Domestic Resource Mobilization for Development

Mountain village in Lesotho. Reverie Zurba/USAID.

Editor’s note: In an earlier post, we mentioned that while U.S. poverty-focused development assistance remains critically important as the world works toward the new Sustainable Development Goals (SDGs), there is now an increasing focus on domestic resource mobilization, a less traditional form of development assistance that seeks to enable partner countries to raise more of their own resources. Here, Steven Damiano introduces his new briefing paper on the topic.

By Steven Damiano, Bread for the World Institute

Developing countries face the challenge of raising sufficient resources to achieve the Sustainable Development Goals, an ambitious list of 17 goals and 169 targets that include ending hunger and extreme poverty, in an environment where wealthy countries have been unwilling to commit more money for development assistance. When the global community met at the Third Financing for Development Conference in Addis Ababa in July 2015, developed countries failed to make any significant new pledges of foreign aid. 

Instead, developing countries committed to raising more of their own resources for the Sustainable Development Goals through domestic resource mobilization (DRM). Developed countries committed to supporting these efforts. As part of its commitment, the United States pledged, through the Addis Tax Initiative, to significantly increase assistance that supports countries in mobilizing their own resources.

Domestic resource mobilization encompasses all the way in which countries can mobilize their own resources for national priorities. A wide range of public and private funding mechanisms and financial flows are considered part of DRM, among them tax revenues, natural resource revenues, remittances, funds from public-private partnerships, public bonds, and philanthropic gifts.

A recently released Bread for the World Institute briefing paper, “Domestic Resource Mobilization for Development: Ideas for U.S. Policy,” looks at how assistance for DRM could be part of a wider U.S. government effort to promote inclusive institutions and fiscal transparency in fragile and low-income states—the countries with the highest barriers to achieving the SDGs.

When government build inclusive institutions, respect human rights, and institutionalize the rule of law, they are more likely to be able to provide safety nets for their most vulnerable people and achieve the level of inclusive economic growth needed to lift more of their people out of hunger and poverty. Low tax revenues, illicit financial flows out of the country, and corruption pose barriers to such institutional development.

While U.S. and other donor support for countries that are low-income, fragile, or both should help them respond to all of these challenges, the briefing paper focuses primarily on the role of taxation. Ideally, a stronger tax system can encourage institutional development and more transparent governance, creating an economic environment that both encourages local businesses to invest their profits domestically and is more likely to attract foreign direct investment. The paper argues that the U.S. government risks leaving many countries behind on the path to the SDGs if it focuses only on countries with the most suitable operating environments.

The paper makes the following key points about U.S. support for DRM:  

  • Even with increases in Domestic Resource Mobilization, low-income countries will lack sufficient resources to achieve the Sustainable Development Goals. The United States should continue to support them through official development assistance, increase the funds available to strengthen institutions and administrative capacity, build civil society capacity, and support an enabling environment for DRM.
  • The U.S. government needs an approach to DRM that is appropriate for each country’s context. In fragile states, U.S. goals should be ensuring that tax collection is fair and transparent and serves to enhance, not weaken, government accountability for using public funds and providing public services.
  • The success of the Addis Tax Initiative depends on countries building equitable tax systems and using the resulting additional revenue to benefit poor people. U.S. aid for tax reform should help governments develop open budgets and measure how their tax and expenditure policies affect inequality.
  • Fiscal transparency helps create better enabling environments for DRM. The State Department could more heavily publicize its annual fiscal transparency review and make more information accessible about the methodology it uses to determine countries’ progress.

If the U.S. government uses the Addis Tax Initiative to take a wider approach to DRM as outlined above, it can help ensure that all countries have an opportunity to achieve the SDGs. However, if U.S. policies do not recognize the need for capacity building and pursue DRM only in countries that offer the most suitable operating environment, the U.S. government will miss key opportunities to help ensure that low-income countries and/or fragile states have both the resources and the capacity they need to achieve the SDGs. DRM for development has a role to play in ending hunger and extreme poverty by 2030.

Steven Damiano was a summer 2015 Crook Fellow at Bread for the World Institute.

Photo: Bringing government services to remote areas, such as this small mountain community in the mountains of Lesotho, requires both resources and creative, flexible approaches to using them. Reverie Zurba/USAID.

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