investments in
these countries has partly been explained by insufficient institutional capacity and
enabling frameworks
; (ii) Donors could encourage the development of specific
financing instruments which may provide incentives for private investments in
LICs based on an understanding of the specific challenges facing LICs
; (iii)
Donors could reverse the trends of a decreasing share of ODA going to LICs; (iv)
Donors could reconsider the sectoral distribution of aid in view of available
See Coulibaly, Silwé and Logan (2018) for an overview of citizen priorities in African countries.
This discussion was also raised in connection with the MDGs (see e.g. Devarajan, 2015).
For a more detailed discussion of various barriers, see UNCDF (2018, chapter 3).
development finance and policy priorities of developing countries; (v) Donors
could get a better understanding of the distributional implications of various
suggested policy measures. This could also comprise potential interlinkages
between different instruments and types of support (see e.g. OECD, 2018b, chapter
3); (vi) In collaboration with partner countries, donors could initiate a discussion
of policies and priorities in view of the available development finance.
The purpose of this paper is not to present new and revised estimated figures for
the SDG costs or financing in LICs, but to contribute to ongoing discussions on the
realism and potential role of the various cost and financing estimates, and their
policy implications. As documented in the paper, the significant underfinancing of
the SDGs must be seen in a local and international political context, which vary
between individual developing countries and sectors. Although the SDG financing
gap in LICs may sound substantial, it is according to a recent estimate (Gaspar et
al., 2019) only a half a percentage point of world GDP in 2030.
Thus, there is a clear need for more focus on the costs and financing of the SDGs in
the poorest developing countries in particular. Without (unlikely) radical change
in available resources, there is an urgent need to rethink the implications of
looming severe underfunding of the SDG package. Despite the ambition of the
SDGs of leaving no one behind there are strong indications that the poorest
developing countries are being left behind. At the same time, support for
institutional and policy reform has declined, which is particularly critical for this
group of countries. Finally, analyses show that private development finance is
targeted at a few sectors with the potential implication that other sectors are even
more underfunded. This leads to four main conclusions.
First, the assumptions related to the estimation of costs and financial resources for
the SDGs in LICs do not to reflect reality. Their specific conditions and challenges
must be better reflected in the cost estimates: the optimism attached to private
sector development finance and blended finance is simply unrealistic. This also
applies to the assumption that the SDG financing structure in LICs can be close to
the present structure in most developed countries. Recent figures on private
finance show that the LICs are not receiving private finance as envisaged. The
important role given to public sector finance in LICs is not realistic either as the
financing needs of the SDGs will lead to a significant increase in public sector
budgets. An indication of this is the increasing debt levels in several LICs.
Second, the policy implications of severe underfunding for the SDG agenda
especially in LICs are difficult to predict. These implications are under-
researched and have only partly been dealt with in existing analyses. Little is
therefore known about how various actors, including donor governments and
domestic governments in LICs, will react to a situation with severe underfunding.
Third, an alternative to continuing making international SDG cost and financing
estimates is to focus on national estimates, which should be based on more specific
assumptions related to the individual countries. The development of national
plans has been a recommendation in several analyses (see e.g. United Nations,
2018, p. 1). Whether national plans will have a mobilizing effect remains to be
seen, but such plans may ensure that SDG discussions are based on more realism.
Again, research on this is limited. Little is known about how the SDG vision
actually influences the political and administrative decision-making processes in
poor developing countries.
