Transcript The Millennium Development Goals – bankable pledge or sub-prime asset? UNESCO Future Forum - 2 March 2009 Kevin Watkins and Patrick Montjourides.

The Millennium
Development Goals –
bankable pledge or
sub-prime asset?
UNESCO Future Forum - 2 March 2009
Kevin Watkins and Patrick Montjourides
1
Presentation
2

The MDGs – Where we are today

The impact of the financial crisis

Risks for the MDGs

Responses to the crisis
The pre-crisis MDGs – the ‘good news’ report
3

Extreme poverty – down by 320 million since 2000 (more
than 1980-1999)

Child mortality - 3 million fewer deaths

Education - 28 million more children in school and
progress on gender disparity

Clean water – access improving

Aid – Up from around $70 to $104bn 1999-2005
The bad news – Part 1

Most countries are off track for most targets
 Income poverty – much of South Asia and sub-Saharan
Africa missing goals
 Child mortality – ‘2 million death deficit’ by 2015
 Maternal mortality – zero progress zone (10,000 deaths a
week)
 Education – At least 30 million off track (persistent gender
disparities)
 Forgotten goals:
 Nutrition – one-in-three children stunted and nearly 1 billion total
malnourished
 Literacy – 11% decline since (circa) 1990, but 776 million adults
affected

4
International cooperation - Aid $50bn pledged by 2010 but
$30bn pipeline deficit and no deal on trade
The bad news – Part 2

The bad news was getting worse ITYBL (In the year
before Lehman)

Rising food and energy costs:
 pushing another 125 million driven into extreme
poverty during 2006/2007 (WFP 2008)
 deepening poverty levels (World Bank 2009)
 increasing child malnutrition by 44 million (2006/2008)
 adding 10 million to unemployment (ILO 2009)

5
Donors back-tracking on aid commitments – aid fell by
4.5% in 2006 and 8% in 2007 (OECD 2008)
Equity as a barrier to MDG progress

Higher growth but rising inequality weakening the
conversion of growth to poverty reduction – Vietnam
versus Kenya

Child mortality falling far more slowly among the poor
(who account for most child deaths)
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
Education inequalities holding back progress

Gender disparities magnified by poverty

The lesson – equity matters for the MDGs
Presentation
7

The MDGs – Where we are today

The impact of the financial crisis

Risks for the MDGs

Responses to the crisis
The impact of the financial crisis

Started in US housing and financial markets –
 but hitting the fourth-fifths of humanity in developing countries
 has implications for all MDGs: financial markets in New York and
London are linked to education and child mortality in the world’s
poorest countries

Impacts on the poor do not make the same headlines as
mortgage re-possessions, bank-bailouts, and employment
in rich countries
 but the impacts will be large, sustained and leave a legacy of
human development setbacks
 how large and sustained will depend on national and international
policy choices
8
Transmission mechanisms

Economic growth prospects – deteriorating by the day

Slower growth will impact through diverse channels
• Reduced opportunities for income generation and
employment
• Restricted opportunities for trade
• Pressure on key government budgets
• More limited and worse quality public service provision
• Lower remittances
• Pressure on aid budgets

Country effects will vary depending on:
•
•
•
•
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impacts
distribution of shocks
capacity for fiscal stimulus
Policy choice – adjustments can be pro-poor or anti-poor
Putting the brakes on economic growth
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
The most visible impact of the financial crisis is on
economic growth prospects.

