Enhancing fiscal space and ensuring sustainable financing

The pandemic has worsened the budget balances of many economies, with expenditure increasing in parallel to significant reductions in the availability of public and private financing for SDG investments. The elevated public debt levels threaten debt sustainability and will keep fiscal space constrained. Fiscal sustainability is likely to become a serious policy challenge, with rising external debt and the shift in the composition of debtors from multilateral donors to sovereign bond markets, as well as increased share of non-guaranteed debt, leading to increased debt service burdens, possible contingent liabilities, and liquidity concerns. However, premature fiscal consolidation can delay recovery, and instead innovative policy actions are needed to create additional fiscal space. Domestic measures like curbing non-developmental expenditure in defence and fossil fuel subsidies, along with public-private partnerships, can reorient finances towards development. Tax reforms through more equitable direct taxation, strengthened administrative capacities, and taxation of intergenerational wealth and immovable properties can help reduce fiscal deficits. Enhanced public debt management with clear objectives and transparent frameworks, strong fiscal-monetary coordination, accountable offices, and better monitoring and reporting of data can lower costs and enable better risk management. Innovative finance mechanisms like thematic bonds, diaspora bonds, debt swaps, and in some cases, supplementing weak domestic financial markets with offshore public bonds, can generate much-needed finance for SDGs. Regional and International cooperation must be leveraged to accelerate financing for climate action, facilitate multi-stakeholder debt discussions, and combat tax evasion practices. ESCAP’s technical expertise and regional convening role can provide capacity building to member States and the necessary neutral platform for inclusive dialogue among sovereign debtors, creditors, and other stakeholders to discuss a way forward on these issues.