The growing complexity of the international financing landscape calls for a more holistic approach to assessing the needs and options for financing sustainable development in developing countries.
The assessment and diagnostics building block aims to expand upon traditional needs assessment models to provide a complete picture of national financing needs and available financing sources, as well as the challenges and risks countries face when financing their sustainable development. This building block is the first step in matching appropriate financing flows to the long-term development objectives outlined in a country’s national development plan.
The main components of the assessments and diagnostics building block are expanded upon below. While all four components should be undertaken by countries developing INFFs, the scope and form of these components will depend largely on individual country contexts.
The aim of a financing needs assessment is to estimate the cost of implementing national sustainable development priorities. It provides an approximation of future spending needs and, alongside an assessment of current financing trends, helps countries determine their financing gaps. This assessment can be used to inform resource mobilisation targets, engage development partners and match finance types with planned investments. Financing needs assessments are a key input into public budgeting as well as longer-term processes related to national sustainable development planning and Sustainable Development Goal (SDG) implementation.
A wide range of risks – both financial and non-financial – can affect a country’s ability to finance sustainable development outcomes. In a global context where shocks are increasingly frequent, financing policies must be risk-informed to be sustainable.
Assessing risk involves (i) identifying the country’s biggest risk factors, and (ii) ensuring that financing decisions and reforms are informed by an understanding of the potential future costs associated with these risks.
Adopting a risk-informed perspective to financing national development can enable policymakers to increase the time horizon of financing plans and can encourage forward-looking development planning. Risk assessments can also be used to make a case for investment in disaster risk reduction and resilience building within national budgets.
Countries face a range of constraints – including capacity constraints, institutional weaknesses, market failures and policy gaps – that impede financing for sustainable development. Identifying these constraints is a critical step towards developing policy actions or reforms that address existing bottlenecks.
However, in developing countries, constraints are often complex and far-reaching, making it difficult to tackle all constraining factors at once. In light of this challenge, the INFF approach focuses on those constraints that are binding – the constraints that, if lifted, would have the biggest impact on improving the availability and management of financial resources. Narrowing the scope of the policy and institutional assessment helps countries prioritise and sequence constraints to determine which financing policies should be addressed first when developing the financing strategy.
The Inter-agency Task Force on Financing for Development has developed a series of guidance documents to help countries develop and implement their INFFs. Guidance materials on the assessment and diagnostics building block will be available by fall 2020.
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