RMGEO

Overview

The Sustainable Development Goals (SDGs) are a universal call to action to end poverty and protect the environment. The Government of Guatemala is prioritizing the SDGs it will focus on and defining lines of action to achieve them. In this policy impact piece, we focus on SDG two which is that of ending hunger, achieving food security and improving nutrition, and promoting sustainable agriculture, and; SDG six, for ensuring access to water and sanitation for all. Specifically, we examine SDG 2.3 which by 2030 aims to double agricultural productivity and income of small-scale producers; SDG target 6.1 which aims to achieve universal and equitable access to safe and affordable drinking water, and; SDG target 6.2 which aims to ensure access to adequate and equitable sanitation and hygiene for all.

Scenarios and Results

We draw from Guatemalan national policies and diagnostics to define two scenarios aimed at making progress toward SDG target 2.3. The first scenario, IRRIG1, focuses on investments in rehabilitating and modernizing existing irrigated water supply systems and infrastructure. These modernization and rehabilitation efforts are expected to increase the total irrigated area by 6,399 hectares. The estimated cost of the investment is US$6,045,780 which is distributed over a 5-year period. In IRRIG2, we consider additional investments proposed under Guatemala’s Great National Agriculture and Livestock Plan for increasing irrigated agriculture focusing on Guatemala’s Dry Corridor. This Plan has a goal of increasing irrigation on an additional 100,000 hectares at a cost of US$1.95 million over a 5-year period.

In the third scenario, WTSN, we simulate lines of action for making progress toward SDG targets 6.1 and 6.2 with investments in increasing water and sanitation coverage. While the scenario is less ambitious than the SDG target of full water and sanitation coverage for 100% of the population, it is more realistic given current budget allocations and economic growth prospects. In this scenario, water coverage is increased from 75.3% to 81.5% of the Guatemalan population and sanitation coverage is increased from 56% to 66% of the population. The cost for increasing water and sanitation coverage is $1.607 billion or US$123,630,769 per year from 2018 to 2030. In the final scenario, COMBI, we simulate the joint impact of IRRIG2 and WTSN.

Results show that in 2030, IRRIG2 would drive positive impacts on all macro indicators with private consumption increasing by US$797.9 million; in the WTSN scenario, the impact would be less than one- tenth of the impact of IRRIG2, equal to US$74.5 million. The COMBI scenario shows the overall GDP impact would be US$1,371 million. Driven by the expansion in irrigated agriculture, the unemployment rate would decline slightly from 7.4% to 7.3% in the COMBI scenario. In terms of the national poverty gap, the COMBI scenario would lift approximately 117 thousand individuals out of poverty. The impact of the COMBI scenario coupled with baseline economic growth would reduce the number of individuals living in poverty by 2.42 million. Income inequality across household income quintiles would be reduced slightly across all scenarios as indicated by the Gini coefficient, though inequality would increase slightly between rural and urban households.

Governments routinely undertake benefit-cost analysis to evaluate the viability and returns to public investments. Using a relatively high discount rate of 12% (used by some multilaterals such as the Inter- American Development Bank), results show a Net Present Value of US$126.7 million, US$2.1 billion, negative US$718.5 million, and US$1.3 billion for IRRIG1, IRRIG2, WTSN and COMBI, respectively. The negative Net Present Value of the WTSN scenario indicates that the agricultural sector labor productivity improvements from greater access to water and sanitation are insufficient to compensate for the cost of the investment.

In terms of environmental impacts, all investments would affect the level of deforestation. The IRRIG1, IRRIG2 and COMBI scenarios would increase deforestation by 649 ha, 9,209 ha, and 9,820 ha, respectively. The expansion of irrigated agriculture would have consequences for overall water consumption. Considering all water uses including irrigation, water consumption above the baseline would increase by 105 megaliters (ML) per capita in IRRIG1, 1,700 ML per capita in IRRIG2, 141 ML per capita in WTSN, and 1,860 ML per capita in the COMBI scenario. With accelerated economic growth, by 2030, overall emissions would increase by 37,653 tons of CO 2 equivalent in IRRIG1 and by 576,901 tons of CO 2 equivalent in IRRIG2. The WTSN scenario would have a relatively smaller impact on overall emissions, increasing emissions by 66,771 tons of CO 2 equivalent, while the COMBI scenario would increase emissions over baseline levels in 2030 by 642,346 tons of CO 2 equivalent.

