Assessment and diagnostics: Financing needs

Financing needsFN assessments estimate the cost of implementing national development priorities. Together with findings from the financing landscape assessment (the ‘supply side’), they can be used to develop resource mobilization targets, as a first step toward linking planning and financing processes and developing a financing strategy. Financing needs assessments can also deepen the understanding of the interventions needed to achieve development priorities and serve as a reality check on national development strategies.

In practice, financing needs can be assessed in different ways. Quantitative costing methodologies range from macro, top-down costing exercises (to establish an estimate of overall financing requirements for a national development plan, or to determine the cost of achieving global goals) to activity-based, detailed bottom-up calculations (to prepare annual budgets, determine relatively short-term or intervention-specific sectoral needs, or for project finance). Such quantitative costing exercises can inform budgeting and planning at the sub-national and national, sectoral or economy-wide level, as well as around cross-cutting priorities such as gender equality. They also inform regional and global policy processes (see Table 1).

Many countries already regularly assess financing needs in the context of public budgets, for example, when developing annual and multi-year government revenue and expenditure plans. Some countries have taken additional steps in recent years to develop broader assessments of medium- and long-term financing needs for achieving the SDGs. Such broader assessments also consider the role that non-public finance can play in fulfilling development financing needs but may now be out-of-date due to the impacts of Covid-19.

Not all countries may deem a full, detailed financing needs assessment necessary. In these instances, more informal approaches could be considered, such as qualitative considerations of the financing context that would have to be in place for specific outcomes to materialize (see practical experience with less formal approaches in Section 5).

This guidance note introduces the main costing methodologies and collates tools and experiences from domestic and international actors who have undertaken financing needs assessments. It guides practitioners in applying them in the context of integrated national financing frameworks, and thus puts special emphasis on integration across sectors, policy priorities and financing options, medium-to long-term perspectives, on addressing risk, and on addressing sustainability in all its dimensions.

Financing needs assessments carried out in the context of INFFs can support countries toFN :

• Inform resource mobilisation strategies, by providing targets for financing policies;
• Strengthen planning, by providing an approximation of future spending needs, which could serve as a reality check on national development strategies;
• Prioritise allocation of public finance;
• Identify priority areas for private sector investment;
• Enhance engagement with development partners and other non-state actors on financing priorities and elicit their expertise and insight on challenges and constraints;
• Provide insight on bottlenecks to progress and/or misalignment between spending allocations/ investments and national development priorities (see also building block 1.2 on financing landscape assessment and building block 1.4 on binding constraints analysis);
• Strengthen accountability and enhance transparency in resource allocation.

Clear policy objectives are a prerequisite for useful needs assessments. ‘For what?’ should always accompany the question ‘how much is needed?’ The types of objectives to be costed, e.g. as formulated in a national strategy or plan, and their country-specific contexts must guide the selection of the most suitable methodology and the scope of the exercise.

The value of financing needs assessments also depends on the quality and realism of assumptions that underpin them. Macro-economic projections and policy choices – which are at the basis of production functions and models used to estimate costs – influence financing needs. As the COVID-19 pandemic and recent large-scale climate-related disasters have shown, growth trajectories and development pathways can be interrupted or inverted in a matter of weeks due to external, unexpected shocks or unassessed disaster risk. In a global context of increasingly frequent crises, costing approaches that are unable to consider flexible policy or growth scenarios and risk will be of limited value.

For this reason, financing needs assessments can be most valuable when considered as part of regular and ongoing national policy processes, rather than one-off, resource-intensive exercises. Investment needs should be revisited regularly as part of ongoing financing and risk landscape scanning, with guiding assumptions and projections updated. This should not require setting up new processes and systems; countries likely have relevant policy and planning processes in place, and development partners can provide targeted support.

The type and scope of costing exercises will depend on where a country is in its planning cycle, its respective needs, and available capacity (more on the latter in Section 5). Countries drafting their national development plans, or updating them to respond to the Covid-19 pandemic, may find it useful to map financing needs across all priority areas. If the national development plan is already costed, a mere check of whether costings could be improved (e.g. whether it remains valid in the context of Covid-19, and whether it fully incorporates sustainability considerations, gender equality, leave-no-one behind or other SDG-relevant considerations, see suggested approach in Section 4) or adjusted (if conditions change) may suffice.

