Financing the Recovery: A Formative Evaluation of UNDP’S Response to the COVID-19 Pandemic and SDG Financing

Report Cover Image
Evaluation Plan:
2022-2025, Independent Evaluation Office
Evaluation Type:
Thematic
Planned End Date:
06/2022
Completion Date:
05/2022
Status:
Completed
Management Response:
No
Evaluation Budget(US $):
203,000

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Title Financing the Recovery: A Formative Evaluation of UNDP’S Response to the COVID-19 Pandemic and SDG Financing
Atlas Project Number:
Evaluation Plan: 2022-2025, Independent Evaluation Office
Evaluation Type: Thematic
Status: Completed
Completion Date: 05/2022
Planned End Date: 06/2022
Management Response: No
Corporate Outcome and Output (UNDP Strategic Plan 2022-2025)
  • 1. Output 1.1 The 2030 Agenda, Paris Agreement and other intergovernmentally-agreed frameworks integrated in national and local development plans, measures to accelerate progress put in place, and budgets and progress assessed using data-driven solutions
Evaluation Budget(US $): 203,000
Source of Funding:
Evaluation Expenditure(US $): 203,000
Joint Programme: No
Joint Evaluation: No
Evaluation Team members:
Name Title Nationality
Richard Jones Lead Evaluator
Oanh Nguyen,Camille Palumbo Associate Lead Evaluator,Evaluation Consultant
Gabriel Olila Research Consultant
Kevin Watkins Lead Consultant
Chandi Kadirgamar Evaluation Consultant
Neil Bird Evaluation Consultant
Javier Torres-Goitia Caballero Evaluation Consultant
Julian Clark Evaluation Consultant
GEF Evaluation: No
Key Stakeholders:
Countries: GLOBAL
Lessons
Findings
Recommendations
1

The UNDP Strategic Plan ‘moon shot’ to align over $1 trillion of public expenditure and private capital with the Sustainable Development Goals requires a clearly articulated strategic road map.

Spanning programme delivery and engagement, influencing and advocacy, the strategic road map should identify the distinctive approaches and added value of UNDP and set clear priorities backed by resource allocations. The objectives set in the strategic road map should be underpinned by practical and achievable approaches with the prospect of delivering results, and by metrics for accountable reporting on delivery. In framing the new strategic approach, UNDP should start from an assessment of how the organization can contribute to SDG financing in the three streams: domestic resource mobilization and efficient/equitable public spending; international public finance; and private capital markets, and not from a framework of delivery of the current toolkit, flagships and approaches.

Development of a successful development financing strategic road map to underpin the Strategic Plan would address many of the problems identified in this report, filling the large gap observed by the evaluation team between the headline goals that have been set and the wider organizational understanding of how the goals will be achieved. It would provide staff across the organization with a clearer picture of how UNDP plans to address the crisis in SDG financing. It would provide individual teams working to deliver projects with a clearer understanding of how they are contributing to a collective UNDP effort. It would provide a basis for explaining which countries, regions, tools and approaches are being prioritized. Above all, though, a development financing strategic road map would provide a vehicle for making the tough choices that will be necessary to deliver on the $1 trillion alignment commitment.

The development financing strategic road map would be entirely geared towards the Strategic Plan and the identification of pathways through which UNDP will drive delivery, detailing where UNDP will act, which competencies it will develop, how the Sustainable Finance Hub will work with countries and regions and which metrics will be used to measure the alignment of new and additional finance to the SDGs. It could usefully cover the three development finance streams considered in this report: domestic, international public finance and private capital.

The development finance strategic road map should reflect the urgency of the crisis. Developments over the next two to three years will determine whether the SDG ambition remains achievable. There is a shared ambition across the organization to leverage the impact and influence of UNDP and to achieve the $1 trillion ‘moon shot’. Leadership at headquarters, in regional bureaux and in country offices should agree on a small set of goals which, if achieved, would have transformative impacts, contributing to wider United Nations and international efforts. The Sustainable Finance Hub and the Strategic Policy Engagement Unit could then frame a delivery strategy for the Strategic Plan period.