In terms of wealth, measured by genuine savings, IRRIG1, IRRIG2, WTSN and COMBI would boost wealth by US$36.5 million, US$563.1 million, US$33.7 million, and US$595.4 million, respectively, by 2030. Figure 1 shows the decomposition of wealth into its components considered here.

It may seem counterintuitive that genuine savings would increase across all scenarios, while at the same time, deforestation and greenhouse gas emissions also would increase. While it is true that the increase in deforestation and emissions would push genuine savings downward, the positive investment impacts in irrigation and water and sanitation would result in a large increase in net national savings which would outweighs the negative impacts of forest loss and reduced environmental quality. For this reason, the impacts on genuine savings would be positive across all scenarios.

Figure 2 presents some of the advantages of applying an integrated framework such as IEEM to complex and inter-related policy issues such as the SDGs. The figure demonstrates three interesting relationships. First, only an integrated framework such as IEEM, underpinned by SEEA data, can generate indicators in both physical and economic value terms that are entirely consistent with a country’s System of National Accounts. Agricultural land use, livestock land use, forest land use, water use, energy use and emissions in figure 2 are all reported as percent deviation from the baseline in physical quantity terms (hectares of agricultural/livestock/forest land use, gigalitres, terajoules and tons of CO 2 equivalent, respectively). At the same time, genuine savings, GDP, wages, forestry value-added and fuelwood value added in the figure are reported in percent deviation from the baseline in economic value terms.

Second, while lines of action to meet SDG targets 2.3, 6.1 and 6.2 were evaluated in this study, IEEM’s integrated nature shows not only the effectiveness of these strategies in making progress towards these targets, but also on the impacts of the strategies on other SDGs. As shown in this example, IEEM provides insights in how these strategies impact multiple other SDGs such as SDG 1 (poverty), SDG 7 (affordable and clean energy), SDG 8 (decent work and economic growth), SDG 10 (inequality), SDG 12 (responsible consumption and production), SDG 13 (climate action), and SDG 15 (life on land).

Third, IEEM clearly identifies trade-offs where one line of action may move a country toward achieving a specific SDG, Target 2.3 for example, which aims to double rural productivity, while simultaneously moving a country away from another SDG, Target 15.2 for example, which aims to stop deforestation. Finally, while not shown here, integrated analysis with the IEEM Platform can be used to evaluate and compare the cost effectiveness of different strategies to achieve multiple SDGs according to the criteria represented by each one of the 14 axes in figure 2. This information is critical for Governments to effectively prioritize actions when faced with increasingly scarce public resources.

Policy Insights

Results showed that reaching these goals would require substantially larger investments, specifically to double agricultural output and incomes. Where investment in agriculture and water and sanitation are considered together along with baseline economic growth, over 2.4 million individuals would be lifted out of poverty. Considering baseline economic growth and the investment scenarios, agricultural output would increase by 59%; to double agricultural output by 2030, additional and potentially different investments would be required to effectively increase agricultural output by the remaining 41%. The investments in irrigated agricultural development were also insufficient to reach the goal of doubling income, with an income gap of 83% remaining.

The relatively small impact on incomes arising from irrigated agricultural expansion is worth probing. Our scenarios expand irrigated cropping of higher value crops. Stimulating this sector resulted in lower prices and in fact lower employment and wages for unskilled labor. With poor households deriving much of their income from providing unskilled labor, increases in income for these poor households was below average compared to other households. Indeed, while rural households were better off as a result of the policy, income inequality between rural and urban households increased slightly with urban households earning greater returns through providing capital and land to the agricultural sector.

