Financing the future: Why domestic revenue mobilisation belongs on the post-2015 development agenda

Last month in Mexico City, I joined development leaders spanning government, private sector, and civil society for the first High-Level Meeting of the Global Partnership for Effective Development Co-operation. As part of these meetings, I was honored to moderate a panel of distinguished civil society leaders on the issue of linking domestic resource mobilisation (DRM) to public expenditure needs—just one of three focus sessions, and a plenary session, dedicated to exploring issues around DRM at this landmark event.

While DRM lacks the “headline” appeal of reduced poverty or child mortality rates, the fact that it is at the center of discussions about the post-2015 development agenda is a welcome and important development.

The “business case” for stronger tax systems is already well known. Taxes provide governments with the funds needed to invest in development, alleviate poverty, and deliver the public services and infrastructure that are needed to promote growth. For developing countries, taxes also offer the pathway out of aid dependence and, more importantly, allow those countries to take ownership of their development strategies and meet the needs of their citizens. What’s more, sound and efficient revenue administration ensures that taxation imposes minimal costs on the private sector, and that the goods that vibrant and healthy economies depend on—from food to pharmaceuticals—are not needlessly held up at the border.

So, what is the state of DRM today?

Since adoption of the Millennium Development Goals (MDGs) in 2010, developing countries have seen noticeable gains in DRM that, in turn, have enabled similarly noticeable increases in government spending. These gains are due to underlying economic growth as well as, in some cases, improved collection efforts. Yet, half of sub-Saharan African countries, not to mention several Asian and Latin American countries, still mobilise less than 17% of their GDP in tax revenues. And in Africa, revenue growth has been driven more by exports of oil and other natural resources than by real improvements in national tax systems. Unfortunately, most of these countries have not yet found the antidote to small tax bases, large informal sectors, widespread evasion and abuse of tax rules. Tackling illicit financial flows and improving tax administration systems need to be high on everybody’s agendas.

What about the expenditure side?

Even accounting for official development assistance (ODA) already committed, developing countries face financing gaps of tremendous proportions. Many countries barely muster a third of the $60 per capita in health spending needed to achieve universal coverage with a basic package of health services. Globally, an additional $55 to $120 billion would be needed to cover the price tag for reaching the Millennium Development Goals for both water and sanitation. And to finance the construction, operation and maintenance of critically needed infrastructure, overall infrastructure spending in Africa would need to increase by more than $50 billion each year—equal to roughly 4 percent of these countries’ GDP.

Despite the best intentions, aid from all sectors is not going to fill these gaps, especially at a time when donor country governments are grappling with fiscal constraints and budget cuts at home. More and better DRM, therefore, is and must be central to discussions about development and graduation from lower income status.

DRMquoteTaxes provide governments with the funds needed to invest in development, alleviate poverty, and deliver the public services and infrastructure that are needed to promote growth.

So, what role does aid play in improving DRM?

Multilateral and bilateral donors help developing countries to grow their economies, which is essential to DRM. Donors directly promote both stronger DRM and more transparent, taxpayer-friendly business environments by providing technical assistance, capacity building, and commodities in the areas of tax and customs policy and administration. They can also help by bringing global experience and support to bear on addressing illicit flows and the international aspects of taxation and on improving the measurement of DRM gaps and results. These kinds of DRM assistance can have a major impact on revenue mobilisation, especially where countries demonstrate the political will to implement the necessary institutional and tax policy reforms. In fact, recent experience in a number of countries by USAID in Georgia and El Salvador, and DFID in Tanzania and Rwanda suggests that a relatively small but sustained commitment can help partner countries achieve a high level of impact. In El Salvador, for example, one USAID project raised government revenues by $40 million annually — roughly $200 million in additional tax receipts over the project’s five years — with an investment of just $5.8 million. This was accomplished by introducing a new IT platform and a “Case Selection and Management System” which automated both the taxpayer audit selection process and the assignment of audit personnel.

