4.4 Domestic resource mobilization and public spending

This financing context has considerable relevance to the objective in the UNDP Strategic Plan, 2022–2025 of supporting access to electricity for an additional 500 million people. While beyond the scope of this evaluation, the measures for unlocking pro-poor blended finance can be readily identified. They include the removal of ‘upstream’ bottlenecks in the form of unstable policies and weak regulatory environments; mid-stream bottlenecks in the form of shortages of bankable projects; and downstream constraints such as information gaps over investment opportunities. It is evident from the sustained record of underinvestment, now compounded by the effects of the pandemic, that removing these bottlenecks in the time frames available will require a concerted drive to reform policy environments.

The UNDP Strategic Plan and associated policy tools envisage an increase in domestic resource mobilization to back an SDG recovery. Fiscal retrenchment will make that goal more difficult to pursue. Tax reform could expand the fiscal space available to Governments, but implementing tax reforms during an economic slowdown will be problematic. More equitable public spending could release the resources needed to drive results among populations left behind, but the record in this area is mixed.

Domestic resource mobilization is the real foundation for SDG financing across many areas of public policy. Recent analysis by the IMF suggests that the frontier resource mobilization potential against GNI averages 23 percent for low-income countries and 27 percent for emerging economies, far exceeding current levels (17 percent and 20 percent respectively for the two groups).118 Narrowing the gap would substantially increase the resources available to Governments for investment in safety nets, health, education and other priority areas.

Successful reform has been achieved through progressive income taxes, measures to curtail loopholes and deductions, an expanded revenue base – for example, through property and land tax – and more efficient revenue collection, including through the application of digital technologies. Yet progress has been limited and partial. Two thirds of low-income countries collected less than 15 percent of GDP in revenue in 2017; and two thirds of all developing countries collected less than 20 percent. Raising these levels against a backdrop of reduced growth will inevitably pose political challenges and limit the scope for resource mobilization for the SDGs.119

International cooperation could help expand the tax base for developing countries by limiting tax evasion and avoidance. The Tax Justice Network has recently estimated that developing countries lose $40 billion annually to tax practices which contravene the letter and the spirit of SDG commitments (SDG 16.4).120 Natural resource extraction is a prime area for illicit practices. Recent research by the IMF shows that Governments in sub-Saharan Africa are losing between $450 million and $730 million per year in corporate income tax revenues as the result of profit-shifting by multinational companies in the mining sector.121

118 Benedek, Dora et al, ‘A Post-Pandemic Assessment of the Sustainable Development Goals’, IMF Staff discussion note,

SDN/2021/003, April 2021. 119 Clements, Benedict et al, ‘Low-Income Developing Countries Will Surely Need More Debt Relief Down the Line’, Center for Global

Development, 23 June 2021, https://www.cgdev.org/blog/low-income-developing-countries-will-surely-need-more-debt-reliefdown-line, accessed 25 March 2022. 120 Tax Justice Network, 2021, The State of Tax Justice 2021. 121 Albertin, Giorgia et al, ‘Tax Avoidance in Sub-Saharan Africa’s Mining Sector’, IMF Departmental Paper, 28 September 2021.