Sri Lanka has initiated the right reforms to enable the country to progress on achieving sustainable development, says Sustainable Development Council (SDC) Director General Chamindry Saparamadu, speaking on the progress Sri Lanka is making in fulfilling the United Nations Sustainable Development Goals (SDGs) and the country’s sustainable finance journey.
Saparamadu told The Sunday Morning that steps were also underway to ensure that the public financial system was aligned to sustainable development priorities, along with efforts to draw in private sector stakeholders into what needed to be a nationwide endeavour.
“Sri Lanka needs to look at and take sustainability, equity, and equality as a priority right now. In terms of a way forward, I think we have developed very good policies and plans and it’s now a matter of financing them. I think our policy frameworks, despite the fact that there are so many inconsistencies, are fairly rich,” Saparamadu added.
Expressing her satisfaction with the current trajectory of the country’s policy formulation process, she noted that the crisis had provided renewed urgency in terms of ensuring that Sri Lanka addressed long-awaited reforms necessary to drive sustainability.
In an interview with The Sunday Morning last year, you mentioned that we were faring relatively well compared to our Asian counterparts in meeting the 2030 Agenda for Sustainable Development. Over the past year, how do you think Sri Lanka has fared in achieving these SDGs?
The past year has been one of the most challenging years. Sri Lanka was recovering from Covid-19 and immediately had to confront issues relating to the economic downturn that followed. We also had to face the external global challenges of the Ukraine war, the energy crisis, fuel issues, high inflation, etc. While it has been a very difficult year, the crisis also provided an entry point to address some of the longstanding, pending structural reforms.
Therefore, in a way, this is a positive thing, because all these reforms have now been initiated and I believe they are progressing relatively well. The challenge is to stay focused.
In terms of SDG progress, 2023 marks the midpoint, because we endorsed the SDG framework in 2015. At midpoint, not a single country is on track to achieving the SDGs. Most countries in the Asia-Pacific region are not on track to achieving the SDGs, so Sri Lanka is not alone in that.
It is stated that at midpoint, at the current pace, Asia and the Pacific region is only expected to achieve the SDGs by 2065 – three-and-a-half decades behind the original goal. We have to actually pump in additional resources for this; for example, as per ESCAP estimates, an additional $ 1.5 trillion would need to be invested annually in the Asia and Pacific region. This is equivalent to approximately 5% of the region’s 2019 GDP.
For Sri Lanka, we have not done a costing of our SDG financing requirements, but it was estimated in 2019 that an annual investment of 9% of the GDP is required to achieve the SDGs by 2030. This was done in 2019, so you can imagine that this funding gap has widened because of the challenges. We’ve had multiple global crises like Covid-19, Ukraine war, climate change, etc., which has made our SDG trajectory more difficult and challenging.
This brings us back to why we need to look at sustainable financing, which is to look at an architecture for sustainable finance based on the SDGs. Sri Lanka has seen increasing levels of poverty, inequality, and climate change, since we are a climate hotspot. What is required is to bring SDG considerations into the entire financial system, both public and private, in order to mobilise all types of financing to support the sustainable development objectives.
What is being done in terms of sustainable financing in Sri Lanka at present?
Sri Lanka is looking at the right tools and frameworks to drive different types of financing. For example, the public Budget, debt, tax policies, private investments, insurance, etc., all need to be directed towards SDGs.
In terms of laying the groundwork to achieve all of this, there have been quite a lot of frameworks being developed. For example, with the support of the UNDP, the SDC has initiated the process of developing SDG budget coding and tagging guidelines, together with the National Budget Department and other Treasury departments.
Budget coding and tagging is to align the national Budget with SDG priority sectors, in order to ensure that there is no disconnect between the national plans and the national budget. If you look at better budgeting in the context of the 2030 Agenda, that means explicit and measurable presentation of SDG targets in national budget allocations and reports.
When SDGs are integrated into the national policy framework, it’s important that this process is followed up by integration into the country’s budgetary framework. National Budget coding and tagging is like a standardised codification system that would identify, tag, and monitor SDG initiatives across the Government. This will help the country identify how the Budget is allocated towards various SDG goals and targets. It can become a planning tool.
Secondly, consider Government debt and raising finances through the capital markets through issuance of bonds. Of course, right now the capital market is out of reach for Sri Lanka because we have an ongoing debt restructuring process, but once our debt sustainability levels are reached, there will come a time when Sri Lanka intends to raise capital, and then we can align that capital to finance certain blue and green priority sectors. This is done through issuance of thematic bonds.