All developing regions heading for slowdown, or possible
reversals

Forecasts are being revised downwards on a daily basis

We are heading from a benign to malign economic
growth environment
The economic downturn
9,0
GDP annual growth rate (%)
7,0
Good news recovery
projections – not to be taken
too seriously
5,0
3,0
1,0
-1,0
2006
2007
2008
2009
2010
-3,0
The deteriorating picture for 2009
10,0
Emerging and
Developing regions
GDP annual growth rate (%)
8,0
apr-2008
6,0
oct-2008
nov-2008
4,0
jan-2009
2,0
Advanced
economies
0,0
1999
2000
2001
2002
2003
-2,0
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Source: International Monetary Fund data
2004
2005
2006
2007
2008
2009
GDP growth rate (%)
12
Sub-saharan Africa
10
8
avr-08
oct-08
6
nov-08
janv-09
4
2
Economic growth rate –
regional & country
variations
0
1999
2000
2001
12
2002
2003
2004
2005
2006
2007
2008
2009
In sub-Saharan Africa:
Latin America and Caribbean
GDP growth rate (%)
10
• Growth reduction represents
$72bn or $85 per capita
8
6
4
avr-08
oct-08
nov-08
2
janv-09
0
1999
2000
2001
2002
2003
12
2004
2005
2006
2007
2008
2009
- $18bn or $46 per capita
Middle East
GDP growth rate (%)
10
• Impact below the poverty line
(390 million people)
8
6
avr-08
oct-08
nov-08
4
janv-09
- Loss represents 20% of
average income
2
0
1999
2000
2001
2002
GDP growth rate (%)
12
2003
2004
2005
2006
2007
2008
2009
Developping Asia
10
avr-08
oct-08
nov-08
8
6
janv-09
4
2
0
1999
12
2000
2001
2002
2003
2004
2005
2006
2007
Source: International Monetary Fund
2008
2009
China
India
Argentina
Indonesia
Brazil
South Africa
Mexico
Turkey
2008
2009
9
7,3
6,5
6,1
5,8
3,1
1,8
1
6,7
5,1
0,01
3,5
1,8
1,3
-0,3
-1,5
Growth reversals linked to wider macroeconomic problems

International trade
• Terms of trade for commodity exporters are deteriorating (subSaharan Africa and Latin America affected; Zambian government
revenues from copper could fall from $415m to less than $200m )
• Steep decline in exports and trade-related employment (East Asia)
• Prospect of protectionist backlash

Private capital flows collapsing
• $929 in 2008 but projected $165bn 2009 (net outflow of bank
lending)
• East Asia and Latin America most affected
• Impacts on credit, investment and employment

Remittances
• $305bn in 2008 and more stable, but..
• 6% decline projected for 2009
• Some countries (Mexico) already in decline
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Fiscal space matters for pro-poor adjustment –
and it’s shrinking fast

Rich countries responding to crisis through large fiscal
interventions, some developing countries following suit
(United States 7% of GDP / China 10%)

But most developing countries, especially the poorest,
lack fiscal capacity to respond to crisis

New ‘fiscal space indicator’ establishes threshold for:
• Fiscal deficits (3%)
• Government debt-to-GDP (+20%)
• Revenue-to-GDP (+13%)
• Aid-to-GDP (+5%)
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Most developing countries lack fiscal capacity to
respond to crisis
• 43 out of 48 low-income
countries with data lack
fiscal space
100
• 55 out of 87 middle-income
countries lack fiscal space
Number of countries
90
80
70
60
50
Total number of countries
Countries with low fiscal space
40
30
20
10
0
Middle-Income
countries
Low-Income
countries
Sources: International Monetary Fund, World Bank, GMR
team calculations
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Presentation
16

The MDGs – Where we are today

The impact of the financial crisis

Risks for the MDGs

Responses to the crisis
Low fiscal space increases MDG risks education

Countries at the bottom end of the global distribution for
opportunity in education face serious constraints

Countries with distance to travel to EFA goals face
prospect of economic slowdown with limited government
capacity to respond
• World Bank lists 43 countries facing ‘high
exposure’ to crisis
• 32 have distance to travel to universal primary
education (UPE)
• 27 have limited fiscal space
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Low EDI countries at major risk
Low Education Development Index
(EDI) countries (29)
Bangladesh
Guinea
Nepal
Benin
India
Nicaragua
Bhutan
Iraq*
Niger
Burkina Faso
Lao PDR
Nigeria
Burundi
Lesotho
Pakistan
Cambodia
Madagascar
Rwanda
Chad
Malawi
Senegal
Djibouti*
Mali
Togo
Eritrea
Mauritania
Yemen*
Ethiopia
Mozambique
Sources: International Monetary Fund, World Bank, GMR team calculations
* No data available
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Low-income country with
low fiscal space
Education indicators for 43 ‘high exposure’ countries
Countries close to UPE
100
Net enrolment rate in primary (%)
90
80
70
60
50
40
30
20
19
30
40
50
60
70
Survival rates to last grade (%)
Sources: International Monetary Fund, World Bank, GMR
team calculations
80
90
100
Most ‘high exposure’ countries face severe fiscal constraints
Countries close to UPE
100
Madagascar
Nicaragua
Net enrolment rate in primary (%)
90
Cambodia
Bangladesh
India
Lao PDR
Benin
80
Rwanda
Mozambique
Mauritania
Senegal
70
Togo
Nepal
Bhutan
Kenya
Ethiopia
Pakistan
Mali
60
Burkina Faso
50
Eritrea
Niger
40
Countries with low fiscal space
30
20
20
30
40
50
60
70
Survival rates to last grade (%)
Sources: International Monetary Fund, World Bank, GMR
team calculations
80
90
100
Potential MDG casualties

