How to reach SDGs in emerging economies?

Global - May 09 2019
  • #carbon/climate change

Weekly food for thought
  • Carbon/Climate Change

How to reach SDGs in emerging economies?

In the latest report of the IMF "Fiscal Monitor, April 2019: Curbing Corruption" published at the end of April, a chapter is devoted to analysing the implementation of a fiscal policy to support a changing global economy. According to the IMF, international cooperation is needed to address multilateral issues such as corporate taxation, climate change, corruption and, more generally, to achieve the 2030 Sustainable Development Goals (SDGs). The figure below represents the additional expenditure required to achieve high performance in achieving selected SDGs in 2030 in Emerging market and Middle-income economies (EMMIEs) and Low-income developing countries.

Additional expenditure required to achieve high performance in achieving selected sustainable development objectives in 2030 (as a percentage of GDP 2016-2030)*

Source: International Monetary Fund (IMF). 2019c. Fiscal Monitor, April 2019: Curbing Corruption IMF Board Paper Washington, DC.

The graph shows that on the one hand achieving the basic infrastructure aligned with the SDGs (i.e. the energy, transport and water parts) will require additional spending in 2030 of 4% of GDP in emerging market economies and 9% of GDP in low-income developing countries. On the other hand to reach the education-related objectives, the additional expenditure in 2030 seems minimal for EMMIEs but is significant (more or less +3%) for low-income developing countries. Finally, health care SDGs seem to be the most challenging to achieve by 2030 with spending requirements of about 2% in EMMIEs and more than 4% in low-income developing countries. In total, achieving high performance in infrastructure and basic services will require additional spending of $2.6 trillion (2.5% of world 2030 GDP) in 2030 in emerging and developing economies.

According to the IMF, the budgetary policies of the countries concerned will have to meet the infrastructure (housing, transport, energy) and service (education, health) needs related to achieving the SDGs through the development and participation of the private sector. By inviting the private sector to participate in infrastructure development, public-private partnerships can help to improve public services. This will require policy measures that facilitate private sector participation while having strong governance institutions to manage risks and avoid the potential pitfalls of such partnerships such as unexpected costs.

In addition, all this expenditure will require effective international cooperation to manage transnational concerns that have an impact on national fiscal policies. For example, multilateral cooperation would provide a more effective and efficient approach to mitigating and managing climate change, including through carbon taxes. Indeed, according to the IMF, carbon taxation or similar pricing is the most effective tool for mitigation, although other instruments may have a role to play due to political economy, distributional, or other factors. An agreement on a carbon floor price among major emitters could promote a certain degree of price coordination while strengthening the Paris Agreement and providing some assurance against competitiveness losses.

Note*: The 2030 and 2016 data correspond respectively to expenditure consistent with high performance in 2030 in terms of ODD and to the current level of expenditure, both expressed as a percentage of those year's GDP. For education and health care, additional expenditure is the difference between expenditure as a percentage of GDP and the level of expenditure as a percentage of GDP in 2016. For physical capital, additional expenditures are the annualized expenditures required to close the infrastructure gaps between 2019 and 2030.

Félix Fouret, Carbon/Climate Analyst
Source: Beyond Ratings, IMF

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