The scope will also depend on policy objectives. When considering the financing requirements of an entire development plan, financing needs assessments cover a wide range of activities that are funded by public and private sources, and should thus consider all types of finance, beyond public resources, as well as synergies and overlaps between sectors, risks and potential shocks. They will also involve a wide range of stakeholders, across different sectors and expertise areas. At the opposite end of the spectrum, when considering the cost of a particular project, activity or intervention, financing needs assessments will be narrower in scope, involving a smaller range of actors, depending on the sector.

In the context of INFFs, financing needs assessments can be undertaken at various levels with different timeframes. Figure 1 illustrates major categories, such as costings for annual public budgets (detailed, with short timeframes), costings for major projects, such as investments in resilient infrastructure (which may go beyond public finance, e.g. PPPs), costings for medium-term public investment plans and long-term public investments, and costings for sectoral or national development plans (which may involve a role for both public and private financing).

The desired scope will determine the choice of methodology (see Figure 3 and Table 2 in Section 4, which provides an overview of methodologies and their respective strengths and limitations). Challenges around data availability and capacities (Box 2) should also be considered.

Drawing on lessons from both countries and international organisations that have undertaken and supported financing needs assessments to date, as well as available tools and methodologies, Figure 2 sets out a suggested step-by-step approach for financing needs assessments in the context of an INFF. Sections 4.2 and 4.3 set out typical data sources and existing tools that countries can draw on.

This approach will be most effective if it is an iterative and highly inclusive process. Costings may need to be revisited and updated when underlying assumptions are no longer valid (e.g. when the global context changes, assessed risk considerably changes, and in case of external shocks and disasters such as Covid-19), or when priorities or policies change.

Step 1: Setting out the scope

The first step is to clarify the purpose of a potential costing exercise, to ensure that the choice of methodology is grounded in what’s needed – both in terms of scope and investment of resources.

If the purpose is to assess financing needs for a national strategy or plan, then methodologies should enable a medium- to long-term perspective, and account for synergies among development outcomes. Such approaches provide high-level estimates. Sector-specific costings, or costings that involve a limited number of priority targets, provide a more detailed picture of needs, as do needs assessments for particular projects or programmes (Figure 1 in Section 3 illustrates the range in scope of costing exercises).

If a comprehensive costing is not feasible or desirable, tools can help to prioritize high-impact or highly interlinked targets and outcomes. These include network analysis tools, such as the Institute for Global Environmental Strategies (IGES)’ SDG Interlinkages Analysis and Visualisation Tool, through which the ripple effects of achieving certain targets can be determined and synergies and trade-offs considered; or dynamic models, such as the Millennium Institute’s iSDG model, which allow users to explore interlinkages between targets or outcomes and to also simulate the impact of particular policies into the future – across different outcome areas and at a system-wide level. ESCWA developed an interactive econometric optimization tool that captures the efficiency gains that can accrue from harnessing SDG interlinkages. Starting from any given user-defined SDG costing assessment, the tool estimates potential synergies and renders revised SDG cost estimates that factor in the gains from sequenced financing decisions that account for SDG interlinkages. The UN Mainstreaming Acceleration and Policy Support (MAPS) may have already identified priority areas critical for progress toward sustainable development outcomes and for which costing may be most needed.

Consultations with key stakeholders can help ensure that both past costing exercises (successes, challenges and findings) as well as current needs are reflected in the choice of methodology and in the resulting estimates. Perspectives and experiences of those who are often invisible in national accounts, such as women and those doing unpaid work, would be particularly valuable in this context. Table 1 in Building Block 1 Assessments and Diagnostics: Overview, provides a list of relevant stakeholders that should be considered.

