The Politics of Domestic Resource Mobilization for Social Development

Katja Hujo, Katja Hujo

• Publisher: Palgrave Macmillan
• Year: 2020
• ISBN:
  9783030375959
• Topic: Economía
• Subtopic: Economía del desarrollo

At a time when the development community is grappling with the challenge of raising the required investment—estimated in the trillions of dollars—for attainment of the Sustainable Development Goals (SDGs), countries' mobilization of their own fiscal revenues is receiving increasing attention. This edited volume discusses the political and institutional contexts that enable poor countries to mobilize domestic resources for global commitments and national development priorities. It examines the processes and mechanisms that connect the politics of resource mobilization and demands for social provision; changes in state-citizen, state-business and donor-recipient relations associated with resource mobilization and allocation; and governance reforms that can lead to improved and sustainable public revenues and services.

The volume is unique in putting a spotlight on the political drivers of domestic resource mobilization in a rapidly changing global environment and in differentcountry contexts in Latin America, Asia and sub-Saharan Africa. It will appeal to a broad academic audience in the fields of economics, development studies and social policy, as well as practitioners, activists and policy makers.

© United Nations Research Institute for Social Development 2020

K. Hujo (ed.)The Politics of Domestic Resource Mobilization for Social DevelopmentSocial Policy in a Development Contexthttps://doi.org/10.1007/978-3-030-37595-9_1

Begin Abstract

1. The Politics of Domestic Resource Mobilization for Social Development: An Introduction

Katja Hujo¹ and Yusuf Bangura¹

(1)

United Nations Research Institute for Social Development (UNRISD), Geneva, Switzerland

Katja Hujo (Corresponding author)

Email: [email protected]

Yusuf Bangura

Keywords

Domestic resource mobilizationResource bargainSustainable Development GoalsAidTaxationMineral rents

End Abstract

Introduction¹

At a time when the development community is grappling with the challenge of raising the required investment—estimated in the trillions of dollars—for attainment of the Sustainable Development Goals (SDGs), countries’ mobilization of their own domestic resources for development is receiving ever-increasing attention. Indeed, domestic resources are the most sustainable source of investment in national development priorities over the long term, and from an aggregated perspective, they are already the most important financing source in developing countries (Fig. 1.1).

Fig. 1.1

Financing trends in developing countries (USD billions, constant prices) (2001–2017). (Source: Author elaboration based on data from ICTD and UNU-Wider (2018), OECD (2017, 2016), and World Bank (2019). Notes: Public domestic finance is defined here as total government revenue. Gross-fixed capital formation by the private sector was used as an indicator for private domestic finance. Private international finance is the sum of foreign direct investment (FDI), portfolio equity and bonds, commercial banking and other lending, and personal remittances. Public international finance equals the total official flows (official development assistance and other official flows). Data on private domestic finance: (1) for low- and middle-income countries in East Asia and the Pacific, data was not available; (2) for MENA countries, data was available for the period 2000–2007 only, with no figures available for 2001. Data on public domestic finance for 2000–2017 is the average of 137 countries classified as low- and middle-income countries by the World Bank. The figure illustrates the absolute increase in financing sources; in relative terms, financing sources have largely followed trends in GDP growth)

Nevertheless, financing gaps persist (Table 1.1), and different countries display different financing mixes and needs, with some countries continuing to be heavily aid-dependent (Fig. 1.2). Already in 2002, the Monterrey Consensus recognized that many poor countries have weak fiscal capacity and would require additional resources to transform their economies and meet the needs of their citizens. However, official development aid (ODA) is failing to fill these gaps. This is due, for one, to donors’ continued and systematic failure to deliver on aid commitments targeted at less developed countries. Additionally, the global economic and financial crisis in 2008, as well as mounting fiscal pressures in developed countries, has proved aid disbursement to be highly volatile, procyclical, and frequently determined by (geo-) political interests rather than recipient countries’ needs.