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in view of the available funding in LICs for the SDGs. Several key suggestions are
presented in this paper, including that donors should clearly distinguish between
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Background: The ambitious development agenda of the Sustainable Development Goals (SDGs) requires substantial investments across several sectors, including for SDG 3 (healthy lives and wellbeing). No estimates of the additional resources needed to strengthen comprehensive health service delivery towards the attainment of SDG 3 and universal health coverage in low-income and middle-income countries have been published. Methods: We developed a framework for health systems strengthening, within which population-level and individual-level health service coverage is gradually scaled up over time. We developed projections for 67 low-income and middle-income countries from 2016 to 2030, representing 95% of the total population in low-income and middle-income countries. We considered four service delivery platforms, and modelled two scenarios with differing levels of ambition: a progress scenario, in which countries' advancement towards global targets is constrained by their health system's assumed absorptive capacity, and an ambitious scenario, in which most countries attain the global targets. We estimated the associated costs and health effects, including reduced prevalence of illness, lives saved, and increases in life expectancy. We projected available funding by country and year, taking into account economic growth and anticipated allocation towards the health sector, to allow for an analysis of affordability and financial sustainability. Findings: We estimate that an additional $274 billion spending on health is needed per year by 2030 to make progress towards the SDG 3 targets (progress scenario), whereas US$371 billion would be needed to reach health system targets in the ambitious scenario-the equivalent of an additional $41 (range 15-102) or $58 (22-167) per person, respectively, by the final years of scale-up. In the ambitious scenario, total health-care spending would increase to a population-weighted mean of $271 per person (range 74-984) across country contexts, and the share of gross domestic product spent on health would increase to a mean of 7·5% (2·1-20·5). Around 75% of costs are for health systems, with health workforce and infrastructure (including medical equipment) as the main cost drivers. Despite projected increases in health spending, a financing gap of $20-54 billion per year is projected. Should funds be made available and used as planned, the ambitious scenario would save 97 million lives and significantly increase life expectancy by 3·1-8·4 years, depending on the country profile. Interpretation: All countries will need to strengthen investments in health systems to expand service provision in order to reach SDG 3 health targets, but even the poorest can reach some level of universality. In view of anticipated resource constraints, each country will need to prioritise equitably, plan strategically, and cost realistically its own path towards SDG 3 and universal health coverage. Funding: WHO.
Current policy discussion focuses primarily on the power of fiscal policy to reduce inequality. Yet, comparable fiscal incidence analysis for twenty-eight low and middle income countries reveals that, although fiscal systems are always equalizing, that is not always true for poverty. In Ethiopia, Tanzania, Ghana, Nicaragua, and Guatemala the extreme poverty headcount ratio is higher after taxes and transfers (excluding in-kind transfers) than before. In addition, to varying degrees, in all countries a portion of the poor are net payers into the fiscal system and are thus impoverished by the fiscal system. Consumption taxes are the main culprits of fiscally-induced impoverishment. Net direct taxes are always equalizing and indirect taxes net of subsidies are equalizing in nineteen countries of the twenty-eight. While spending on pre-school and primary school is pro-poor (i.e., the per capita transfer declines with income) in almost all countries, pro-poor secondary school spending is less prevalent, and tertiary education spending tends to be progressive only in relative terms (i.e., equalizing but not pro-poor). Health spending is always equalizing but not always pro-poor. More unequal countries devote more resources to redistributive spending and appear to redistribute more. The latter, however, is not a robust result across specifications.
Despite the voluminous literature on fiscal policy, very few papers focus on low-income countries (LICs). This paper develops a new-Keynesian small open economy model to show, analytically and through simulations, that some of the prevalent features of LICs—different types of financing including aid, the marginal efficiency of public investment, and the degree of home bias—play a key role in determining the effects of fiscal policy and related multipliers in these countries. External financing like aid increases the resource envelope of the economy, mitigating the private sector crowding out effects of government spending and pushing up the output multiplier. The same external financing, however, tends to appreciate the real exchange rate and as a result, traded output can respond quite negatively, reducing the overall output multiplier. Although capital scarcity implies high returns to public capital in LICs, declines in public investment efficiency can substantially dampen the output multiplier. Since LICs often import substantial amounts of goods, public investment may not be as effective in stimulating domestic production in the short run.
In 2014, United Nations member states proposed a set of Sustainable Development Goals (SDGs), which will succeed the Millennium Development Goals (MDGs) as reference goals for the international development community for the period 2015–2030. The proposed goals and targets can be seen as a network, in which links among goals exist through targets that refer to multiple goals. Using network analysis techniques, we show that some thematic areas covered by the SDGs are well connected with one another. Other parts of the network have weaker connections with the rest of the system. The SDGs as a whole are a more integrated system than the MDGs were, which may facilitate policy integration across sectors. However, many of the links among goals that have been documented in biophysical, economic and social dimensions are not explicitly reflected in the SDGs. Beyond the added visibility that the SDGs provide to links among thematic areas, attempts at policy integration across various areas will have to be based on studies of the biophysical, social and economic systems at appropriate scales. Copyright © 2015 John Wiley & Sons, Ltd and ERP Environment