Step 2: Choosing a costing methodology

Costing tools are typically based on one of four main methodologies: bottom-up unit cost approaches; historical trends approaches; top-down unit cost approaches; and modelling approaches. The first two are most suited for operational level budgeting, while the latter two for broader planning purposes, as they yield more macro-level estimates that can inform longer-term plans. Figure 3 visualizes this choice, while Table 2 further summarises the methodologies’ respective characteristics and limitations.

• Unit cost-based methodologies – both bottom-up and top-down – break down what needs to be costed into units or ‘cost drivers’. These can be as detailed as specific inputs needed to undertake a particular activity (for example, the cost of specific fertilisers); or they can refer to entire interventions (for example, the cost of providing fertiliser to farmers across the country). Unit cost-based methodologies define selected outcomes as a function of cost drivers (using proxies in the case of top-down approaches and actual inputs in the case of bottom-up approaches) and estimate financing needs based on that. Bottom-up unit cost methodologies – such as the ingredient-based approach used in the OneHealth tool illustrated in Box 3 – can be useful to assess more specific financing needs in particular sectors down to the programme and activity-level and over short- to medium-term time horizons. Top-down unit cost methodologies – such as the IMF’s input-outcome approach illustrated in Box 5 – can be useful to set long-term targets for resource mobilisation. 
• Historical trends-based methodologies – such as that illustrated in Box 4 – use past spending figures to estimate future costs. They are mainly used to estimate expansions or continuation of already ongoing activities and programmes, as they cannot incorporate new cost drivers.
• Modelling-based methodologies tend to be the most complex and data intensive. Similar to top-down unit cost methodologies, they are not used for operational level costing purposes as they provide high-level estimates of financing needs. They are used to estimate back-of-the-envelope aggregate costs for particular outcomes – see for example Box 7; or to assess financing needs under different policy scenarios and consider synergies and trade-offs across sectors and policy options – as illustrated in Boxes 6 and 8. Different models can also be combined to provide a more integrated and comprehensive picture of the linkages between sectors and interventions. Such integrated assessment models are widely used in energy, environment and climate research. For example, UNESCAP applies a framework which combines two models (a general equilibrium model and a sector-specific model) to estimate the investment needs for resource efficiency interventions (SDG targets 8.4 and 12.2), simulating policy impact across the whole system.FN Modelling-based estimates are sensitive to underlying assumptions. Scenario analysis and regular revisions of underlying economic and other projections are important components of such costing exercises.
  

The international community also offers a multitude of sector-specific costing methodologies and tools. They are grounded in the basic methodologies set out in Figure 3 and Table 2 but incorporate sector-specific considerations. Boxes 3, 6 and 8 illustrate examples of some of these, related to health, energy and land use respectively. A more comprehensive list is included in Table 4 (see Section 4.3).

Some sectors and thematic priorities are more easily quantifiable than others. For outcomes where interventions are not standardized or cross-cutting in nature (such as reduced poverty and inequalities or strengthened governance and institutions), detailed bottom-up costing approaches may be less suitable. Top-down or modelling-based costing approaches can provide ball-park estimation of needs. For example, growth models can be used to estimate economy-wide investment needs to achieve desired poverty reduction outcomes. Alternatively, as done in Bangladesh’s SDG financing strategy, costs can be estimated by determining the financing needed to adequately resource relevant institutions. For example, to estimate the cost of achieving SDG 10 (reduced inequalities), Bangladesh identified key ministries whose overall budgets would need to be scaled up to achieve relevant targets. Similarly, in relation to SDG 16 (peace, justice and strong institutions), it allocated a lump sum to institutional reform along with recurrent budget allocations to relevant government agencies and departments such as the police force, prisons and courts.FN

The choice of methodology and interpretation of results should also be mindful of other limitations and challenges:FN

• Sensitivity to underlying assumptions: changes to production technologies and the policy and economic environment, both nationally and globally, cannot be fully known but may significantly impact costs; similarly, economic and non-economic shocks may derail growth prospects and thus significantly affect spending needs. Scenario-based approaches could provide a more robust analysis and facilitate better planning as well as more efficient and effective financing strategies.
• Synergies and trade-offs: possible synergies/ co-benefits and trade-offs between different policy objectives or sectors are not always captured, particularly in bottom-up and sector-specific exercises, meaning that aggregate estimates of cost can be inflated.
• Policies and institutions: costing methodologies are able to account for factors such as absorptive capacity and spending efficiency only to a limited extent.
• Leaving no one behind: financing needs assessments may struggle to consider distributional implications and additional costs to reaching the poorest and most marginalized people.

