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August 17, 2016

How to Link SDGs to the Budget

SDGs and the Budget

Posted by Suren Poghosyan[1]

The Millennium Development Goals (MDGs) were critical in presenting a global policy agenda with country-specific targets. MDG processes, however, were not well coordinated with countries’ national policies and budget processes. Ministries of finance were detached from the core dialog on MDGs, and there was a mismatch between the MDGs and budget classification systems. The 17 Sustainable Development Goals (SDGs) have replaced the MDGs with a more comprehensive policy agenda that now covers all countries. Developing countries, however, will face challenges in effectively transforming the SDGs into national policies and budgets. How therefore to build a stronger bridge between the SDGs and countries’ budget processes?

Even if development goals are effectively transformed into sector strategies, budget decisions are based on their own set of processes and parameters. Some reports suggest that the UN’s functional classification system (COFOG) has been used to bridge budget allocations with the MDGs, but COFOG was never designed to serve that purpose. In some countries, civil society organizations (CSOs) have monitored the impact of selected MDGs on the budget. However, in most cases, finance ministries have continued their routine budget planning and execution processes with only occasional reflections on the MDG targets.

In countries with a program-based budgeting system, one possible way forward would be to introduce a budget classification that groups and then bridges programs with the SDGs. However, such an approach is not ideal. A better solution might be for an international organization (e.g., UNSTATS) to design a universal SDG budget classification, and propose a methodology for mapping this system with other classifications. The advantages of such an approach are as follows:

  • A single and comprehensive SDG classification would help developing countries avoid the sporadic introduction of standalone budget tagging systems that have already been applied in areas such as gender budgets (in more than 30 countries); low emissions (Indonesia); climate change (Bangladesh, Indonesia, Nepal, and the Philippines); and poverty or disaster risk reduction. The introduction of a single budget coding that captures these policy areas and others covered by the SDGs would cost less and be more sustainable. The UNDP is considering the possibility of developing a budget code structure that incorporates all the SDGs, and piloting it in selected countries.
  • Application of the SDG classification through the chart of accounts would allow automatic presentation of budget allocations linked to SDG goals. It would eventually enable regular budget planning and reporting by direct incorporation of SDG policy targets, and the 169 related indicators, into budget programs.
  • A universal classification would allow cross-country comparison of SDG-related budgets.
  • An SDG budget classification could potentially contribute to a new evolving phenomenon – cross-country policies that go beyond national borders, e.g., on climate change and the environment, defence, poverty and migration. Cross-border SDG targets would require strong cooperation among countries and their finance ministries, and might be appropriate in economic unions that exist or are developing in Europe, Africa and elsewhere (e.g., the EU response on migration).

Of course, there would be challenges in introducing a universal SDG classification, such as resource constraints, potential overcrowding of budget databases, and the tendency for international organizations and donors to dominate the policy agenda. The introduction of SDG classification is a long journey and its first step might be some basic SDG budget table configured manually. In any case, the sooner the debate starts, the better the solutions that will be found.

[1] Governance and Public Finance Specialist, UNDP, Bangkok Regional Hub. The content of this article does not necessarily reflect the official opinion of the UNDP.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

Comments

Good Idea!

Government budget classifications tend to provide more granular detail than SDGs, COFOG or GFS. Governments rarely bake international standards into operational budget classifications because of complexity. These governments map the financial chart of accounts to alternative roll-ups for reporting. Data entry users do not need to know SDG classifications. Budget, financial & sector leaders can see budget plans & execution relative to SDGs & can report on them.

It's true that SDGs are more complex than MDGs. A universal classification would be helpful. And, it's not necessary to rationalize with COFOG & GFS that have different purposes. Of course, IT systems need to be flexible to support this.

Hi there,

International human rights standards, that have already been ratified by the vast majority of states, have a lot to say about resource generation and allocation... similarly, they also tackle the cross-border cooperation issues that are referenced here... many advocates would argue that human rights can offer precisely the kind of equitable and just framework for tackling SDG budgeting that is being called for here. This may be of interest: http://cesr.org/article.php?id=1584

Thanks!
LukeH

Excellent idea! If implemented, the causality for monitoring will be a right one - impact of budgets on selected SDGs, not vice versa.

This is a very interesting initiative. Particularly the potential to contribute to addressing cross-country issues like climate change. Moreover, it is not only relevant for developing countries, especially since the Agenda 2030 and the SDGs are universally applicable. What would be the next steps? Are there any particular countries that could be interested in piloting? Does the IMF (or another institution) have a methodology to build this upon?

@DougHadden. true, agree. no need for getting to a complex and decentralized data management systems, at least in the first years of the initiative. One can think of startng with even a manual mapping of existing budget heads at their high level with 17 SDGs using some basic cost allocation principles agreed/approved by the MOF. In more advanced countries with flexible FMIS systems there can be some mapping table (between the existing structures of the CoA and the SDG classification) that will be integrated into the FMIS so the reports can be produced as per the SDGs. The frequency of the need of updating that mapping table with cost allocations principles and formulas (or just agreed assumptions) is for countries to decide.
However, if a country decides to use the SDG as a national policy platform then I would argue that the SDG classification gets more incorporated into FMIS even at the level of data input modules at line ministries and other 1st level budget users.

@HannieMeesters.
thanks!
one of the next (better to say currently implemented) steps that I am aware of and directly engaged is the integration of the climate change (SDG 13) relevant code into Pakistan's FMIS using the mapping structure whereby the cost allocation "weights" of climate relevant budget lines are linked with the existing COA. However, as i argue, it is much better and less costly to integrate the full set of SDGs into FMIS. As Doug Hadden also mentioned, it does not require the whole government system to switch from COFOG into SDG classification on daily operations - this can be a gradually expanding process dependent/driven by the demand.
Countries can start with there immediate steps that won't require heavy inputs at the first stage:
1. political support (in a form of government directives, etc)
2. clear understanding of the role of SDGs in the policy cycle (as improvement of the budget cycle to capture SDGs without similar exercise in the policy cycle will become a useless effort)
3. a small unit that will work on the mapping exercise using the information available.

I would estimate that 1 calendar year process would suffice for a country to come up with the first results of the exercise that then will need to be fed into the annual budget cycle (MTEF/Budget formulation and decision making processes with ceilings, etc). When budget decision makers see the "SDG" layout of their budget decisions enhanced by a retrospective presentation of previous budget in the same SDG layout, they will see the impact of their ordinary budget decisions from the SDG perspective. The results could be "zero net impact", which is also a result, as it will show that despite of the rhetoric the actual budget ignores the SDG policy agenda. Then the budget decision makers will feel the actual use of the existing information and what needs to be fixed in the next round. therefore, 1-2 iterations must suffice for the SDG classification to become of real use.

In general, the proposed SDG classification is a way better layout of utilizing one of the budget functions - the communication function, i.e. it will be much easier to communicate the budget to the constituency in the language of SDGs - that is exactly why I link it with the PBB as in essence SDG is just an umbrella framework for the budget programmes.

Anyway, to me this is an interesting challenge with benefits expected being much more than the costs associated with the introduction of the SDGs.

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