Sustainable Development Finance Assessment and the Pursuance of SDGs

04 October 2021

In this work, a framework to assess external debt and financial sustainability and public sector sustainability through the lens of the achievement of the Sustainable Development Goals (SDGs) is presented. The approach differs in some key areas from the International Monetary Fund’s (IMF) Debt Sustainability Analysis (DSA), placing the external constraints and the resulting possible growth rate at centre stage. This in turn provides information on the fiscal space available to policy makers with which to achieve the SDGs through public investment.

In this work we provide an alternative framework to assess external finance sustainability (that encompasses external debt sustainability) and public sector sustainability through the lens of the achievement of the Sustainable Development Goals (SDGs). In this way, the approach differs in some key areas from the International Monetary Fund’s (IMF) Debt Sustainability Analysis (DSA) and mainstream approaches[1]. We call our approach Sustainable Development Finance Assessment (SDFA). External finance sustainability and debt sustainability (both external and public) is a key issue in the debate regarding the achievement of the SDGs. The pursuance of SDGs is, in general, connected with the need of public investment and fiscal policy. This, of course, may increase both public sector debt as well as external debt and liabilities, creating potential long run solvency problems.

In our framework, there is a specific connection between public sector debt and external debt that hinges on the level of growth that is compatible with the balance of payments constraint. This emphasis on growth being externally constrained is a key departure of our model.  For every developing country that does not issue a reference currency used in international transactions (predominantly, the US dollar, the key-currency in the current international monetary and financial system), the external constraint is the main economic constraint on output and growth. Public sector sustainability is, then, subject to this external constraint. Public sector sustainability - given the external constraint - determines the policy space available for the pursuance of SDGs through public investment.

This paper is divided as follows. Section II briefly discusses the main ideas behind our framework. Section III presents the SDFA model for external accounts and section IV for public sector sustainability. Section V concludes this work with a consideration of the connections between both external finance and public sector sustainability and the achievement of the SDGs.

 


[1] For a critical assessment of the IMF DSA, see UNCTAD (2021) Sustainable Development Finance Assessment Framework, forthcoming.