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Unraveling the Global Financing Plan: The 2022 SDG Report and Its Implications for South Africa

Welcome back to our series on the implications of the 2022 Sustainable Development Goals (SDG) Report for South Africa's development landscape. In our first blog, we introduced the concept of a global financing plan for the SDGs, a key theme that emerged from the report.

Today, we delve deeper into this concept and its potential impact on South Africa's development sector.

The SDG Report paints a stark picture: the SDGs are not being achieved. The COVID-19 pandemic and the war in Ukraine have exacerbated the severe financing constraints facing developing countries, hindering progress towards the SDGs.

As United Nations Secretary-General António Guterres emphasized in his briefing to the General Assembly on major priorities for 2022, "we must go into emergency mode to reform global finance" (UN, 2022a).

The G20 Summit in Rome in 2021 saw world leaders recommit to the SDGs, pledging to accelerate progress and support a sustainable, inclusive, and resilient recovery worldwide. However, as US Treasury Secretary Janet Yellen highlighted in a speech to the Atlantic Council in April 2022, the response to date is not on the scale that's needed. The funding needs are in the trillions, yet we've so far been working in billions. This discrepancy is particularly stark when considering the distribution of the world's investment spending. Low-income countries (LICs) and lower-middle-income countries (LMICs), which make up the poorer half of the world, account for only around 15% of the world's investments.

This chronic underfinancing of sustainable development is why the SDG agenda and the clean-energy transformation are both far off track. There is a positive and statistically significant correlation between total government outlays per capita per year and the SDG Index Score. This correlation is particularly strong among countries that spend relatively little. Beyond a certain threshold, the quality of spending and other factors seem to make a bigger difference.

The Sustainable Development Solutions Network (SDSN) has identified six investment priorities for achieving the SDGs:

  1. Education and social protection to achieve universal secondary education (SDG 4) and poverty reduction (SDG 1)

  2. Health systems to end the pandemic and achieve Universal Health Coverage (SDG 3)

  3. Zero-carbon energy and circular economy to decarbonize and slash pollution (SDG 7, SDG 12, SDG 13)

  4. Sustainable food, land use, and protection of biodiversity and ecosystems (SDG 2, SDG 13, SDG 15)

  5. Sustainable urban infrastructure, including housing, public transport, water, and sewerage (SDG 11)

  6. Universal digital services (SDG 9) to support all other SDG investments, including online education, telemedicine, e-payments, e-financing, and e-government services.

The challenge facing developing countries is to mobilize the incremental financing needed for these six priority areas. The incremental SDG financing needs are large relative to the economies of the developing countries, but quite modest relative to the size of the world economy.

To facilitate a significant increase of funding for the SDGs, developing countries should enter into a new “SDG Investment Compact” with the Bretton Woods institutions. This would offer a framework for significant increases of SDG financing in line with long-term debt sustainability.

The incremental public financing required can be mobilized in six major ways:

  1. Increased domestic tax revenues

  2. Increased sovereign (government) borrowing from international development finance institutions (DFIs)

  3. Increased sovereign borrowing from international private capital markets

  4. Increased official development assistance (ODA)

  5. Increased funding by private foundations and philanthropies

  6. Debt restructuring for heavily indebted borrowers, mainly to lengthen maturities and reduce interest rates.

However, one of the barriers to SDGs financing is conceptual: the widespread belief that sovereign borrowers should avoid building up public debt beyond an upper limit of 50–70% of GDP. This view is shared by the IMF and the credit rating agencies. But this belief is a hasty over-generalization. Developing countries are capital scarce. They have high prospective growth rates and high marginal productivities of capital. They should borrow, and borrow heavily, in order to finance a broad-based increase in investments on human capital (education and health), public infrastructure (green energy, digital access, water and sanitation, transport), and environmental protection.

The IMF and credit-rating agencies need to rethink the current rating systems and debt-sustainability indicators to take the future economic growth prospects of the developing countries into account, thereby revealing a much larger debt servicing capacity than is shown in static analyses.

The G20 urgently needs to adopt a Global Plan to Finance the SDGs. The basis of the plan would be to significantly increase fiscal space in developing countries. The IMF, in particular, should work with developing countries to design SDG-based public investment strategies and the means to finance them.

At GrowZA, we're committed to helping our partners navigate these complexities. Our think tank team will continue to analyze the latest developments and provide you with the insights you need to make informed decisions about your social investments. Stay tuned for our next blog post, where we'll explore the focus on SDG 1 (No Poverty) and SDG 8 (Decent Work and Economic Growth) in the 2022 SDG Report.

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