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Innovation Needed to Offset Risks to the SDGs

By Tom Cardamone Managing Director of Global Financial Integrity

IMG_9327Widespread implementation of the Sustainable Development Goals (SDGs) is predicated on two generally-accepted assumptions. First, the gap in funding between current development financing levels and that needed to attain the SDGs – estimated to be $2.5 trillion annually – will be filled. Second, the majority of the “new money” that fills the gap will be generated by the developing countries themselves. The mechanism to realize this tremendous increase in funding, known as “domestic resource mobilization” is, in turn, based on developing countries fulfilling two key requirements. First, they must create substantial economic growth and, second, this must be coupled with significantly improved governance which will enable them to collect taxes and implement programs needed to attain the SDGs. However, two global analyses released this year sow doubt that a sufficiently large number of emerging market and developing economies will accomplish either of these two prerequisites to warrant optimism that the SDGs will be achieved.

In its semi-annual report Global Economic Prospects, the World Bank notes that there will be a “short-term upswing” in developing country economies in 2018, but over the next decade it predicts “slowing potential growth.” This slowdown, which the Bank estimates will be a flat 4.3 percent average annual growth rate during the period (one-half percentage point below current growth rates), will “risk gains in improving living standards and reducing poverty around the globe.” Simply put, during the majority of the 15-year SDG period when growing economies and significantly improved tax collection are vitally important to poverty reduction programs, the Bank believes lower growth will continue for the foreseeable future.

An annual report by Freedom House titled Freedom in the World 2018 paints a similarly bleak picture of the state of democracy around the world. Free societies with democratic institutions are the bedrock needed to create well-run programs that reduce poverty and boost economies. But according to the Freedom House survey, in 2017 democracy declined for the twelfth year in a row and “countries experiencing setbacks in political rights and civil liberties far outnumber those showing improvements”. For example, in Africa only ten of the 54 countries in the region were deemed to be “free” with over 80 percent listed as either only “partially free” or “not free.” Low levels of freedom beget increased uncertainty and unrest which, in turn, undermine efforts to increase economic growth. The World Bank’s Global Economic Prospects comments on this reality in its report by noting that much-needed reforms will likely be “resisted by politically powerful groups.”IMG_0183

While there are numerous efforts around the globe to increase capacity and provide technical assistance more must be done to offset the grim predictions of the World Bank and Freedom House reports. One effort that should be pursued is to establish, in any country receiving financial assistance from an International Financial Institution (IFI), a body like the International Commission against Impunity in Guatemala (CICIG). This grand corruption-fighting organization is effective, independent, funded by the United Nations, and is headed by a highly qualified legal expert from outside Guatemala. Given the stakes, the international community must insist that a well-funded and robust CICIG-type unit be permitted to operate in all recipient states in order to protect the people of that country from the ravages of corruption, money laundering, and organized crime. All aid, except that for emergency humanitarian assistance due to famine, natural disaster, war, or pandemic, should be tied to the establishment of such an organization in order to underscore the seriousness of the effort.

Additionally, a multi-agency task force established in Australia in 2006 to attack tax evasion and international crime has been very successful and should be a model for similar programs in developing countries. With more than $3 billion in taxes collected and new tax liabilities raised, “Project Wickenby” provides a best practice for bringing together experts from seven different departments to coordinate actions to fight the offshoring of wealth and the proceeds of crime. This whole-of-government approach can be instrumental in curtailing what, in many countries, is an almost effortless movement of illicit funds to tax havens and secrecy jurisdictions. This fundamental challeng, faced by nearly all developing nations, is a clear and present danger to their economies. As with the CICIG-type bodies, IFIs should make the creation of a multi-agency taskforce a prerequisite for financial assistance.

aIMG_9567Both CICIG and Project Wickenby have been time-tested and are effective institutions that are making great progress. Funding for similar efforts should come from the IFIs and should be brought to scale as soon as is possible. As Norwegian Prime Minister Erna Solberg noted in Davos, “promoting peaceful, just and inclusive societies (i.e. SDG 16) is the key to achieve all the other” SDGs. And the quickest way to achieve that is to eliminate the impunity with which criminals and corrupt officials have operated for decades.

The author is Managing Director of Global Financial Integrity, a Washington, DC-based research, advocacy and advisory organization focused on helping developing country governments curtail the flow of illicit funds offshore in order to promote economic growth and reduce poverty and inequality.

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