Six steps towards a financing strategy for a stable Sudan

In this blog Rachel Scott from OECD outlines a new methodology for developing finance strategies in fragile states.


 

By Rachel Scott

No business or start-up would ever develop a business plan without a budget and financing plan. And yet, this is too often what we do in development. This despite the fact the fact that in development resources are often scarce and key to the delivering success lies in answering crucial questions around financing. Specifically, how do we bring together international and national, public and private finance to provide the right amount of resources, using the right tools, at the right time, while putting in place the right incentives for stability?

Over the last year, the OECD-facilitated International Network on Conflict and Fragility – which brings together the key bilateral and multilateral actors working in fragile contexts – has been working on this question. The research has led to a methodology for developing finance strategies tailored to different fragile contexts, to be published before the end of 2017.

To turn theory into practice, we have looked at how this methodology can be applied to Sudan, where the financing strategy needs to be tailored to overcome significant challenges in order to create opportunities for a more stable future. In Sudan, there is already a multi-year humanitarian response plan, an UNDAF, and a Government of Sudan annual budget, each with different priorities and timeframes, and no doubt with different costing methodologies – making retrofitting a financing plan very complicated. But there are six concrete steps that can be taken that can make this financing strategy viable.

Step one: Commit to a financing strategy! And establish governance and coordination structures

Sudan’s financing strategy must be demand driven, so that synergies between financing flows can be sought in good faith, and unhelpful competition for resources can be avoided as much as possible. In Sudan, leadership by the UN Resident Co-ordinator, and facilitation by neutral parties with no “skin in the game” – the OECD and, in the early stages, the UN’s Multi-Partner Trust Fund Office, as well as enthusiastic participation by the UN Country Team and Government of Sudan, has been very useful in getting the process off the ground. This demand was cemented, in October 2017, through a UN MAPS mission to Sudan, that developed an implementation plan for the SDGs with the Government, thus providing a solid foundation for the financing strategy.

A multi-stakeholder platform to oversee the implementation of the financing strategy should now be set up. In doing so we will need to overcome challenges such as building trust – especially with the humanitarian actors – choosing inclusive chairing arrangements, and assigning a watchdog role, perhaps to local civil society.

Step two: Identify sources of financing

The financing landscape in Sudan offers many opportunities to support a stable future. Domestic financial flows could be increased, and also targeted more clearly at stability and the SDGs. Economic growth (est. 6% for 2017) could be further strengthened by addressing issues such as economic policy reforms, high population growth, the pegged exchange rate, high (but decreasing) inflation, the need to further diversify the economy and increase trade, and high taxation rates but low rates of tax collection. The level of domestic social spending is currently very low, and could be improved. Domestic private finance shows good potential, especially through public private partnerships, corporate social responsibility, and charitable giving through zakat, including under Sudan’s Zakat Chamber.

On the international front, the sanctions regime has led to an over-reliance on humanitarian assistance. International public flows are mostly grant-focused ODA, of which 76% is humanitarian, and the lack of predictability is a significant constraint. This has especially been the case for UN agencies, who have been unable to develop longer term plans without a clear view of where the financing would come from. The recent easing of economic sanctions may allow donors to access more developmental tools and financial instruments, although this will take time, especially for any eventual debt relief. The strong commitment to the humanitarian-development-peace nexus – under the New Way of Working model – could lead to useful programmatic and financial synergies, and there could also be useful links to climate finance. The contribution of private flows, for example remittances, to stability goals in Sudan, needs to be better understood. Only non-DAC donors such as the UAE and Kuwait are currently increasing funding levels.

Step three: Understand and forecast financing needs

The next step will be to cost the delivery of the SDG plan using results-based budgeting, rather than a list of projects and activities, and to set out a financing division of labour. For this, stakeholders will need to agree on clear criteria for prioritising programming and policy implementation – around relevance, impact, practically, and the clear targeting of those at greatest risk of being left behind.

Step four: Building contingent financing capacity for risk

The road to stability is always rocky. The risk of natural hazards and other shocks can pose major setbacks. The financing strategy will need to include contingent capacity and funding lines – both domestic and international – to help reduce exposure to these shocks and absorb any remaining risk. This should include measures to tackle the root causes of any remaining tensions in Sudan, and to promote reconciliation.

Step five: Develop a resource mobilisation plan

The resource mobilisation plan should involve matching financial tools and instruments to priorities, timelines and capabilities, and the financing architecture should be aligned to support results. In Sudan, in the short term, such a plan should capitalise on existing and pipeline ODA flows and any projected influxes of private investment that may follow the lifting of sanctions to design a strategy for making the most of investments made with remittances and increased domestic resources (tax) collection and allocation for social services, economic empowerment and the environment.

The financing architecture – including pooled funds – may also need to be recalibrated to create the right incentives for donors and the government to move beyond financing the social sectors to also financing peace and conflict prevention programming. Financing flows should also be used catalytically, for example to promote public private partnerships.

Step six: Establish indicators to monitor progress

Indicators and monitoring will help incentivise effective delivery of the financing strategy. In Sudan, discussions about the monitoring process are still ongoing, with preference for a mutual accountability system. This might look at progress on raising and leveraging all international and national, domestic and private financial flows, and review progress on necessary financial reforms and other issues that will provide key milestones towards economic progress and stability.

Next steps on financing for stability

The Sudan pilot has provided valuable learning and a useful reality check for the financing for stability work. INCAF will publish its policy paper and financing strategy guidance – taking into account this learning – in December 2017. Word is spreading, and there is already demand for financing for stability strategies in a number of other countries. Hopefully this will allow a much more effective approach to financing for these contexts and societies that are most left behind – the right amount of resources, using the right tools, at the right time, with the right incentives for stability.