Step 3: Calculating ‘sustainable development-proof’ cost estimates

While there are inherent limitations to costing exercises (see above), practitioners have found ways to address them. They include: considering different scenarios, risks and potential financial returns to ensure cost estimates are forward-looking; accounting for all dimensions of sustainability, including environmental aspects and the leaving no one behind principle; and accounting for synergies across outcome areas, sectors and activities.

a) Accounting for different scenarios, risks and potential financial returns

Growth shocks, natural and man-made hazards, and other events outside a country’s control, such as Covid-19, as well as changes in policy direction or development priorities can impact cost estimates. Financing needs assessments, especially those used for long-term planning and target setting, should thus incorporate scenarios and flexible forward-looking assumptions,FN e.g. through policy simulation models. Exploring multiple scenarios also allows for the identification of possible trade-offs between objectives and inform policy decisions (e.g. see Box 6).

The risk assessments module (see building block 1.3) provides an overview of the main types of risk that can affect the country’s financing for development efforts, including their potential financial consequences. This analysis can inform a balanced perspective on prevention/ preparedness and response costs. By taking such a risk-informed perspective, INFF costing exercises strengthen resilience and help minimise the economic (and human) impacts of potential shocks, disasters and crises. Box 9 illustrates how Nepal’s SDG costing took the country’s proneness to earthquakes into account.

Some interventions and investments (e.g. infrastructure investments or investments to protect ecosystems) generate future financial benefits, be they new/ expanded fiscal revenue streams or future savings/ avoided costs. Taking these second-round benefits into account avoids inflating their ‘real’ and long-term cost to the government. Intertemporal balance sheet analysis can help policy makers build a more holistic picture of the actual cost of identified interventions.FN

b) Accounting for sustainability

The principle of leaving no one behind underpins the SDGs. It should guide the articulation of interventions and policies and be taken into account in costing exercises. For example, the poorest and most vulnerable people are also most likely to be hardest hit by economic shocks and disasters, impacting recovery costs. Further, it is essential to ensure costing efforts account for the gender differentiated impacts of particular interventions. Box 9 illustrates how leaving no one behind was considered in Nepal’s SDG costing exercise.

The UN framework for assessing who is being left behind (illustrated in Figure 4) may be useful to guide the identification of most-at-risk populations and to inform revisions to cost estimates accordingly. For example, if populations living in remote areas are at risk of being left behind, then infrastructure planning and costing should be adjusted to benefit them. 

Other elements of sustainability, especially the potential impact on the environment and climate change, should also be considered. As mentioned in section a) above, looking at different scenarios can help policy makers to ensure that alternative, greener interventions are considered when costing actions needed to implement identified national development priorities. Higher set up costs, for example in relation to renewable energy generation solutions, may be offset by lower maintenance and operating costs resulting in long-term savings as well as positive environmental impact.

c) Considering synergies across outcome areas, sectors and activities

Harnessing synergies both within and across sectors can reduce total financing needs and maximise the impact of investments. There are several costing approaches that account for such synergies.  

The synchronisation method adopted by Bangladesh in its 2017 SDG Financing Strategy provides an example of how overlaps across outcome and action areas can be avoided. By considering the SDGs as a network of interrelated targets, the costing approach allows interventions that apply to more than one goal to only be costed once. Figure 5 below illustrates the result of this process. ‘Own’ cells represent the cost of individual SDGs while ‘Syn’ cells show where costs for individual SDGs have been adjusted to take into account overlaps with other goals. Looking at overall SDG costs in this way allows policymakers to more easily spot where savings can be made by ensuring synergies are taken into account. 

