A financing strategy sets out a set of sequenced actions to finance national development strategies and goals, and mobilise and align financing with national priorities. First, it matches needs assessments to specific resources, such as public revenues, aid and private financing where appropriate (e.g. project finance). Second, it addresses constraints to aligning a broader range of public and private financing resources with sustainable development.
To this end, the financing strategy brings together financing policies, instruments and regulatory frameworks. For example, medium-term revenue strategies (MTRSs) and medium-term expenditure frameworks (MTEFs) help address public finance challenges; financial sector development and financial inclusion strategies and related efforts help countries build a bridge between financing policies and the longer-term objectives of the national development plan.
The financing strategy also promotes coherence between and among these different strategies and public and private financing policies and instruments – e.g. by ensuring that tax and investment policies are not conflicting; or that macroeconomic, trade and technology policies jointly reinforce overarching development priorities.
Aligning public expenditures with sustainable development strategies, and raising additional public resources, is often a central aim of integrated financing frameworks. Many countries prioritise efforts in this area, and a wide range of existing experiences can inform them. A challenge in public policymaking can be short-term decision-making. Medium-term expenditure frameworks, which have been introduced in many countries since the 1990s, and medium-term revenue strategies, a much more recent concept, both facilitate multi-year budget planning.
Many priorities expressed in national sustainable development strategies will require private action, including additional long-term private investments and greater alignment of private business practices with sustainable development. Countries have adopted a wide range of policies to channel private investments to priority areas – investment policies to incentivise and attract foreign investment, reforms to improve the overall enabling environment for business development, and many others. Alignment of these policies with the broader sustainable development strategy is a key success factor in implementation. INFFs offer an opportunity to assess – and, if necessary, increase – policy alignment and coherence.
Many countries have adopted financial sector development strategies and financial inclusion strategies. These strategies are important in identifying and overcoming financing gaps and binding constraints, such as the lack of access to finance for small and medium-sized enterprises (SMEs).
Many countries have adopted national development cooperation policies to increase the coherence and effectiveness of development cooperation. They are increasingly covering a broader scope of resources beyond official development assistance, underscoring the need for coordination with other areas of finance. By enhancing coordination between different ministries and different levels of government, INFFs could further facilitate the active engagement of all parts of government in the implementation of development cooperation policies.
The global enabling environment shapes financing options for national governments, and thus has a significant impact on INFFs. Addressing the challenges in the global enabling environment requires multilateral action. Nonetheless, there are a range of actions that governments themselves can take, within the framework of the financing strategy, to better manage external risks. This does not replace the need for global action, but it does allow governments to better plan within an increasingly challenging global environment. Policy actions include trade and technology policies; debt management strategies; science, technology and innovation roadmaps; capital account management techniques; regulatory frameworks for the financial sector; and commodity stabilisation funds.
The Inter-agency Task Force on Financing for Development is developing a series of guidance documents to help countries develop and implement their INFFs. Guidance materials on the financing strategy building block will be available by fall 2020.
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