Table 1.1

Financing gaps as percentage of GNI (current USD) for country groups (2014)

Country groups	GNI (in current USD billion)	Financing gaps as percentage of GNI
		Lower limit USD 1,500 billion	Upper limit USD 2,500 billion
World	78,203	1.9	3.2
High-income countries	53,268	2.8	4.7
Middle-income countries	24,584	6.1	10.2
Low-income countries	392	382.8	637.9

Sources: Author elaboration based on data from World Bank (2016), Oxfam and DFI (2015), and UNCTAD (2014)

Fig. 1.2

Aid dependency in LDCs (2015): Country programmable aid (CPA) as percentage of tax revenue. (Source: Author elaboration based on data from OECD (2019b) and ICTD Government Revenue Dataset (2018). Notes: Used data from different years for Burundi (2014) and Yemen (2012). Outliers such as Somalia (880.71 per cent) and Tuvalu (782.70 per cent) were not included in the graph to preserve visible variation in the lower end of the range of Y-values. Social contributions are not included in tax revenues)

While aid will continue to be crucial as an international instrument for redistribution (Ortiz 2009), and in particular for least developed and conflict-affected countries (Fig. 1.2), for the majority of countries, scaling up domestic public revenues is crucial to meet the SDGs and national development priorities and for anchoring their social contract in a financially sustainable way.

By focusing on domestic resource mobilization (DRM) as a promising pathway for financing policies for social development and transformative change, UNRISD designed a research project which aimed to:

• bridge the funding gaps for meeting key global development targets and social programmes in developing countries;
• enhance national ownership of development programmes and policy space, which is linked to improved fiscal capacity;
• improve understanding of the politics of revenue and social expenditure bargains, as well as effective accountability of governments to citizens; and
• connect the literatures on the politics of resource mobilization and the politics of social provision in developing countries.

The integrated analysis of financing and expenditure policies, as reflected in these objectives, has guided UNRISD social policy research over the last two decades, responding to a glaring research gap in contemporary social policy scholarship that exclusively focuses on the expenditure side, assuming a glass ceiling for state revenues (Hujo and McClanahan 2009; Kangas and Palme 2005). However, connecting financing issues with questions related to building sustainable welfare regimes and social contracts opens the door to a dynamic analysis which allows understanding of the feedback loops between resource mobilization and resource allocation. The question of who pays for and who benefits from public policies has a bearing on fiscal performance and on broader development goals such as economic growth, democratization, and institution building. It affects social relations and social institutions, constituting a key social development concern. In the context of the 2030 Agenda for Sustainable Development, the question of sustainable finance requires a new definition beyond mainstream economic approaches of debt sustainability or fiscal space (UNRISD 2016). Both revenue and spending policies should be sustainable in economic, social, environmental, and political terms; they should be conducive to a dynamic accumulation process within planetary boundaries so that more income can be created, redistributed, and allocated to public goods and social policy.

This introductory chapter will present key issues and trends related to DRM for social development, the conceptual framework and research questions that have guided the overall project, and an overview of the structure and contents of the volume.

The Issue

Implementing development strategies rests on the capacity of states to design policies, create political support, and mobilize the required financial and administrative resources. Domestic resources are key for financing the SDGs and national development priorities. Domestic resources, in particular public domestic resources, are already the most important source of development finance (ODI et al. 2015), exceeding private flows as well as international aid (Fig. 1.1).²

This challenges the popular belief that budgets in developing countries rely heavily on external funding and highlights the relevance of domestic resources. At the same time, average finance trends tend to hide challenges for specific regions or countries, in particular if investment and spending needs are very high.

Estimates of the amounts needed to finance the 2030 Agenda are in the range of “trillions, not billions” (Development Committee 2015) to cover global financing gaps of between USD 1.5 trillion per year (Oxfam and DFI 2015) and USD 2.5 trillion or more (UNCTAD 2014: 140). While this amounts to 2 to 3 per cent of global gross national income (GNI), the costs of implementing the 2030 Agenda in proportion to the GNI of developing countries (low- and middle-income) are far higher (Table 1.1).

A recent IMF (International Monetary Fund) study (Gaspar et al. 2019) estimates the required additional spending in 2030 as 2.6 trillion US dollars (2.5 per cent of the 2030 world GDP) in 121 emerging market economies and low-income countries.

However, incentives to mobilize resources do not only come from countries’ intern...

Table of contents

• Cover
• Front Matter
• 1. The Politics of Domestic Resource Mobilization for Social Development: An Introduction
• Part I. Domestic Resource Mobilization Through the Lens of Aid, Taxation and Mineral Rents
• Part II. The Politics of Domestic Resource Mobilization: Case Studies
• Back Matter