For that, Sri Lanka has developed a green bond framework. With the Ministry of Finance taking the lead, together with other relevant stakeholders like the SDC, Environment Ministry, and supported by UNESCAP, the green bond framework has been formulated and it has also received Cabinet endorsement recently.
The green bond framework is expected to guide the Government to raise capital aligned with green and blue priorities that the country has identified. The country has formulated a number of policies like the Nationally Determined Contributions (NDCs) where all these climate goals are being set. This provides a framework on how to raise capital and finance those blue and green priorities.
This framework lays the foundation for the issuance of green bonds by the Government and serves as a reference for any thematic bond framework, meaning it’s aligned with international best practices for green bond issuances like the ICMA Green Bond Principles 2021. This basically aligns the capital market activities with green and blue financing objectives.
There are also debt-for-nature swaps, which allow the debtor country to reduce its external debt in exchange for implementing conservation measures. In Sri Lanka, we are still laying the groundwork for this because it is a long process which needs certain preconditions.
That capacity needs to be built within Government stakeholders to negotiate a future nature swap, such as designing the baseline and other requirements for effective debt-for-nature swap project designing and implementation.
The Government has also initiated a process to develop a Marine Spatial Plan (MSP) with the support of UNDP, which lays the initial groundwork to develop a roadmap for the MSP in alignment with NDC targets and the National Adaptation Plan (NAP).
Budget 2023 mentioned that a MSP is needed to identify and declare exclusive economic zones, which pave the way to attract sustainable investment including blue, green, and sustainable financing. This follows that commitment to develop a roadmap for marine spatial planning.
A more recent initiative is the UNDP Tax for SDGs initiative, which is done together with the Ministry of Finance and other line ministries, particularly the Fiscal Policy Department and the Inland Revenue Department, through which the UNDP is developing the country’s capacity for domestic revenue resource mobilisation and achieving SDGs.
This supports developing the SDG Taxation Framework to leverage the fiscal policies for the achievement of SDGs. Taxation is one of the important areas where countries can develop their own strategies to achieve SDGs and these strategies are beyond domestic resource mobilisation and address strategies that governments can develop to reduce inequality, ensure gender equality, greater employment, and enhanced governance of domestic institutions.
While all that concerns public financing, there is also private investment. We have developed the Sri Lanka SDG Investor Map, focusing purely on financing and investments. This was the first-ever SDG Investor Map that was developed jointly by the SDC, the Board of Investment, the UNDP, and the Ceylon Chamber of Commerce, looking at providing market intelligence for private investors to identify investment themes in emerging markets with a significant potential to advance SDGs and are aligned to Government policies and national sustainable development needs.
The SDG Investor Map has identified 15 key investment opportunity areas under five priority sectors, undertaken through a consultative process over a period of about a year, where they looked at investor interest as well as the sustainable needs and development needs and priorities.
The five areas are renewable energy, food and beverages, infrastructure, healthcare, and consumer goods. These are the key investment opportunity areas for Sri Lanka. This is to drive private investments towards SDG priority sectors.
With the support of the UNDP, we recently also launched the Sector Deep Dives Report, which goes beyond that and looks at the main issues and the policy enabling environment. This report looks at the financing model, ecosystem development, investor activation, the policy reforms, and what needs to be done to drive these investments into those five areas.
The Securities and Exchange Commission (SEC) has developed the regulatory framework applicable to green bonds with the support of the ADB for private corporate bond issuances.
Sri Lanka also has to work on insurance, in terms of integrating insurance and risk finance into development.
For example, inclusive insurance and risk finance can be an integral part of promoting SDGs. To ensure financing for an implementation of inclusive insurance and risk finance measures, specific provisions must be included in national or local development frameworks and plans that emphasise the priority for relevant Budget allocations.
Thailand has undertaken a country diagnostic, which looks at inclusive insurance and risk finance, proposing various recommendations on how that can be integrated into the development process. We are yet to initiate this, although the Green Finance Taxonomy provides a classification system for insurance companies when they give insurance, but it needs to be developed into a broader framework. This is an area we need to work on.
This is how these different frameworks fit into a broader sustainable finance architecture for Sri Lanka, where you align public Budgets, public debt, and tax policies, and private sector investments towards SDGs. This is really needed now because we have several challenges to achieve SDGs by 2030.
When it comes to financing, the Government has initiated some important reforms which have to be continued, such as tax reforms, SOE reforms, and revenue enhancement measures. This reform agenda has been prioritised to achieve macroeconomic stability, debt sustainability and also structural reforms, which involves progressive tax reforms where you try to expand the tax base as well as strengthen the tax administration.
