Box 2. The experience of Armenia in developing its socioeconomic impact assessment

system reforms to bring the UNCT together to coordinate a response to the pandemic. In several countries this was successful, and UNDP was able to support the UNCT and resident coordinator’s office in the response, through technical support to the both the impact assessment and socioeconomic response.

BOX 2. The experience of Armenia in developing its socioeconomic impact assessment

In Armenia, a strong country team was able to play a pivotal role in informing the policy response to COVID-19, engaging with the Government and donors to shape policy on the crisis response. As in other countries, COVID-19 triggered a marked economic reversal in Armenia, leading to pressure on the exchange rate, increased inflation and fiscal pressures. The close and trusted working relationship between UNDP, the Government and key international partners was key to the response to the pandemic. An important entry point was a legacy programme on disaster relief, which in turn informed the development of both a household survey and a survey of businesses and farmers. The surveys provided real-time data which was shared with the Government, UNCT, donors and the IMF and established UNDP as a critical interlocutor. The donor environment in Armenia is characterized by close and regular dialogue between donors, allowing for collaboration between agencies. One visible outcome of that dialogue was the participation of the IMF in the UNDP-led socioeconomic impact assessment. The UNDP household survey team was in the field collecting data during the early days of the pandemic, while the Government was rolling out its initial COVID-19 support programmes. The country office used the granular data being collected by the surveys in biweekly meetings with the Government and donors, particularly the IMF, shedding light on the impact of government policies in different regions, broken down by gender and income group. The close engagement of UNDP with the Deputy Prime Minister’s Offices and the Ministry of Territorial Administration and Infrastructure, through provision of primary data and technical advice, contributed to government policymaking and a practical COVID-19 response across the country. While the socioeconomic impact assessment was not integrated into the Government’s crisis response plan, it did inform implementation. The assessment, which was itself informed through dialogue with the World Bank, European Development Bank, the IMF and other development partners, spanned the five areas of the United Nations framework for the immediate socioeconomic response to COVID-19. The IMF was directly involved in the drafting of chapter 4 on the macroeconomic response and multilateral collaboration, establishing continuity and consistency with inputs from the European Union and United Nations. In what is an overwhelmingly positive story of effective engagement to inform and influence policy, the evaluation team identified a few lessons learned. The critical ingredients for success include the development of trust with government; a distinctive delivery offer (the household survey); sustained engagement with development partners; effective leadership; and a strong national team with the right competency profile. There are distinctive features that are relevant and less easy to duplicate. The Government is clearly very open to engagement and is marked by strong technical capacity in many areas, donors appear to coordinate effectively and Armenia is not facing a full-blown economic crisis. Even so, the country may serve as a role model for converting the type of technical assistance offered by UNDP into wider influencing.

Chapter 4. FINANCING FOR AN SDG RECOVERY: BRIDGING THE GAP

Summary Message #8: The SDG financing gap has increased dramatically. Three years ago, the Secretary-General’s Roadmap for Financing the 2030 Agenda for Sustainable Development warned that the ‘decade of action’ would have to be backed by a step-increase in public and private financing. It drew attention to a financing gap of between $2.5 trillion and $3 trillion. That gap has since increased to an estimated $4.2 trillion (OECD), a figure that could rise as the full impact of reversals of progress towards the Goals emerges

Summary Message #9: Many developing countries, especially the poorest, face the prospect of responding to a growing SDG financing gap in a shrinking fiscal space. Slower economic growth, reduced revenue and rising external debt are combining to push Governments in the direction of fiscal retrenchment, including budget cuts in areas marked by major reversals of progress and raising revenues in ways that may affect the poor’s purchasing power, such as higher consumption taxes (value added tax, sales taxes, excise taxes). While advanced economies were able to respond to the pandemic with an aggressively expansionist fiscal policy stance which protected vulnerable populations and created a springboard for early recovery, developing countries are now unwinding far more limited programmes. One consequence is a two-tier recovery that threatens to drive a divergence in income between richer and poorer nations.

Summary Message #10: International cooperation could expand the fiscal space available to Governments, but the response to the pandemic has been limited and inconsistent with SDG commitments. Multilateral development finance debt relief and aid have the potential to expand the fiscal space available to Governments and support an SDG recovery. The IMF and multilateral development banks responded to the pandemic crisis, cushioning the human and economic impacts and preventing more severe adjustments. However, the response fell far short of the levels merited by what was the deepest economic downturn in living memory.

Summary Message #11: The rise of environmental, social and governance (ESG) investment creates new opportunities for SDG financing. The value of ESG-labelled investment continued to increase sharply during the pandemic and is projected to rise sharply to mid-decade. Private capital has a key role to play in many areas of SDG financing, including infrastructure, energy transitions and job creation. However, private capital flows to developing countries declined in 2020. ESG investments continued to increase during the pandemic, creating new opportunities to better align private capital markets with the SDGs. Justified concerns over ‘greenwashing’ and ‘SDG washing’ have been identified as barriers to the full exploitation of these opportunities.

Summary Message #12: The emergence of ‘SDG bonds’ could unlock new financing at scale. The current architecture for establishing the credentials of SDG bond issues remains relatively weak, creating a space for more credible and robust bond frameworks and reporting systems. Following Mexico’s entry to the market with an SDG bond in 2020, other countries have followed suit. Like the more established ‘green bond’ and ‘social bond’ issues, SDG bonds seek to tie investments to programmes and budget lines geared towards an identified SDG purpose.

The UNDP Strategic Plan, 2022–2025, has set a bold ‘moon shot’ of promoting the investment and alignment of $1 trillion of public expenditure and private capital to the SDGs. This section looks at the context in which that objective will be pursued, starting with the global fiscal fault lines which emerged during the pandemic, highlighting the shrinking fiscal space available to many developing countries. ‘Fiscal space’ in this context refers to the ability of Governments to finance critical investments in areas such as health, education, safety nets and the inclusive economic recovery needed to reduce poverty and create jobs. The section then summarizes recent evidence on the SDG financing gaps, recognizing the tentative nature of the findings. The stated plans for delivering on the $1 trillion commitment include roughly equal levels of mobilization from public finance and private capital. While recognizing that the boundaries are often blurred, three broad categories of development finance are considered, needed to close the SDG financing gap:

• Public spending financed by domestic resource mobilization • International public finance (broadly spanning multilateral development banks, official development assistance (ODA) and debt relief) • Private capital, with a focus on ESG investment

SDG financing aggregates can obscure the opportunities and constraints facing different countries. What matters for SDG financing is getting the right resource in the right place on the right terms. That does not imply that there is no place for private investment and expenditure in these areas. Household contributions represent a large share of overall spending on health and education – and private sector providers often play an extensive role. However, public finance and domestic resource mobilization are critical to the financing of public systems serving the poor. Aid and international public finance play an important supplementary role, especially in the poorest countries. Private capital has a greater role to play in financing economic infrastructure and investments in areas that generate the commercial returns needed to underpin future investment. Energy infrastructure, housing and water are cases in point. In practice, though, public and private finance operate along a spectrum. For example, countries able to access private bond markets on sustainably affordable terms have opportunities that may be denied to countries where poor credit ratings lead to punitive interest rates. Blended finance, in which public actors underwrite part of the investment risk facing private capital, can unlock financing in areas such as energy and infrastructure. In the context of the UNDP strategy, this places a premium on clarity in the identification of financing options facing different countries.