Similarly, the OneHealth Tool introduced above (see Box 3) enables users to identify activities or inputs that apply to more than one health sub-sector and to only cost them once. For example, the cost of facilities, logistics and human resources is only counted once in the health systems modules, and not repeated in the programme-specific modules. In addition, mechanisms are built within the tool to ensure integration of cross-cutting activities, such as training programmes that cover multiple conditions.

At a more systemic level, and as mentioned in step 1 above, dynamic modelling and network analysis tools such as the Millennium Institute’s iSDG model and IGES’ SDG interlinkages analysis and visualisation tool, can help policy makers identify which policies or interventions could have the largest spill-over effects beyond their specific area. Costing efforts could then be focused on estimating the investments required to implement these. This would be of particular use in instances where the objective of the costing exercise is to establish high level financing needs estimates or targets for achieving highly interlinked goals and targets, and where quantifying the cost of any of them in isolation is unnecessary.     

Step 4: Considering financing gaps and how to fill them

Combined with the analysis of a country’s current financing landscape, which sheds light on the potential of different types of finance to contribute (based on current and forward-looking trends), cost estimates can help establish financing gaps to be filled (see building block 1.2). They are a first and key input to guide articulation of a financing strategy (see building block 2).

Data availability and quality will be an important determinant of the quality of cost estimates. Table 3 provides a list of typical sources of data and information which countries can draw on. It includes international databases, which countries can make use of should there be gaps in nationally collected data.

This section provides an overview of existing costing tools from the international community. For ease of reference, they are categorised by their main application and use (e.g. whether they are most useful for operational budgeting or for longer-term, strategic planning and decision-making) and by SDG areas/ sectors.

Short-term operational budgeting tools

ILO Social Protection Floor Calculator
Development outcome area: SDG 1/poverty 

The ILO Social Protection Floor Calculator enables estimation of the costs of child and orphan allowances; maternity benefits; public works programmes for those without jobs; disability and old-age pensions. 

OneHealth Tool 

Development outcome area: SDG 3/ health

The OneHealth Tool is a unit cost-based approach used to estimate required investments for both specific programmes and diseases and broader health systems strengthening and service delivery. (More detail in box 3). 

UNICEF Community Health Planning and Costing Tool

Development outcome area: SDG 3/ health

The UNICEF Community Health Planning and Costing Tool is an excel-based open source tool to support planning and costing of community health services packages, including new additions or changes to or geographical expansion of existing packages. It combines bottom-up and top-down unit cost-based methodologies. At the service level, unit costs are based on the type of resources (e.g. medicines) multiplied by the total estimated volume required to implement specific activities. Other costs, such training, are allocated using a top-down methodology. 

Brookings Standardized Early Childhood Development (ECD) Costing Tool (SECT) 

Development outcome area: SDG 3/ health (early childhood development); SDG 4/ education   

The Brookings Standardized Early Childhood Development (ECD) Costing Tool (SECT) is a unit cost-based tool which users can customize according to their needs to compute the costs of the full range of ECD interventions including exclusive breastfeeding, parental education and preprimary education. Costs included in the tool are divided into three categories: overhead costs; direct costs; and imputed costs.    

UNESCO Simulation for Education (SimuED) Model

Development outcome area: SDG 4/ education

The UNESCO Simulation for Education (SimuED) Model is a downloadable excel-based simulation model that covers every sub-sector in education; it can be configured to reflect country contexts. In addition to supporting the estimation of resource requirements, it can be used to project selected SDG4 indicators to facilitate policy and planning processes.    

UN Women costing approach for gender equality (presented in the 2015 Handbook on costing gender equality) 

Development outcome area: SDG 5/ gender equality

The UN Women costing approach for gender equality is a unit cost-based approach based on the experience of countries that have made efforts to estimate costs related to gender equality plans and strategies. Unit costs are considered at the activity level and include salaries, transportation, supplies, professional fees, per diem and administrative and overhead costs.

World Bank and UNICEF Sanitation and Water for All WASH SDG Costing Tool

Development outcome area: SDG 6/ Water and sanitation

The World Bank and UNICEF Sanitation and Water for All WASH SDG Costing Tool is a downloadable excel-based tool that can be used at national or sub-national level to estimate costs of meeting WASH targets. Users can input desired coverage targets and technology solutions with related unit costs and establish required investments and financing gaps.      

