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Planning and execution of budgets should be based on transparency, legitimacy, accountability and participation of citizens, consistent with country capabilities and circumstances. In this regard, domestic public sector internal and external control mechanisms, such as supreme audit institutions, that ensure that spending is in line with intended purposes should be implemented and strengthened.
Furthermore, fiscal decentralization can strengthen local governance and create local ownership for the disposition of funds.
It is common in normative budget policy discussions to ask if specific subsidies continue to be warranted. Countries should review the efficacy of all subsidies as a matter of sound fiscal management. Countries should consider rationalizing inefficient fossil fuel subsidies that encourage wasteful consumption by removing market distortions, in accordance with national circumstances, including by restructuring taxation and phasing out those harmful subsidies, where they exist, to reflect their environmental impacts. Such actions should fully take into account the specific needs and conditions of developing countries and minimize possible adverse impacts on their development in a manner that protects the poor and affected communities.46 Similarly, countries should correct and prevent trade restrictions and distortions in world agricultural markets, including by the parallel elimination of all forms of agricultural export subsidies and all export measures with equivalent effect, in accordance with the mandate of the Doha Development Round.
Procurement systems need further strengthening in many countries to ensure fair competition. As part of budget execution, authorities may wish to align their procurement policies with national sustainable development strategies, which implies defining minimum environmental and social standards for public sector suppliers, taking into account domestic situations. In this respect, sustainable procurement can have the added benefit of promoting sustainable technologies. Public procurement systems can also promote the development of sustainable local businesses.
Reservations to paragraph 225 of the outcome document of the United Nations Conference on Sustainable Development (General Assembly resolution 66/288, annex) were expressed by several Member States (see A/66/PV.123).
20 Report of the Intergovernmental Committee of Experts on Sustainable Development Financing Financial auditing and control should be complemented by monitoring and evaluation of economic, social and environmental impacts, in line with country capacities and circumstances. Strengthened national and independent audit and evaluation agencies could be assigned this responsibility, as could other politically and socially anchored oversight mechanisms, including in the parliament. Capacity-development initiatives, including the exchange of knowledge and experiences, can help improve policy design, budget processes and budget implementation.
Internalize externalities and mainstream environmental sustainability There is a large potential role for fiscal reforms in promoting environmental sustainability. Policy measures such as “cap and trade” and carbon taxes seek to curb carbon emissions by raising the price of emissions and “internalize externalities”. Carbon markets remain relatively small, however, with only 7 per cent of the world’s emissions covered.47 Furthermore, prices for traded emission permits have been volatile and too low to impact the development and deployment of clean technologies. Governments that set up cap and trade schemes need to set sufficiently tight caps, monitor volatility and set appropriate regulations. At the same time, 13 countries have initiated some form of national or subnational carbon taxes.48 Although there has been some debate on the competitiveness effects associated with taxing carbon emissions, European countries that have had carbon taxes in place for over a decade have seen neutral or slightly positive effects on GDP.49 Governments should also consider other policies to change investment patterns, such as direct emission restrictions on investments, subsidizing research and development of clean technologies, including carbon capture and storage technologies, tax incentives, feed-in tariffs, energy efficiency or renewable energy targets, pollution rights, and payments for ecosystem services.
Environmental accounting, which incorporates environmentally relevant financial flows and accounts on the use of natural resources, is another mechanism that can help policymakers internalize externalities. GDP is a crucial measure that Governments use to assess the economic performance of countries, but by not incorporating natural capital, it can lead Governments to ignore an inefficient allocation of investment. The System of Environmental-Economic Accounting could facilitate greater public investment in sustainable development.
Address inequity and the social protection imperative Governments should use fiscal policies (both tax and spending) to address inequalities, fight poverty, improve water and sanitation, and support other social
services, in particular to benefit low-income, vulnerable and marginalized groups.
A frequent call is to give priority to public investment projects that are “pro-poor” and gender sensitive.
Structural vulnerabilities, which affect the poor and other socially excluded groups, women, persons with disabilities, indigenous peoples, migrants, minorities, children, older persons, youth and other marginalized groups, can be reduced by aiming for universal provision of basic social services.50 In addition to offering protection against risks, social protection can contribute to equitable growth by reducing poverty and inequality, raising labour productivity, and enhancing social stability. Countries should consider policies to strengthen “social protection floors”, which, in accordance with the findings of the International Labour Organization, are affordable in most countries out of domestic revenues, but warrant international assistance for the poorest.51 Insurance services offer further opportunities to create a safety net for households, including for example insurance products that cover health care, life risks and agriculture. However, private insurance is not usually effective at covering those most in need, so government policies remain crucial. There is also an urgent need for Governments to invest adequately in disaster risk mitigation and in systems that build resilience against shocks, as well as in environmental preservation, especially in areas where local populations depend on natural resources.
Productive and decent employment is the most important form of income security. Most people rely on earnings from work as their main source of income.
Macroeconomic and fiscal policies that promote full and productive employment, as well as investment in human capital, are therefore central to poverty reduction and increased equity.
