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The Financial Express

Rethinking financing of SDGs: Private sector to the rescue

| Updated: November 17, 2020 18:28:08


-Representational image -Representational image

Bangladesh has only ten more years to achieve the targets of sustainable development goals followed by its robust success in attaining crucial milestones in millennium development goals. In business as usual case, with an unprecedented GDP growth rate of over 8 per cent, the country was on track to performing better in many indicators of SDGs, if not all of them. However, COVID-19 pandemic has certainly changed the equations and distorted the economic inertia from convergence towards a balanced development. After a quarter of a year's pandemic period, the country experienced a fall in GDP growth rate to 5.24 per cent, export earnings dropped by 16.93 per cent and import plunged by 8.56  per cent. According to surveys conducted by think tanks such as CPD and BIGD, the pandemic resulted in an additional 20-25 per cent poor people on top of the existing 23-24 per cent poor in the country.

Under this economic context, the financing strategy for SDGs will be crucial in terms of development and macroeconomic policy forecast and formulation. According to the Planning Ministry (2017), under the extended growth scenario of the 7th Five Year Plan an additional amount of investment by public and external sources worth USD 928.48 billion (at 2015-16 constant price) would be required in the implementation of SDGs over the period of FY2017-2030. This amount is almost 20 per cent of the accumulated GDP. The investment requirements from the private sector and the public sector were respectively 78 per cent and 22 per cent. Considering the gradual decrease of ODA as a share of GDP (1.1 per cent in 2018), COVID-19 catastrophe, the lower fiscal capacity of the government, and resource constraints, it is pivotal to enable the private sector to take the lead in the financing of SDGs.

How can the government pull the private sector's strings to make them play the scorecard of SDG financing? Two possible strategies are there. First, provide a better business-enabling environment with improved infrastructure and investment environment. This "classical" way of private sector boosting will eventually accumulate investment, generate income, create jobs, and directly corroborate the SDG targets. Second, provide incentives through policies to encourage the private sector to counter the risk of conflict between business and well-being (such as climate safety). This will bring the private sector to the market either as a direct player or as a facilitator.  For instance, tax imposition of 50 per cent of the total investment on coal-based energy plants can attract climate-friendly energy producers and encourage businesses going for investing in renewable sources of energy production. Both strategies are important in extrapolating financing for SDGs from the private sector. The government should try to mix both the strategies to keep a balance between positive and negative externalities through the private sector's involvement.

The following example can consolidate the argument on how the combination of two strategies can induce sustainable outcomes of private sector financing of SDGs.

In SDG 6, by 2030, 100 per cent of the total population of Bangladesh should be using safely managed drinking water and by the end of 2020, only 47.9 per cent are having safe drinking water. Now, in Bangladesh, about 95 per cent of people use groundwater as drinking water, and about 80 million people (almost half of the total population) are still directly exposed to arsenic contamination. If the government provides incentives such as loans, subsidies, tax-free entries, or public-private partnerships to the private sector in establishing low-cost treatment plants in rural areas, things can improve dramatically. Small/medium size treatment plants can serve a population of 8-10 villages with low investment and low maintenance costs.

The Dutch government has already tested a few pilot projects with small treatment plants at Rajshahi. Unfortunately, there is no follow-up and upscale planning of those pilots by the government. People who spend money & time and skip their daily economic activities while traveling 3-5 kilometers to collect safe drinking water may indeed pay some small bills to have safe drinking water at home. Moreover, research reflects that 8 out of 10 persons in the village who travel long distances to collect safe drinking water are women/girls. In the process, they miss schools, household activities, economic activities of their cottage, and small businesses. Thus, small and localised water treatment plants can increase access to safe drinking water, pull the private sector in the market to do business, help gender inclusion agenda, and accumulate finance for achieving SDG 6.

With the private sector investment as a share of GDP hovering around 22-23 per cent for the last one and a half-decade, it is high time for the government to investigate the policy requirements as well as identify the actionable entry points to enhance the private sector's contribution towards financing SDGs. Nevertheless, to become a lower-middle-income country and then graduate as a developed country by 2041,  private sector investment needs to be more than 30 per cent as a share of the GDP. Clearly, Bangladesh is far away from the track. The financial institutions, especially banks, are the key players in smoothing the trajectory of the private sector's role in achieving SDGs as they act as a credit supplier for enterprises. Almost 10 per cent of GDP stands the share of non-performing loans (NPL) in Bangladesh that exhibits the vulnerability of the financial institutions. Enforcement and monitoring of existing regulations can certainly improve the level of trust of credit seekers in the private sector for businesses.

The poor revenue collection of Bangladesh in the form of tax is another wolf in the jungle in generating public finance for SDGs. The tax revenue, as a share of GDP, is roaming around 8-9.5 per cent on average for almost a decade. Whereas to be able to achieve a 9.9 per cent anticipated GDP growth rate by 2041 and graduate from LDC status by 2024, the tax revenue share should be 16-18 per cent. Thereupon, the SDG financing strategies from the private sector become pivotal considering the weak revenue collection of the government.

The 7th Five Year Plan focused on two major areas. One, job creation and two, poverty reduction. COVID-19 changed many equations and the time has come for Bangladesh to think clearly of 8th Five Year Plan. With the fiscal crisis the government will face due to the pandemic, it is imperative that the 8th Five Year Plan should emphasise on private sector development, enterprise development, and SDG financing through the private sector. 

Mohammad Nazmul Avi Hossain is a Development Professional and PhD Researcher in Economics at Universite libre De Bruxelles

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