blended finance background

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BLENDED FINANCE

The international community adopted the Sustainable Development Goals (SDGs) in 2015 as a new global development agenda, encompassing the economic, social and environmental dimensions of sustainable development for all. Meeting the goals requires international, national and local commitments, partnerships and innovative thinking. But it also requires money. To achieve the ambitious targets, estimates suggest that $5 to 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; government, private sector, international development partners and local philanthropy must combine and coordinate to find 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.

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 mobilised more to finance development.

This poses a major challenge. Despite recent improvements, Pakistan’s tax-to-GDP ratio is only 12.6pc, amongst the lowest in South Asia. This narrow tax base, a large untaxed informal sector, a partially taxed agriculture sector, and preferential treatment continue to hamper revenue mobilisation. 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 40.4pc of revenue, constraining its capacity to finance SDG achievement. Thus, the private sector must step up to meet this national challenge. Through publicprivate 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.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 CPEC, for example, China is investing billions of dollars to address Pakistan’s infrastructural bottlenecks whilst promoting its own strategic and economic interests.

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 CPEC, for example, China is investing billions of dollars 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 10pc (2.5 million people) reduction in rural poverty over the past two decades. Microfinance there covers 32m recipients, extending $ 7.2 billion annually. In contrast, Pakistan has only 3.6m microfinance borrowers. With a supportive policy environment and strong regulation, microfinance can be expanded to accelerate Pakistan’s progress towards achieving many SDGs. 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. Preliminary estimates from the federal and provincial budgets 2016-17 reflect improved allocations.

The Planning Commission’s Multi¬di¬mensional Poverty Index reveals that whilst poverty has declined overall, there are wide disparities between districts. District-level analysis through the MPI provides a tool to influence national and provincial finance commissions to increase allocations to lagging districts. In the past 20 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 realised the need for holistic efforts to finance and adopt the SDG agenda. The Addis Ababa Action Agenda (2015) provides a foundation for implementing this road map, collecting more than 100 concrete measures to support financing for development, including domestic resource mobilisation, private investment and improved policy and regulatory frameworks for effective resource utilisation. Now is a good time for Pakistan to develop a multipronged financing approach, harnessing the potential that exists in both public and non-public sectors.