Effectively manage public debt Debt financing can represent a viable option to provide funding for public spending on sustainable development. At the same time, debt needs to be effectively managed, with the goal of ensuring that debt obligations can be serviced under a wide range of circumstances. Governments should make regular use of analytical tools to assess alternative borrowing strategies and the associated risks, better manage their assets and liabilities, and restrain from irresponsible borrowing.
Treasury departments should aim to increase the issuance of long-term bonds in local currencies, particularly to domestic investors, as such issuance would reduce the foreign exchange risk of the government. At the same time, as agreed in the Monterrey Consensus, creditors share responsibility with the sovereign debtor to prevent and resolve debt crises, including providing debt relief where appropriate. They should be held responsible to adequately assess credit risk, improve credit screening and reduce irresponsible lending to high-risk countries.
The international financial institutions and the United Nations system have been developing standards for prudent management of government debt.
United Nations Development Programme, Human Development Report 2014: Sustaining Human Progress — Reducing Vulnerabilities and Building Resilience (New York, 2014).
International Labour Organization, Social protection floor for a fair and inclusive globalization — Report of the Social Protection Floor Advisory Group (Geneva, International Labour Office, 2011).
22 Report of the Intergovernmental Committee of Experts on Sustainable Development Financing Countries that have already reached a high level of debt need to ensure that the growth of public debt does not exceed expected GDP growth to avoid financial distress. In this regard, the World Bank-IMF Debt Sustainability Framework is designed to help guide low-income countries and their donors in mobilizing financing while reducing the chances of an excessive build-up of debt by setting a debt threshold. In addition, international institutions are providing technical assistance to strengthen local capacities in this area. This should be maintained, along with commitments to transfer finance, technology and capacity to enable developing countries to build the human and institutional capabilities to effectively manage public debt (see section V for a discussion of systemic issues and sovereign debt resolutions).
Explore the potential contributions of national development banks In the absence of sufficient long-term private sector financing and investment in sustainable development, many countries have established national development banks and other public institutions to support long-term investment. The combined assets of the International Development Finance Club, a group of 20 national, bilateral and regional development banks, amount to over $2.1 trillion in 2010.52 National development banks can play an important role, for example, in financing small and medium-sized enterprises, infrastructure and innovation.
As national development banks have specific knowledge of domestic markets, they are often well suited to provide relevant capacity development and assistance in private project management. Recent studies have also shown that some national development banks also played a valuable countercyclical role, especially in cases of crisis when private sector entities become highly risk-averse.
Governments can use national development banks to strengthen capital markets and leverage investments in sustainable development. For example, some national development banks finance (part of) their activities through the issuance of bonds that allocate funds raised to a particular use, such as green infrastructure with the proceeds allocated to specific classes of investment (e.g., green bonds).
There are, however, challenges for policymakers with regard to new development banks. Policymakers should ensure that public development banks do not undertake activities that the private sector will competitively provide. Importantly, provisions should be in place to avoid inappropriate political interference with the operation of the bank, and to ensure efficient use of resources, particularly with regard to leveraging private sector investment in sustainable development.
B. Domestic private financing In understanding the role of the private sector in financing sustainable development, it is important to recognize that the private sector includes a wide range of diverse actors, from households to multinational corporations and from direct investors to financial intermediaries, such as banks and pension funds.
52 23 Options for an integrated sustainable development financing strategy Private resources have historically been a key driver of domestic growth and job creation.
Private financing is profit-oriented, making it particularly well suited for productive investment. However, the quality of investment matters. There continues to be a dearth of domestic long-term investment necessary for sustainable development, even while there is a growing understanding among the private sector that commercial interest and public policy goals can be realized at the same time.
There is thus a role for Governments to develop policies to help incentivize greater long-term investment in sustainable development. An enabling environment is essential for reducing risks and encouraging private investment. In addition, Governments can work to develop local capital markets and financial systems for long-term investment, within a sound regulatory framework.
Provide access to financial services for households and microenterprises Recent studies indicate that stable, inclusive and efficient financial markets have the potential to improve peoples’ lives by reducing transaction costs, spurring economic activity, and improving delivery of other social benefits, particularly for women.53 Expanding the scope and scale of financial services offered to the poor, older persons, women, persons with disabilities, indigenous people and other underserved populations is important to help achieve sustainable development objectives.
Households of all income levels, even the poorest, use basic financial services, namely payments, savings, credit and insurance. The poor, particularly those in least developed countries, use mainly informal financial service providers. Indeed, more than half of the working-age adults in the world are currently “unbanked” by formal providers, with the vast majority in developing countries.54 If affordable and appropriate financial services were available at reasonable proximity, all indications are that people would use them.55 Many Governments have thus provided and/or welcomed providers of financial services for the poor, including through microfinance institutions, cooperative banks, postal banks and savings banks, as well as commercial banks.
The best way to implement financial inclusion varies by country. Nonetheless, there are some elements that have worked well across countries, including support for the development of credit bureaux for assessing borrower loan-carrying capacity. Developments in information and communication technologies can make it possible for poor people to receive financial services at low cost without having to travel long distances to bank branches. Branchless banking and mobile banking technologies can be used in making government-to-people payments
Robert Cull, Tilman Ehrbeck and Nina Holle, “Financial Inclusion and Development: