Lagarde: Low- and middle-income countries must improve PFM

25 Jan 19

Low- and middle-income countries need to improve public financial management to achieve the Sustainable Development Goals and get the most value for money, IMF chief Christine Lagarde has said.

Lagarde, speaking at a session at the World Economic Forum in Davos on Wednesday, said growth, improving sources of revenue and efficient spending was needed for countries to achieve the UN-backed SDG goals by 2030.

“If the revenue you raise is spent poorly on some white elephant project, you are wasting your time,” she told a session on ‘closing the financial gap’ at the annual forum in the Swiss Alps.

“Domestic revenue mobilisation needs to increase. It’s way too low for the spending that is needed [in low- and middle-income countries].”

It is estimated that at least $2trn extra is needed to be raised collectively by countries every year to meet the SDGs, but pledges from international financial institutions only amount to $400bn, the forum heard.

Lagarde added that good governance, continuation of Overseas Development Assistance and the private sector is also critical to achieve the SDGs.

She said the world is still “short of the 0.7% commitment”.  

Only seven countries are currently giving 0.7% of their national income in ODA – an international commitment agreed among donor countries.

The panel, which also included the president of Rwanda Paul Kageme and Bono, co-founder of the ONE Campaign, added that the ODA that is given is not going to the right places. For example, the World Bank and other multilateral organisations get a big portion of it.

Kageme said: “People need to work together. Cooperation is required - everyone makes progress that way.”

Bono said: “The SDGs are like a report card from the planet’s executive branch telling us how well we are doing – or how we are not doing – and how we can improve.”

Although the panel agreed that private financing was an important financing stream to help countries meet the 2030 goals, Bono said the world should work together to assess what the private sector’s role should look like, as globalisation can leave the poorest people behind. 

He said: “Globalism is a wild beast and if not tamed it can chew up a lot of people. And those people’s lives that it has chewed up is pushing politics in our homes towards populism.

“We have to think about the private sector but we need to have some humility about what we can achieve in the private sector – but if you can unlock it, it is incredible what it can achieve.”

Earlier this week the IMF released a report that highlighted that low- and middle-income countries need to increase their tax revenues and spending massively in 2030 to meet the goals.

It found that low-income countries will need to spend at least half a trillion dollars extra in 2030, while emerging market economies need just over $2.1trn.

This will require better governance, increase revenue collection, donor aid and help from the private sector, it added.

An IMF report in September said poor countries need to collectively spend an additional $520bn a year on key public services and infrastructure to meet the goals.

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