Unfortunately, USAID budgets have little flexibility to dramatically increase funding for this important topic, which is partly due to the fact that spending on a number of critical social services, such as education, water and health, generally do not include approaches to increase DRM for the very services we are trying to strengthen. At the Mexico High-Level Meeting, I initiated conversations about using some of those funds on DRM projects that can help mobilise domestic resources for education, water and health, both now and in the future.

This meeting provided a platform for tackling hard questions about where we go from here. Engaging my distinguished panelists in a vigorous conversation around DRM, we were able to discuss its connection to meeting expenditure needs, and the prospects for leveraging DRM enthusiasm to build a broad-based coalition for.


postel_bioEric G. Postel is USAID Assistant Administrator in the Bureau of Economic Growth, Education, and Environment. He also has more than 25 years of private sector experience working in emerging markets, during which he helped support economic development in more than 45 developing countries on four continents.

Why WASH matters – partnering to tackle the Water & Sanitation crisis

The world is in the midst of a water and sanitation crisis. There are 748 million people without access to clean water and an astonishing 2.5 billion people without access to a basic toilet. Inequalities are an enduring problem; the vast majority of people without sanitation are poorer people living in rural areas. On top of this, indigenous people, those with disabilities and other marginalised groups are more likely to lack these basic services.

This crisis has profound impact on all areas of human development. The World Health Organization estimates that poor water, sanitation and hygiene (WASH) is the main cause of 28% of child deaths worldwide. Diarrhea is the second-biggest killer of children under five years old worldwide, and a quarter of stunting can be attributed to recurrent diarrhea. Sustained access to toilets, good hygiene behaviour and safe drinking water are vital to efforts to help children stay in school. The burden of household water collection falls disproportionately on girls, forcing many to miss school to walk hours each day to collect water for their family. When safe and private toilets are not available in schools, girls are more likely to miss class during their monthly periods. This absenteeism can lower grades and lead to girls dropping out of school altogether.

To be effective, we need an approach that reflects the reality of people’s lives by addressing their health, education, water and sanitation and nutrition needs in an integrated way. This is the only way to improve wellbeing, and ensure all people in all countries and communities are healthier, live longer, are more educated and have better access to goods and services. But too often institutional setup and professional blinkers mean that sector challenges are tackled in isolation, compromising our ability to identify synergies and use resources most effectively.

The Global Partnership for Effective Development Co-operation High Level Meeting in Mexico City last month therefore provided a valuable opportunity to address these silos. For the first time, representatives of Sanitation and Water for All (SWA), Global Partnership for Education (GPE) and International Health Partnership (IHP+) came together to share experiences in turning development co-operation principles into practical action and results.

Global sector partnerships dedicated to fulfilling basic rights and services for all have significantly contributed to progress towards the Millennium Development Goals (MDGs). Now, as we prepare for the introduction of ambitious new sustainable development goals to replace the MDGs, these partnerships will become increasingly important in leveraging structural change in the aid architecture. Only they can foster the collaboration and mutual accountability necessary to reach the world’s poorest and most marginalised people.

Recognising that countries and organisations achieve more by working together, Sanitation and Water for All provides a transparent, accountable and results-oriented framework for action based on our common vision – universal access to safe water and adequate sanitation.

SWA

Unless we work together, harnessing the power of partnerships to deliver results on the ground, we will never achieve sanitation and water for all. And without universal access to water, sanitation and hygiene, the eradication of extreme poverty is inconceivable.

 

SWA focuses attention on the basic building blocks of an effective sector, such as joint WASH sector planning, investment and accountability frameworks. For example, in Liberia partners have aligned behind a national WASH Compact, improving co-ordination and increasing effectiveness by working together more closely on programme implementation. In Ethiopia development partners are aligning around country-owned plans and processes, such as the ‘One WASH National Programme’, which consolidates planning, budgeting and reporting activities in the sector.

