background paper smm mdgs

8/9/2019 Background Paper SMM MDGs

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cent increase in household consumption per capita would reduce poverty by only about half as muchas it would in Bangladesh; on the other hand, a 1 per cent decrease in inequality would reducepoverty by 0.58 percentage points compared with only 0.47 percentage points in Bangladesh.In practice, economic growth is typically accompanied by a rise in inequality. If this happened inthese 11 countries then in order to hit their poverty targets they would need to boost economicgrowth considerablyin some cases more that doubling it. But if they could hold inequality constantthe prospects would brighten significantly. Kyrgyzstan, for example, would achieve the target by2015, and other countries would not be far behind: India would reach it by 2016; the Philippines by2017; and Lao PDR by 2018. Indeed, with only moderately faster growth all three could hit the

target: India, for example, would need to increase the average growth rate from 7.9 to 8.9 per cent.Furthermore, a 1% increase in average household consumption per capita in addition to holdinginequalities constant would further accelerate achievement of poverty target for Lao PDR by 2012while India and Mongolia by 2013.

Closing the other MDG gaps

Millions of people will also suffer if the region misses the other MDG targets. This would result, forexample, in the deaths in 2015 of an extra 1 million children between 1 and five years of age. Inaddition, 31 million more children would be suffering from hunger and 7 million more would be outof school. Many mothers would also be affected14 million more would have to give birth withoutthe assistance of skilled professionals and 8 million more would be without any kind of antenatalcare.How much investment would it take for the countries of the region to meet these other MDG gaps?Based on a needs assessment carried out by the UN Millennium Project this report estimates thecorresponding costs in Asia and the Pacific. This suggests that some of the MDG gaps can be closedwith relatively low investment. The underweight children target, for example, can be reached ifcountries that are off-track invest in total an additional $23 billion. The gap in the provision of cleanwater and basic sanitation in rural areas can be closed by investing $3 billion and $8 billion,respectively. Overall, it should also be noted that the cost of reaching the targets in rural areas ismuch less than in urban areas between one tenth and one fourth and around twice as manypeople would benefit.To meet the gaps across the region on all the indicators would mean an additional total cost until2015 of $636 billion$96 billion per year in 2010, rising to $117 billion in 2015. For the region asa whole, the costs may not seem daunting, but for individual countries they can be steep. Thegreatest costs, expressed as a percentage of GDP, are in Afghanistan, Nepal and Timor-Leste. On apositive note, however, it should be pointed out that of the 20 LDCs and middle-income countries,more than half could close the gaps with expenditure equivalent to 2 per cent of GDP or less.

Financing the MDGs

How much are governments currently spending on MDG priorities? The ESCAP Study analyses the

government budgets in the Asia-Pacific region for 23 economies to examine the trends and patternsin outlays on MDG sectors which include health, education, housing and community amenitiesenvironmental protection, and those on safety nets such as school feeding programmes.This shows a very diverse pattern. As a proportion of GDP, the Maldives spends more than 20 percent on MDG priorities, while China and Pakistan spend less than 1 per cent. In terms of trends,however, it is worrying that, since the Millennium Summit, expenditure on MDG priorities, as apercentage of GDP, has increased in only six of these countries: Georgia, Nepal, Russian Federation,Sri Lanka, Iran and Maldives. Elsewhere it has remained stable or decreased, suggesting thatgovernments have generally not been aiming to make greater progress towards the MDGs throughchanges in fiscal policy.


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Strengthening the global partnership

In addition to raising more of their own resources for investing in the MDGs, the developingcountries, LDCs in particular, should also be able to rely on substantial support from other countries,both within the region and beyond.

Official development assistance Since the adoption of the MDGs, donors have generally beenproviding more official development assistance (ODA), even though most of them, the large ones in

particular, are yet to reach the target 0.7 per cent of gross national income. Asia and the Pacific willprobably continue to get a steadily declining proportion of this. Any reduction in aid flows will be ofparticular concern to countries such as Cambodia and Vanuatu, where ODA plays a significant rolein the economy.

Although it is somewhat uncertain about the ability of the donors to sustain the flow of ODA, theredoes seem to be solid political will and public support for ODA within donor countries partlybecause of the recognition that developing countries are victims of a crisis which originated in thedeveloped world. And this is reflected in some of the decisions of the G20 summits to increase theflow of finances through multilateral agencies such as the IMF, the World Bank and the ADB.South-South economic assistanceMore aid now takes the form of transfers from one developing

country to another, which within Asia and the Pacific primarily means the better-off developingcountries helping their neighbours. China, for example, is Cambodias biggest aid donor as is Indiafor Nepal and Bhutan. Similarly, Thailand is the largest donor to Lao PDR and the second largest toMyanmar. Much of this South-South aid thus goes to LDCs where it is likely to be used in support ofthe MDGs.