The Strategic Plan’s integrated results and resource framework should accurately represent and track UNDP development financing goals. Greater clarity is needed on how new and additional financing will be scored for reporting purposes. Current approaches run the risk of allowing vague references to ‘leveraging’ to obscure real achievements and emerging challenges. Some of the issues to be addressed are technical. For example, what share of SDG bond issue financing will be scored as additional? In other areas there are questions of attribution. These might include the weighting attached to evidence of UNDP approaches being taken up more widely, or the UNDP role in contributing to changes in multilateral lending practices. In all of these areas, clear objectives can help to steer appropriate metrics.

2

As UNDP develops a more strategic approach to its Sustainable Development Goal financing work, it should also consolidate its many offers and tools to offer greater clarity and bolster staffing in strategic technical areas, breaking from project-aligned human resources and constraints, to resources aligned with demand and need.

UNDP has developed a broad and detailed offer in SDG financing, structured around seven strategic areas and 25 services delivering 128 tools. The provision of so many offers is distracting from the key tools that can support change. Moving forward under a new Strategic Plan and supporting an SDG financing strategic road map, UNDP will need to consolidate these offers to a smaller, clearer more strategic set of tools which will enable the organization to meet its strategic objectives. Suggestions on a strategic set of tools are outlined below, and include a suggested focus on clarifying further and adjusting the INFF approach, strengthening the organization’s offer on domestic resource mobilization, developing a distinctive sovereign bond offer and clarifying a financing offer around energy and NDC goals and support. The successful UNDP roll-out of the socioeconomic impact assessments has also illustrated its technical abilities and may be an area it can further expand on. In doing so, UNDP will also need to break from its project structure and reliance, and the alignment of technical support to areas funded by specific projects. In order to do this, more predictable and flexible resources from donors will be required. This is difficult, but at the least UNDP needs to make more regular resources available to enable the Sustainable Finance Hub to broaden its technical support to country offices either through the either the Hub structure or through the regional bureaux themselves. If this freedom is not available, then SDG financing support will continue to be supply-driven and linked to projects and project financing limiting the ability of the organization to meet the SDG financing goals across the three levers of International public finance, domestic resource mobilization and national finance, and private capital.

 

3

The integrated national financing framework approach should be further clarified to ensure that it can be embedded within government systems as an investment platform and not be seen solely as a budgeting exercise. The process should integrate and prioritize budget tagging and support for sovereign bond issuance, and strengthen equity in public finance.

It is difficult to establish the full extent of buy-in to the INFF process. As noted above, there are varied perspectives within UNDP and across partner organizations. Clarifying the purpose of the INFF might help strengthen engagement, adoption and integration of the approach within government systems. In the current Strategic Plan period, the INFF is unlikely to emerge as a significant new source of development finance, but it could play an important role in putting the SDGs front and centre of financial planning. The INFF structure and short-term financing (two years) of what is a medium-term to long-term approach will need to be addressed if the perception of the INFF being an external donor-led approach is to be overcome and its future assured as an important development financing approach that strengthens alignment of public and private financing with the SDGs.

The INFF approach should be broadened. Far more weight should be attached to equity and efficiency in public spending, consistent with the SDG commitment to leave no one behind. More effort should be made to link the INFF to wider exercises aimed at facilitating public engagement. Participatory budgeting should be established as a more prominent part of the INFF toolkit. The IMF has documented a range of public finance management practices for tracking, overseeing, reporting, and auditing COVID-19 budget lines, including the role of civil society, the media and independent parliamentary watchdogs. Many of these practices could inform SDG-related sustainable finance approaches.

The INFF needs to ensure it is strongly linked to other United Nations, UNDP and donor development finance approaches to ensure synergies are captured, beginning with concrete integration of the Climate Promise support for NDCs and their budgeting and financing needs into all INFFs.

