-The following is an extract from the Unlocking Investment and Finance in Emerging Markets and Developing Economies (EMDEs) World Bank program with James Brumby
The Domestic resource mobilization really involves all the resources that the country is able to rise itself. So for the most part that is taxation but it also includes non-tax revenue and what we see in developing countries is that the amount of tax for instance it’s raised is around seventeen percent of GDP on average where is in OECD countries the average is around thirty five percent. So that difference between seventeen and thirty five percent in a sense represents a massive opportunity for developing countries to access more resources from their own people and apply those resources to development objectives it far outweighs the amount of development assistance that can be provided from donor partners. Public expenditure efficiency is really about the conversion of allies resources into development results on the ground and what really matters for that is doing the right things and then doing the right things well. So that’s got an allocative aspect and then it has a sort of technical or productive aspect.
There are many examples of countries that have taken steps to increase resources for a domestic resource mobilization on the one hand and a war also spending that money better. So on the on the taxation side for instance El Salvador has increased their taxes a proportion of GDP from a eleven percent to fourteen percent through a combination of tax policies and tax administration efforts and that’s generally what we find we generally find you need to do things in terms of policy and in terms of administration to be successful.
Then on the spending side a lot of developing countries spend a large proportion of the budget resources on fuel and energy subsidies. Indonesia originally member of OPEC has always had a policy of a supposedly directing resources to protect the poor from rising energy prices. In fact the benefit of that policy has not been the poor in Spain the middle class and quite frankly the well to do. But in recent times Indonesia’s changed that policy and has reduced spending on subsidies from two point four percent of GDP to about point eight percent of GDP. The net result is that those resources have been released for other purposes. Part of that is in terms of managing the aggregate fiscal position making sure that deficits don’t get too large but a lot of the resources have been directed to improving the infrastructure in Indonesia and improving the access to that infrastructure.
So that’s a gain for the poor. So the major obstacles that typically stand in the way of improved public expenditure efficiency I think of in terms of three Cs their capacity problems issues around capture and then there can be issues around corruption. So with capacity we typically deal with that through technical assistance in the provision of advice and knowledge to strengthen country systems. We have a number of techniques for doing that. One is to apply a thing called the pace at which is a public expenditure and financial accountability assessment and that sort of diagnosis for countries with the problems. Capture and corruption they really political economy problems and I think we are seeing quite a lot of development and innovation in terms of the white countries deal with that. Brazil and the Philippines for instance have been very creative about bringing voices from the population into the questions about allocating resources.
Captured definitional is about whenever our interest capture the resources of the state so if you bring in voices of the population you tend to counteract that. Corruption is a multi-faceted problem with saying strengthening anti-corruption authorities and a number of countries we also saying that backed with direct preventative measures and strong leadership in some countries which make clear that corruption is not an option. What are the consequences of the sustainable development goals in terms of the mystic resource mobilization and public expenditure efficiency? And ours is a different situation from what we had under the millennium development goals.
Well I think first of all the SDGS a much more comprehensive the much more challenging and it’s very clear that they cannot be achieved in developing countries with that very substantial mobilization of domestic resources. The second thing is if you’re looking to apply more resources in pursuit of development objectives there are other ways that you can rise funds. One is by spending the money better that SDGs crowds in resources for better policy so we mentioned the case before of fuel subsidies. This is a classic case of spending less on fuel subsidies more on direct provision signed health services education services or even cash transfers is a better way to move closer to the sustainable development goals. Now in the period between the MDGs and the SDGs the world I think it’s changed quite a lot.
One of the areas it’s changed is in terms of technology and practice. So in the area of technology and practice in particular on the tax side we’ve seen a concern for the ways that many large taxpayers have been able to really contrived or re direct their operations in a way to minimize their taxes in particular countries. So this makes the challenge for those countries much greater but it also means that the only solution to addressing that challenge is through improved collaboration and cooperation. So that’s exactly what we’re saying now an international tax that’s also what we are saying in the area of illicit financial flows the degree of cooperation and the application of technology to try and really muscle down on illicit financial flows in the past few years has really been quite remarkable. The other area I think that we’ve seen a lot of change practice is that citizens obeying boarding much more directly to questions about resource allocation and management.
So initially this came out of the idea of community driven development but now we are seeing in countries such as I mentioned before Brazil Philippines but in many countries we are seeing the voice provided to citizens to either influence local government resource allocation decisions or even central government and I think that that’s increasing the effectiveness of spending and holds great opportunity for the quicker achievement of the SDGs.