The President has appointed the Green Financing Committee, which has representatives from different institutions like the Ministry of Finance, the Central Bank, Board of Investment, Ministry of Environment, the SDC, and other key stakeholders, to coordinate and facilitate all green financing initiatives.
However, I would like to see this evolve into a broader agenda for sustainable finance going beyond ‘green’ to include social aspects as well and a steering committee, bringing in all these different actors, including the private sector, and to be chaired by the President. Enabling inter-agency coordination and ease of fast-tracking implementation of some of the current initiatives is extremely important.
You mentioned that there were many policy frameworks operating at present. How do we maintain coherence of all these existing frameworks to ensure that sustainable development remains actionable?
Under SDG Goal 17, policy coherence is the number one accelerator for SDGs. Policy incoherence is a problem in Sri Lanka. It has a lot to do with the fact that we have so many different institutions and each one does things that overlap with the other, so there’s a lot of duplication of efforts.
It’s also the responsibility of development partners as most of them operate in solos, and for any issue they come with a proposal to prepare a policy. They need to be far more focused. The Government should prioritise the implementation of key policies at least, because there’s a huge gap in policy implementation. That is where the efforts need to be placed. We have very good policies, so we need to address the gap in implementation and not formulate more policies.
We are fairly rich in terms of policies – for example, the National Environment Action Plan has been updated and the Green Procurement Policy is being finalised. There is also the Sustainable Consumption and Production Policy, the Food Waste Management Policy, National Agricultural Policy, the National Adaptation Plan, etc.
Being focused on implementing these policies is extremely important. Given the fact that we are now fairly certain about the priorities, which have also been identified with the IMF programme discussions, things are getting clear as to where the country is moving forward.
Sri Lanka needs to look at and take sustainability, equity, and equality as a priority right now. In terms of a way forward, I think we have developed very good policies and plans and it’s now a matter of exploring ways to finance and implement them through integrated approaches. I think our policy frameworks, despite the fact that there are so many inconsistencies, are fairly rich.
How has Covid and the economic crisis challenged the achievement of SDGs? What kind of setbacks has the SDC faced?
Firstly, the achievement of SDGs is not the sole responsibility of the council, because we are only a coordination, facilitation, monitoring, and reporting body – it requires a whole of Government and whole of society approach.
As far as our work is concerned, there have been setbacks because financial allocations have been reduced and there is a ceiling on recruitment, so even if there are vacancies, it’s very difficult to recruit staff.
However, we have found ways to deal with those challenges by partnering with international agencies. We have been lucky because we tap into all these opportunities and get that support from international agencies, without which we wouldn’t have been able to deliver.
All these aforementioned initiatives I highlighted have been supported by international agencies – UNESCAP, UNDP, and other agencies. Although there are challenges, we try to navigate our way through them.
Given our present economic situation, what do you believe are the core SDGs Sri Lanka should achieve in the short-term and which SDGs should be our target for the medium-term? Since the SDGs were formulated before Covid and economic disruptions, how achievable are these goals now?
Achieving SDGs is a challenge for all countries – all countries are behind, according to the UN Sustainable Development Report of the Secretary General released in 2023. All countries have faced unexpected global challenges.
For Sri Lanka, it’s difficult to prioritise because SDGs are so interlinked. One goal will have a spillover effect on the others. For example, if you take food security, poverty is linked to all these and food security is also linked to health and education, so you can’t really separate them.
We haven’t gone through a prioritisation process. Practically, it is important to focus on some sectors. However, given our present poverty rate, it’s absolutely essential to focus on poverty, because you cannot think of development if poverty rates are as high as 25%. A recent World Bank report stated that the poverty rate has escalated to 25% in 2022. I think focusing on poverty is mandatory.
We need to look at SDG accelerators. If you plug in investments into a particular area, how would that have a spillover effect on all the different SDGs? That’s really important. For instance, gender equality is a specific goal, under which comes women’s labour force participation and women’s political participation and decision-making. If you increase the women’s labour force participation, there’s a positive impact on economic progress. All these need to be linked.
However, the country needs to see the synergies. Addressing climate change also has dividends in terms of addressing disaster risk reduction and resource availability, which is also very much linked to people’s livelihoods – it’s important to look at the synergies across various sectors.
The Climate Prosperity Plan recently launched by the President has tried to synergise. In its outcomes, it talks about not just addressing climate change, but how that could generate employment, green jobs, economic growth, etc.
