Overall, countries should be spending close to 60% of their budgets on the MDGs, but current allocations are only 38% and falling. In total, government spending is falling one third short of MDG needs. The latest GSW analysis shows that government spending in developing countries has risen rapidly in 2012-14, but revenues have not. This has led to growing deficits, resulting in sharp increases in debt service. As a result, debt service is “crowding-out” MDG spending in 21 of 66 countries, and MDG spending has not risen to the same degree as overall government spending, because debt service has absorbed 40% of the extra spending, and infrastructure 35% - only 25% of additional finance has been allocated to MDG sectors.
This is not only leaving huge gaps in MDG spending needs but will leave even bigger gaps in the new Sustainable Development Goals set to follow the MDGs.
GSW’s latest analysis shows that a total additional public spending needs for the SDGs (including the sectors above as well as access to modern energy and infrastructure) could be as high as US$1.5 trillion a year.
How is this being financed?
Not only has GSW been investigating what governments are spending, but how they are financing this, as this can also draw vital lessons for the new SDGs. It finds that government revenue currently funds 77% of spending, which has been more stable, aligned with government priorities, balanced between investment and recurrent, and easy to implement than donor-funded spending.
Based on lessons from tracking country budgets, GSW recommends how the SDGs should be financed: by doubling tax revenue, through a radical overhaul of the global tax rules; doubling concessional development cooperation, and improving its allocation and effectiveness; and raising US$500 billion in public innovative financing. In addition, all spending must be dramatically reoriented to fight inequality, and be much more transparent and accountable to the world’s citizens.