The International Energy Agency’s World Energy Model (WEM)

Development outcome area: SDG 7/ Affordable and clean energy; SDG 13/ climate action (climate mitigation)

The International Energy Agency’s World Energy Model (WEM) is an excel-based, dynamic policy simulation model that can be used to estimate investment needs for power generation under current and alternative scenarios. The difference in cost between business-as-usual scenario and a sustainable development scenario can also be used to estimate costs related to climate action. (More detail in box 6).    

Humanitarian response plans and appeals costing methodology

Development outcome area: SDG 16/ Peace and other thematic areas relevant in fragile contexts, including disaster and other sudden onset emergency responses

The Humanitarian response plans (HRPs) and flash appeals articulate how to respond to the affected population’s assessed and expressed needs in a humanitarian emergency. HRPs detail how country or context strategies will be implemented and how much funding is required; flash appeals are response strategies to sudden onset emergencies and outline funding requirements and needs over a three- to six-month timeframe. See also Figure 2.3 here.

Longer-term, strategic planning/ target setting tools

FAO Global Agriculture Perspectives System (GAPS) Model    

Development outcome area: SDG 2/ hunger and agriculture 

GAPS is a partial equilibrium model that provides country-level long-term projections of food demand and supply. It can be used to compute the required targeted GDP per capita and the associated price of agricultural goods in the equilibrium. See also here.    

International Food Policy Research Institute (IFPRI) IMPACT Model 

Development outcome area: SDG 2/ hunger and agriculture

The International Food Policy Research Institute (IFPRI) IMPACT Model is a partial equilibrium, multi-market model which simulates national and international agricultural markets. It facilitates examination of how alternative investment scenarios affect agricultural production, productivity and food security over the period 2010-2050, compared to a reference scenario.    

WHO-UNICEF Comprehensive Multi-Year Plans (cMYP) Costing and Financing Tool

Development outcome area: SDG 3/ health

The WHO-UNICEF Comprehensive Multi-Year Plans (cMYP) Costing and Financing Tool is an excel-based tool for costing immunization programmes and supporting the articulation of related multi-year strategies. It is based on unit costs (such as vaccines and injection supplies) and other recurrent and capital costs, and enables users to, among other things, project future costs and resource requirements to achieve programme objectives.  

Cost Effectiveness Analysis (CEA)

Development outcome area: SDG 3/ health (but can be applied to other areas such as education and environmental services)

The Cost Effectiveness Analysis (CEA) is used to compare one intervention to another (or the status quo) by estimating how much it would cost to gain a unit of health outcome (such as one year of life gained or one death prevented).  

Levy Economics Institute of Bard College Methodology for costing gender equality and women’s empowerment

Development outcome area: SDG 5/ gender equality

Levy Economics Institute of Bard College Methodology for costing gender equality and women’s empowerment is used for estimating the investment needs to implement interventions that are either directly aimed at reducing gender inequality and empowering women, or ones that are designed with other primary aims but can nonetheless promote such objectives. It builds on a unit cost-based methodology developed by the UN Millennium Project and focuses particularly on low income countries.    

International Water and Sanitation Centre WASH Cost calculator app

Development outcome area: SDG 6/ Water and sanitation

The International Water and Sanitation Centre WASH Cost calculator app is used to choose between interventions at the district level. Follows the life-cycle cost approach (LCCA), which comprehensively identifies and analyses the full costs of delivering WASH services at the desired level and standard, including infrastructure and both direct and indirect support.

World Bank costing approach for WASH (as set out in 2016 report ‘The costs of meeting the 2030 sustainable development goal on drinking water, sanitation and hygiene’)

Developing outcome area: SDG 6/ Water and sanitation

World Bank costing approach for WASH is a unit cost-based approach applied to 140 countries, mostly LICs and MICs, to estimate the cost of meeting basic/ safely managed WASH services. It assumes that additional population, based on population growth projections, will not have basic WASH coverage; it also assumes that wealth quintiles with lower coverage will be reached at a faster rate to achieve universal coverage. Lower and upper cost scenarios are provided. Due to paucity of cost data the results may underestimate the true costs especially those for delivering services to the hardest to reach ('last mile' population). Results can be disaggregated by urban/ rural and different income quintiles.    