Impacts will be highly variable

Past ‘economic shock’ analysis point to diverse effects
(Ferreira and Schady 2008):
• Poorest countries register ‘pro-cyclical’ effects - nutrition, health and
education indicators worsen after crisis
• Middle-income countries ‘pro-cyclical’ in health, counter-cyclical on
school attendance
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
Unlike the rich, the poor lack insurance and coping
capacity

‘Tipping point’ effects can convert short-term shocks into
legacy of long-term poverty: nutrition-health-education
cycles
Some early warning estimates

Poverty reduction will slow with economic growth –
53 million more trapped in poverty

Infant mortality – growth and poverty effects will slow
reductions, adding 200 – 400,000 deaths annually

Vulnerable populations registering early impacts
 30 million migrants returning in China
 Rising youth unemployment
 Remittance losses cutting household spending on health,
education and increasing poverty
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Aid contagion effects

Fiscal pressure, rising unemployment, and bank rescues
will weaken political support for aid

Past episodes highlight threat – aid budgets cut after
Japanese real stock bubble burst in 1990 and Nordic
crisis in 1991
• 6-9 year recover in Norway and Sweden
• No recovery in Japan and Finland

‘Target-based’ aid commitments will cut budgets
• EU countries are ‘committed’ to 0.56 Aid/GNI by 2010
• Growth adjusted loss in 2010 is $4.6bn

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Aid- dependent countries facing acute threats
The development financing gap
Aid to basic education in low-income countries (LIC)
versus aid to banks during a crisis
12
10
6
4
Current level of aid to
basic education
2
0
EFA financing
gap
Sources: International Monetary Fund, GMR
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$US billons
8
The development financing gap
Aid to basic education in low-income countries (LIC)
versus aid to banks during a crisis
400
350
$US billons
300
250
Bank capital
funded by
public monies
200
150
100
50
Lower bound estimate of MDGs
financing
0
EFA financing
gap
Sources: International Monetary Fund, GMR
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Presentation
26

The MDGs – Where we are today

The impact of the financial crisis

Risks for the MDGs

Responses to the crisis
Responses – financial governance

Need for large and rapid financial transfers to developing
countries to limit contagion

Globalise fiscal stimulus
• Estimated level of $400bn pa (1% GDP of rich countries) for
developing countries (Lin 2009)

IMF should be taking the lead but is an under-resourced
rich-man’s club
• Need for $500bn+ rights issues to support developing
countries and less EU/US voice in governance
• Key role for G20 meeting in April 2009
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Responses to the crisis – aid
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
Developed countries need to affirm and deliver on 2005
commitments

EU ‘adjustment commitment’ of $4.6bn

For aid to play counter-cyclical role it has to be delivered
this year – front-loading is vital

Stop talking and fast-track Fast Track Initiative support in
education

Avoid multiple ‘innovations’ and fragmented delivery
Responses to the crisis - national

Strengthen national commitment to poverty reduction

Monitor early warning impacts – budgets,
health/education indicators, and vulnerable groups (key
role for UNESCO)

Pro-poor fiscal adjustment
• Ring-fencing human development budgets
• Targeting the poor in fiscal expansion (cut health and education
fees; support nutrition investments; cash transfer)
• Progressive taxation and closing tax loopholes
29

Scale up support for social protection to protect
productive assets, health and education

Set equity targets for the MDGs
Conclusion
30

The world’s poor are not responsible for the current crisis
– ethical imperatives matter

Investments in global poverty reduction, health and
education can support recovery – economic imperatives
are also important

The MDG crisis represents a challenge to political
leaders in rich countries and international development
agencies

The threat is an opportunity to demonstrate that
international cooperation can deliver change we can
believe in.