SDGs in Low-Income Countries are Grossly Underfunded

The Sustainable Development Goals (SDGs) are underfinanced in developing countries, especially in low-income countries (LICs), which necessitates a significant change in policy priorities and allocation decisions in developing as well as donor countries.
OLE WINCKLER ANDERSEN and OLE THERKILDSEN base this conclusion on a review of SDG financing needs and available financing sources – including international private finance, blended finance, remittances, domestic resource mobilization, ODA and debt financing.
Whether the changes in policy priorities and allocation decisions are possible depends on the local and international political contexts, the authors write in a working paper for the Danish Institute for International Studies. “Realistically not all SDGs will be fully funded.”
The significant underfinancing of the SDGs must be seen in a local and international political context, which vary between individual developing countries and sectors. Although the SDG financing gaps in LICs may sound substantial, it is only half a percentage point of world GDP in 2030.
“Thus, there is a clear need for more focus on the costs and financing of the SDGs in the poorest developing countries in particular. Without (unlikely) radical change in available resources, there is an urgent need to rethink the implications of looming severe underfunding of the SDG package,” ANDERSEN and THERKILDSEN state in their paper titled 'Can the SDGs in Low-Income Countries Be Financed? And Should We Care?'.
Despite the ambition of the SDGs of leaving no one behind, there are strong indications that the poorest developing countries are being left behind. At the same time, support for institutional and policy reform has declined, which is particularly critical for this group of countries.
Finally, analyses show that private development finance is targeted at a few sectors with the potential implication that other sectors are even more underfunded. This leads to four main conclusions, the authors state.
First, the assumptions related to the estimation of costs and financial resources for the SDGs in LICs do not reflect reality. Their specific conditions and challenges must be better reflected in the cost estimates: the optimism attached to private sector development finance and blended finance is simply unrealistic. This also applies to the assumption that the SDG financing structure in LICs can be close to the present structure in most developed countries. Recent figures on private finance show that the LICs are not receiving private finance as envisaged. The important role given to public sector finance in LICs is not realistic either as the financing needs of the SDGs will lead to a significant increase in public sector budgets. An indication of this is the increasing debt levels in several LICs.
Second, the policy implications of severe underfunding for the SDG agenda – especially in LICs – are difficult to predict. These implications are under-researched and have only partly been dealt with in existing analyses. Little is therefore, known about how various actors, including donor governments and domestic governments in LICs, will react to a situation with severe underfunding.
Third, an alternative to continuing making international SDG cost and financing estimates is to focus on national estimates, which should be based on more specific assumptions related to the individual countries. The development of national plans has been a recommendation in several analyses. Whether national plans will have a mobilizing effect remains to be seen, but such plans may ensure that SDG discussions are based on more realism. Again, research on this is limited. Little is known about how the SDG vision actually influences the political and administrative decision-making processes in poor developing countries.
Fourth, effective development assistance will require that it is carefully managed in view of the available funding in LICs for the SDGs.
ANDERSEN and THERKILDSEN present key suggestions, including that donors should clearly distinguish between different groups of developing countries, revive support for policy and institutional reforms in LICs, develop specific financing instruments with a view to incentivizing private investments in LICs, increase the share of ODA going to LICs, reconsider the sectoral distribution of aid, and, finally better understand the distributional implications of various policy measures.