World Bank costing approach for infrastructure (presented in the 2019 book ‘Beyond the Gap: How Countries Can Afford the Infrastructure They Need while Protecting the Planet')

Development outcome area: SDG 6/ Water and sanitation; SDG 7/ Energy; SDG 9/ Infrastructure

The World Bank costing approach for infrastructure is a combination of unit cost-based, partial equilibrium models and other sector-specific methodologies. It provides a framework for decision makers at the country level in the area of infrastructure. The framework includes identification of policy objectives and metrics to monitor progress. Policy or investment options are stress-tested to identify conditions under which the infrastructure system will fail to meet objectives, and to encourage open discussion around potential strategies and trade-offs (e.g. growth vs equality, growth vs environmental sustainability). The methodology is applied to four infrastructure sub-sectors (WASH, power, transport, flood protection), with estimates presented as ranges depending on different policy and technology choices and scenarios.

UNDP biodiversity costing approach (BIOFIN)

Development outcome area: SDG 14/ Marine and coastal ecosystems; SDG 15/ Biodiversity

The UNDP biodiversity costing approach (BIOFIN) is a unit cost-based approach used to assess financing needs related to achieving the Aichi biodiversity targets and to implement national biodiversity strategies and action plans. Unit costs are based on government norms and on economics and biodiversity literature – with the latter being particularly useful to cost action areas such as reforestation, coral reef reforestation and seagrass reforestation. Investment need estimates are refined via expert consultations and workshops to validate underlying models and assumptions before the detailed unmet finance needs are finalized.

The International Institute for Applied System Analysis’ Global Biosphere Management Model (GLOBIOM)

Development outcome area: SDG 15/ Land use, biodiversity

The International Institute for Applied System Analysis’ Global Biosphere Management Model (GLOBIOM) is a partial equilibrium model used to explore trade-offs and synergies around land use and ecosystem services. It helps policymakers understand and minimise land use and resource competition through more holistic thinking. It captures the multiple inter-relationships between the different systems involved in provision of agriculture and forestry products (e.g. population dynamics, ecosystems, technology, climate) and solves for the market equilibrium at which the sum of producer and consumer surplus is maximised subject to resource, technological and political constraints. (More detail in box 8).    

Financing needs assessments have to be adapted to widely different country contexts to adequately serve their needs. Key elements to consider include:

Articulation of desired outcomes or goals to be costed, data availability and quality. Not all countries will have established numerical targets or have identified the specific interventions. Similarly, quantity and quality of available data may limit the use of standard costing methodologies. International datasets may offer an alternative. Countries can also choose to adopt qualitative approaches. For example, when developing its INFF, the Solomon Islands decided against undertaking a full quantitative costing exercise on the basis of limitations in underlying data, and instead developed descriptive summaries of the financing context and trends that would be needed to ensure that identified objectives could be met. These were then used to help articulate the financing strategy alongside the quantitative analysis of current financing trends.

Capacity and resource availability. In addition to data, other key resources to undertake robust financing needs assessments include technical expertise, tools, time and financial resources. This is not only for the initial exercise when setting up an INFF, but for ongoing needs assessments to ensure estimates of need can reflect changes in both current and expected financing trends and policy. To take into account limitations in capacity and resource availability, governments may wish to adjust the scope of their costing exercises, focusing on a particular sector/ thematic area of particular priority or on a particular type of finance. Additionally, international development partners support may be sought to undertake the exercise.     

Key lessons from implementing financing needs assessments at the country level highlight the need to ensure a risk-informed methodology beyond financial risk, ownership and multi-stakeholder involvement. Involving relevant ministries closely in the costing exercise can broaden buy-in and facilitate effective use of findings. Involving independent experts can support in avoiding a siloed approach to multi-sectoral costing exercises.