As such, while poverty would be an immediate goal, there are different ways of addressing it. It also depends on how you measure it – is it only income poverty or multidimensional poverty? Under that, if you look at the different criteria for how you measure poverty, even accessing fuel, food, etc., are also elements of poverty. Then there is the question of how you increase access to energy, which comes back to renewable energy. If Sri Lanka is a producer of renewable energy, you expand people’s access and the element of quality of life for people will be improved.
This is why the synergies and interlinkages have to be seen.
I wouldn’t really prioritise goals, but given the current situation, it may be important to focus on poverty, nutrition, malnutrition, and such social issues as well.
Since State expenditure has been impacted and the Govt. is trying to narrow the budget deficit, how can the private sector help or enter into sustainable financing?
The private sector can invest, but it also can develop business models that have high social and environmental impacts. The private sector is an equal partner in our development process, so it needs to develop and adopt certain standards. This can be achieved in various ways.
For example, in terms of the sector’s use of energy, waste management practices, human resource policies, recruitment policies, etc., embedding sustainability and equity elements as a practice of the entire business process will result in a high impact on the social and environmental sector.
This needs to go beyond CSR, by embedding all these things into the business process, so that alongside commercial viability, you also look at social and environmental impacts. We have already seen very good examples which look at social enterprise models, such as the Good Market concept, where the farming community is linked. This can impact the people’s livelihoods as well as the environmental outcomes.
What is the SDC doing to help bring in sustainable finance and how is the council collaborating with the corporate sector/private investors/capital to help them enter the market? What is the council doing in this regard – is it assisting the Govt. in drafting policies, etc?
The SDC has a broader mandate for sustainable development policymaking. It looks at a broader strategy for sustainable development and has the legal mandate for that, both in terms of the Government as well as the private sector.
We developed the Sri Lanka SDG Investor Map where we identified priority sectors of investment and through the sector deep dive analysis, looked at policy and the enabling environment to drive private investment.
We have also formulated a framework to promote private sector action on SDGs focusing on a number of different areas. After developing this framework, in order to operationalise it, we have appointed a steering committee with eight business chambers – the Ceylon Chamber of Commerce, National Chamber of Exporters, Colombo Stock Exchange, UN Global Compact, Women’s Chamber of Commerce and Industry, Biodiversity Sri Lanka, Federation of Chambers, and the National Chamber of Commerce.
This framework serves as a platform to get the private sector and Government to network and provide opportunities to involve the private sector in the policy formulation processes. We have already enabled this by getting the private sector engaged in some of the discussions.
Another objective is to increase the knowledge of the private sector on sustainable development issues through awareness raising and educational programmes. As it is, there are several universities, both public and private, that run programmes targeting different layers such as the boardroom, the leadership, and corporate professionals on issues such as science-based target setting, ESG investing, and sustainable business practices.
Every member of this steering committee has undertaken several educational programmes with their membership to raise that awareness and sensitisation.
Another objective of this framework is to increase private investments towards SDGs through innovative financial means like green bonds and impact investing.
Further, it aims to promote sustainable business models through standardisation, certification, and reporting. When promoting sustainable business models, there are various standards and if you want certain ISO standards, you have to comply with them. We try to promote these standards.
It is also extremely important that companies report on their sustainability actions. There are many companies that use Global Reporting Initiative standards and we are trying to promote this.
While the bigger companies or the better, more able ones, have the wherewithal, resources, and technical capacity to undertake such sustainable reporting, we also try to promote this to SMEs in order to lift their standards, given the fact that 70% of Sri Lanka’s economy consists of SMEs.
What do you think 2024 holds for Sri Lanka in terms of sustainable financing?
Sri Lanka is on the right track in terms of reforms – these reforms should have been addressed long ago.
They now appear a little unpopular and hard, but we need to make those changes. First of all, public sector reforms are mandatory because we have an expansive public service. The efficiency and the quality of service delivery is extremely important and most SDGs are very much linked to public service, since they are in the area of health, education, etc.
To unlock the fiscal space, Government revenue needs to be raised and Government expenditure needs to shrink, while expenditure should be streamlined without spending on unnecessary areas. We need to operationalise all these frameworks that have been developed to attract alternative financing for SDGs.
I believe there is a lot of potential for Sri Lanka and the crisis was a very good opportunity to get our act right, put our house in order, and understand what the priorities are, because we can no longer follow the popular path of doing things which suits short-term interest. Having a long-term focus and working towards it is extremely important despite challenges.
We have a fairly resilient private sector and a fairly resilient population that is very creative, so things will bounce back. We need to create more opportunities for the private sector and for entrepreneurship to grow. If that happens I think we will be on the right track.