 

4

UNDP should broaden its ambition on domestic resource mobilization. This should include a strengthened offer on taxation, considering advocacy and support for progressive taxation and targeted taxation support focusing on specific sectors where high-impact gains can be achieved.

Tax Inspectors without Borders is providing important support to Governments in specific policy areas and building capacity, but UNDP could be doing more to address systemic tax challenges. Evidence emerging from the programme could be marshalled to identify recurrent themes, common problems and good-practice solutions. This could help to inform advocacy and engagement through the United Nations Secretariat, UNDESA and other agencies.

UNDP and Tax Inspectors without Borders should consider a strengthened focus on tax evasion/ avoidance in the extractives sector. As noted in section 5, the IMF has identified transfer pricing and other tax evasion practices as a significant source of revenue loss in a large group of low-income countries. The same is true for many middle-income countries. Operating through a revamped Tax Inspectors without Borders platform, UNDP could work with the IMF bring their joint forces to bear on this long-standing problem. The initiative has a demonstrated capacity to deliver results. A strengthened focus on the extractives sector would require some reprofiling of competencies, but it would appear to offer a route to greater impact.

UNDP should consider framing a distinctive workstream on efficient and equitable public spending, building a small hub of central expertise on public finance and scaling up support for a small number of country programmes where the organization is positioned to drive results. The broad aim would be to release through efficiency gains additional finance for the SDGs, and to challenge public spending practices that fail to address deeply ingrained inequalities. A guiding principle in this context would be to encourage progressive universalism – the goal of extending greater levels of support and public finance to those who are being left behind. UNDP could partner with the CEQ Institute in Tulane University, UNICEF and – potentially – the IMF-World Bank in this endeavour.

As outlined in section 5, many countries have seen an increase in public expenditure demands in response to the pandemic, while seeing domestic resource mobilization decline. Demand for support from the Tax Inspectors without Borders will help to stem part of this fiscal gap.

 

 

5

UNDP should build on its initial experience in support to sovereign bond issuance and develop a distinctive offer on sovereign bond financing related to the Sustainable Development Goals, linking national reporting systems to strengthened reporting systems for environmental, social and governance investments.

Consideration should be given to the creation of a small sovereign bond financing team with a remit to broaden and deepen sustainable sovereign debt financing for the SDGs. The team would work with Governments, country offices and United Nations agencies to identify compelling SDG financing propositions underpinned by credible budget tagging and reporting systems. Building on the lessons from best practice, UNDP could establish a standard for certification, reporting and delivering impact that is beyond the scope of current SDG bond certification entities. This would form a basis for dialogue with the key gatekeepers for SDG-related bond finance, starting with the credit rating agencies and investors and extending to regulators. Initiating that dialogue at a high level should be a priority for UNDP leadership and inform the UNDP strategy for engagement with the G20.

UNDP should shift its focus from standard-setting to the development of SDG bond frameworks backed by robust reporting systems. The bond frameworks provide an opportunity to engage with Governments and civil society on financing for the most urgent SDG priorities. Frameworks pitched at a high level of generality with weak reporting systems risk-limiting impact, encouraging greenwashing and deterring investment. Conversely, a compelling SDG-related offer backed by a credible reporting system could increase demand for SDG-related bonds among investors. This is a crowded playing field, but it is an area in which the experience and distinctive assets of UNDP could play a transformative role. That said, UNDP should also position its support to provide advice on the risks associated with debt sustainability related to bond issues and increasing indebtedness.

 

6

UNDP needs to build a climate finance offer around its considerable experience in delivering projects that de-risk and crowd-in climate investment. The aim to support access to clean energy for 500 million people will require a specific finance mobilization strategy to ensure that UNDP can deliver and leverage finance from other actors. Climate budget tagging work should be developed further and support for nationally determined contributions should be more integrated into the UNDP Sustainable Development Goal finance offer.