Last month, an unprecedented gathering of WASH leaders took place in Washington, DC. The 3rd SWA High Level Meeting drew together World Bank President Jim Yong Kim, United Nations Secretary General Ban Ki-moon and 20 ministers of finance from around the world, as well as 35 ministers of water and sanitation, 12 development co-operation representatives and other key stakeholders. There, ministers set an ambitious course for getting water, sanitation and hygiene to their people in coming decades, with over 20 countries pledging to reach universal access by 2030.

SWA is also beginning to see traction on harmonising the WASH sector’s very complicated monitoring landscape, which will make it easier to track progress.

However, challenges remain. The sector continues to be highly fragmented, with a lack of co-ordination leading to duplication and inefficiency. Sustainability is another major issue. We struggle to find a balance between building new infrastructure and strengthening developing countries’ abilities to deliver WASH services and keep them running for years to come.

Tackling this requires concerted effort to improve the effectiveness of WASH aid. This means ensuring that support to the sector builds the capacity of governments in developing countries to deliver and sustain safe, reliable water supply and long-term behaviour change for hygiene and sanitation – rather than having aid agencies deliver those services themselves. Not only will this improve sector performance, it also offers the best return on investment and opportunities for scale.

SWA partners are united in trying to meet these challenges, thinking about how we work together, and exploring ways to strengthen mutual accountability for adherence to the Paris, Accra and Busan principles of effective development co-operation. Discussions in Mexico City made it clear we are not alone, with the Global Partnership for Education and International Health Partnership simultaneously working to put the principles of development effectiveness into practice in the health and education sectors.

As 2015 approaches, and the international community lays out a framework for the eradication of poverty, such joint action has never been more important. Unless we work together, harnessing the power of partnerships to deliver results on the ground, we will never achieve sanitation and water for all. And without universal access to water, sanitation and hygiene, the eradication of extreme poverty is inconceivable.


DarrenSaywell2Darren Saywell leads the WASH programme at Plan International USA. He has 20 years operational, research, consultancy and teaching experience and has previously held positions at the Water, Engineering and Development Centre in the UK, the World Health Organization and the International Water Association. In October 2011, he was nominated as the Vice-Chair for Sanitation and Water for All.

Progress in Ethiopia: Better donor predictability and aid transparency on national budget

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Released in April 2014, the Making Development Co-operation More Effective: 2014 Progress Report finds that there is strong commitment to improve development co-operation around the world. Using data collected with 46 countries receiving development co-operation and 77 countries and organisations providing it, the report covers roughly half of all official development assistance programmed for developing countries.

A closer examination of development co-operation progress in Ethiopia shows encouraging gains for 2013. Boasting one of the fastest growing economies in Africa, Ethiopia remains a low-income country that receives one of the highest volumes of development assistance at approximately $3.3 billion in 2012 although its aid per capita of US$36 remains below the sub-Saharan average.

The amount of international aid that was recorded on national budgets rose 17% since 2010, reported in a country brief written by the Ethiopian government and and the secretariat of the Development Assistance Group (DAG) of 24 development partners. Reflecting aid flows in national budgets increases transparency for both countries and donors.

Using country data collected during the development co-operation monitoring process in 2013, the brief shows that more donors in Ethiopia are committing to honoring aid commitments in the short- and medium-term, dispersing scheduled support in agreed-upon time frames. One of the Busan principles, predictability in development co-operation is crucial to allowing governments to plan and best use support.

Equally encouraging is that “untied aid” also increased by more than 15%. ”Untied aid” is development support that does not limit procurement to companies in the donor country or in a small group of countries and which can otherwise increase operating costs by as much as 30%.

Ethiopia is also one of a handful of countries with a system that openly tracks its work to mainstream gender equality into the national budget.

The Ethiopian Ministry of Finance and Economic Development and the Development Assistance Group of Ethiopia, representing more than 24 bi- and multi-lateral donors, released the report in May 2014.