Domestic Resource Mobilization

Domestic resource mobilization must be elevated as a development priority

With the adoption of the Sustainable Development Goals (SDGs) and consensus document from the Financing for Development conference in Addis Ababa, both of which call for greater country ownership and sustainable financing for development, many agree that domestic resource mobilization must be elevated as a development priority. With the cost of implementing the SDGs estimated in the trillions of dollars, developing countries will need to rely more on their own resources. These are not inconsiderable. In 2012, for example, $7.7 trillion in taxes was collected in developing countries; at a regional level, countries in Sub-Saharan Africa collected over $500 billion in taxes in 2013, a total of ten times the official development assistance (ODA) for all of Africa. Financing for the SDGs must come from all available sources, including DRM, ODA, foreign direct investment (FDI), remittances, and private philanthropy.

The Addis Ababa Action Agenda (AAAA), adopted at the Financing for Development conference, pushed the 193 UN member states to reaffirm their commitment to stable and sustainable economic growth. Unlike the earlier FFD conferences, held in 2002 and 2008, the Addis conference focused on how ODA could be a catalyst for leveraging greater development finance rather than the main source. The AAAA endorsed the central role of DRM for developing countries to implement the SDGs supported by private sources of finance (FDI, remittances, and philanthropy). The Addis Tax Initiative (ATI), initiated by Germany, the Netherlands, the United Kingdom, and the United States, honed in on DRM and the potential that it holds for development. ATI’s members, over 30 countries and international development organizations, pledged to double total technical assistance for DRM and taxation initiatives by 2020 and increase their focus on DRM as a priority for development.

It is important to remember that DRM includes more than just taxation; broadly defined it is any source of revenue available to fund government actions, including fees on natural resource extraction, rent, tariffs, and other levies on the trade of goods. It can also include developing deeper local capital markets that would allow for lower lending rates and greater access to local currency denominated bonds. DRM can dramatically increase government revenue, allowing governments to fund development projects that best suit their priorities. The 17 SDGs and 169 sub-indicators require prioritization and planning, and while FDI and ODA may help developing countries partially finance these goals, with overall ODA budgets flat and FDI open to the whims of the market, aid recipients need a more stable source of long-term financing. A country’s own resources can and should fill that role.