Furthermore, the aggregate sector that includes higher value crops exports less than 18% of current output. Our results show that if more export-oriented agricultural sectors were targeted for irrigated agricultural expansion, there would be little, to no decline in prices and rural poor households would have been better off. Thus, in light of SDG Target 2.3 and its emphasis on doubling rural incomes, a complementary strategy of promoting exports of higher value agricultural crops would boost incomes to a greater extent. Alternatively, expanding irrigated agriculture of traditional export-oriented agricultural sectors would also have a greater positive impact on incomes of the rural poor.

All investments considered in this study would be wealth enhancing, increasing genuine savings by US$595 million. This result is driven by the large positive impact on household savings which outweighs the negative impacts of forest loss and increased greenhouse gas emissions. The US$1.607 billion investment in water and sanitation would generate a US$69.5 million welfare gain, though the net present value of the investment would be negative. From an economic perspective, this analysis shows that such investment is unlikely to occur without strong political will. There are of course important reasons for the Government to undertake this investment, including one of basic human rights as reflected in the 2010 United Nations Resolution 64/292.

IEEM generates results that can be used to substantiate compelling cases to government institutions, particularly Ministries of Finance who are responsible for budget allocations to achieve the SDGs. Impacts expressed in terms of GDP, income and employment continue to rank high on the agenda of policy makers and Ministries of Finance. The estimated economic return of US$1.37 billion from investing in irrigated agricultural development and enhancing water and sanitation coverage communicates a powerful and saleable message that policy makers can take to their constituents and is information that Ministries of Finance can use in preparing multi-year budgets to achieve the SDGs.

An integrated analytical approach sheds light on how individual SDGs can be mutually supportive to achieving the overall Agenda for Sustainable Development. We have shown that improvements in water and sanitation (SDG 6) that increase agricultural labor productivity would in turn increase agricultural output and contribute to SDG Target 2.3. While the specific lines of action considered here targeted the second and sixth SDGs, both positive and negative spill-overs on other SDGs were revealed.

All investment scenarios would contribute to achieving the first SDG of ending poverty in all its forms as well as the eighth SDG of promoting inclusive and sustainable economic growth, and employment. The investments evaluated would boost GDP by US$1.37 billion, diversify the agricultural sector, and create jobs. A portfolio approach to the SDGs can be appropriate to capitalize on these types of win-wins, and in cases where some lines of action generate greater returns to investment, these higher yielding investments can compensate for those that yield less. Aristotle’s quote “the whole is greater than the sum of its parts” holds true where the SDGs are concerned.

Yet, investments in agricultural expansion and in water and sanitation also lead to trade-offs. The expansion of irrigated agriculture is not without its consequences for the environment, with a 9,820 hectare increase in deforestation above the baseline deforestation of 36,528 hectares. This increase in deforestation moves Guatemala away from SDG fifteen and the sustainable use of forests, and specifically Target 15.2 which aims to halt deforestation. SDG thirteen calls for action on climate change, though the expansion of agriculture gives rise to 642,346 tons of additional greenhouse gas emissions by 2030 which should be summed with those emissions generated by deforestation and the burning of forests. All scenarios generate faster economic growth which in the absence of mitigating measures, also increases emissions across all economic sectors. How increased emissions affect Guatemala’s commitments to the Paris Agreement and the thirteenth SDG will require careful consideration of potential trade-offs and in the design of mitigation strategies. Irrigated agricultural expansion also has consequences for overall water consumption, increasing by 1,860 ML per capita.

The IEEM approach enables consideration of public policy and investment impacts on multiple sectors and complex integrated economic-environmental objectives. Without such an integrated framework, some of the synergies and trade-offs between different SDGs may have been missed. IEEM sheds light on these interactions and generates evidence that can inform and elevate the discourse on the most effective strategies for achieving the SDGs and identify low hanging fruits and potential win-win situations. As we have seen in this application, IEEM’s language is grounded in economics, generating results that resonate with policy makers and Ministries of Finance with clear points of entry into the policy cycle, while quantifying and recognizing natural capital’s contribution to economic development and the challenges posed by the SDGs.