Progress towards the energy access goal has been particularly slow in sub-Saharan Africa, and the pandemic has pushed the region even further off track. Getting on track will require a surge in the provision of mini-grid and off-grid solutions, but this is an area marked by a weak pipeline of bankable projects, which in turn contributes to financing gaps. The right blend of private investment and concessional finance could close that gap by reducing risks, but developing that blend complex, time-consuming and marked by high transaction costs. Bottlenecks include fragmented planning systems and poorly framed regulatory systems. Platforms such as the African Development Bank Facility for Energy Inclusion are providing blended finance in the form of junior equity that anchors more commercially oriented investors, but even with intensive engagement disbursement rates remain low.

UNDP should set out how it will address these financing challenges. There are many areas in which the organization could make a difference, including technical advice on regulatory reform and the development of bankable projects. But the organization may need to strengthen the competencies that will be required in these areas. Given that most of the 500 million to be targeted live in sub-Saharan Africa, the organization needs to set out how it will resource efforts in specific countries, both through its own efforts and by leveraging resources through UN-Energy.

An important consideration in the planning process is timescale. In effect, UNDP has taken on the challenge of linking two thirds of the world disconnected people to energy in a four-year period. This will not be achieved without a dramatic acceleration of progress and a concerted drive to reach some of the world’s most marginalized people and communities. Project-based approaches may take the world some of the way towards the goal, but energy-related projects are notoriously marked by time lags and slow delivery – and the record on scaling-up success stories is mixed. UNDP should therefore set out how and where it will seek to leverage its project experience to drive wider results.

Domestic resource allocation will be key for climate finance and the INFF process along with the continuation and integration of climate budget tagging stands out as an area of work that will need to be embedded and continued going forward to ensure national financial allocation decisions are relevant to climate change. The integration and linkage of country-level NDCs with the INFFs will also be needed to ensure climate commitments are adequately financed. Climate budget tagging is also strongly linked to the support to sovereign bonds with a climate focus, funding climate and green projects, and the monitoring and reporting of climate impact.

 

 

7

UNDP should seek to play a stronger and more strategic advocacy role in influencing development finance policies through its engagement at global level with multilateral agencies and intergovernmental forums, and at national level through engagement with Governments.

UNDP should outline a small number of bold policy change priorities which are widely understood across the organization. This does not imply that UNDP should retreat from its wider agenda, but within this agenda, the organization should identify a small number of ‘big wins’ that it will seek to achieve in areas where it holds specific competencies. This evaluation suggests several areas for consideration and strengthening of ongoing work, including more equitable public spending and progressive taxation (domestic resource mobilization); changing the lending practices of multilateral development banks and SDR allocation arrangements; and the alignment of sovereign bond markets with the SDGs. These are all areas in which UNDP is well placed to leverage through policy change the financial resources needed to achieve the Strategic Plan goals.

While a focused strategy would narrow some aspects of the current approach there are also risks associated with a broad spectrum of activities. One of those risks is that the limited UNDP human and financial resource base will respond to waves of demand from other agencies that may not be strategic. This is evident in current operations.

Once a strategic agenda has been set, UNDP should align its resourcing with the objectives. This should include the identification of specific countries and approaches that will be prioritized, and the alignment of the organization’s influencing and agenda setting capabilities – including publications, the Administrator’s interventions, engagement with key actors – behind the objectives. For illustrative purposes, the Human Development Report team might be asked to consider taking up the reform of multilateral development finance, or the development of SDG-aligned private capital markets as future issues.

The organization could strengthen its substantive policy influencing work in an expanded Strategic Policy Engagement Unit with strengthened links to regional bureaux and country offices. UNDP should seek to ensure that its policy influencing in development financing addresses global challenges, but with a strong grounding in country experience and evidence. An expanded Strategic Policy Engagement Unit, linked to the Sustainable Finance Hub, should develop strategies to steer UNDP engagement on domestic resource mobilization, international public finance and private capital market alignment with the SDGs.

 

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