Workers remittances In 2008, countries in the region that were the sources of labour migrantsreceived a total of $169 billion in remittances. These have provided a stable source of foreignexchange at times when trade and other flows have been more volatile so have helped stabilizecurrencies. At the micro level, families have been able to use remittances to boost humandevelopmentfrequently using the funds to invest in their childrens education.

Private capital inflowsPrivate capital inflows, particularly foreign direct investment, should helpcreate employment and thus contribute to the MDGs. Following the economic crisis, even thoughglobal FDI inflows have declined, FDI inflows to Asia-Pacific have continued to expand from $ 333bn in 2007 to $ 389 bn in 2008. Emergence of new sources of FDI in the region such as China,Russian Federation, Hong Kong, China, India, Malaysia among others, is likely to further enhanceFDI inflows in the region. The region is also receiving growing amounts of portfolio foreigninvestments that tend to be highly volatile in nature seeking speculative returns on the capitalmarkets, real estate, currency and commodity futures and lead to formation of asset bubbles,inflation and appreciation of exchange rates. The regions governments may consider taking steps tomoderate these inflows through some sort of capital controls in view of massive expansion of

liquidity in the western markets which may find outlet in the region.

New innovative sources of finance- Prompted by a recognition that ODA is unpredictable and needsto be supplemented, recent times has seen some international initiatives involving governments,charitable foundations, NGOs, and prominent individuals to develop some new innovative sources offinance for development. Three such initiatives are already functioning in the area of health. Theseare (i) UNITAID and the solidarity levy on airline tickets, (ii) The International Finance Facility forImmunization (IFFIm) / Global Alliance for Vaccines and Immunisation (GAVI), and (iii) AdvanceMarket Commitment for pneumococcal vaccines (AMC-PV). There are also examples from theregion of government trying to find innovative sources of finance for funding MDGs.


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Governments have also been trying to find innovative sources of finance for funding MDGs. India,for example, levies an education cess on the total income tax payable by individuals to finance theprovision of school education for all children and imposes a diesel cess diesel to finance theexpansion of its highway network; Maldives has proposed to levy a green tourist tax of $3 pertourist per day as a climate tax. There is also a considerable debate on the relevance of a tax oninternational financial transactions. Such a tax could help in moderating the volatility of the short-term and speculative capital flows besides yielding a substantial revenue that could be used to fundglobal public goods such as MDG achievement. Even a small tax of 0.1 per cent on global foreignexchange transactions running at around $3.2 trillion per day could yield revenues of about $640

billion annually assuming that the volume of financial transactions will go down by a third as aresult of the tax. This scale f revenue is more than 3.5 times the total ODA in 2008. While the idealwould be a tax that operated globally, this may take a long time to achieve. As a stepping stonetowards a global tax the countries of Asia and the Pacific could cooperate on a regional version.

Development of Regional Architecture for financial cooperation

The lack of a well developed regional financial architecture prevented efficient intermediationbetween the regions growing foreign exchange reserves and its substantial unmet investment needsand leaving the central banks no option but to invest their reserves in low yielding US treasury bills.Besides crisis prevention and intermediation between savings and investment in the region, aregional financial architecture could also be instrumental in exchange rate coordination, and in

evolving a regional perspective and coordinated voice for reform of international financialarchitecture. So far only significant regional cooperative financial arrangement is the Chiang MaiInitiative (CMI) that has been expanded in early 2010 to have a pool of $120 billion and has beenmultilateralized. However it is limited to only to be a facility for short term liquidity support ratherthan development financing. With combined foreign exchange reserves of nearly US$ 5 trillion, theregion has now the capability of developing an ambitious architecture to fund infrastructure gaps inthe region estimated to be requiring annual investment of more than $800 billion in transport,energy, water and telecommunications. This architecture could include among other forms aninfrastructure development fund, for instance, mobilizing just 5% of regions reserves of nearly $ 5trillion, thus providing a start up capital of nearly $ 250 billion besides ability to borrow from thecentral banks of the region. By co-financing viable projects along with other sources, such an

architecture could expedite investments in infrastructure development especially cross borderconnectivity projects linking poorer parts of the Asia-Pacific region with the regions growth centreshence assisting them in their rapid development and MDG achievement. ESCAP, at its 66 th Sessionheld in Incheon, Republic of Korea, 13-19 May 2010 has been requested by its member states toassist the region in development of such an architecture by creating a task force or expert group tocome up with a solid design for a stable and development-friendly regional financial architecture.

Concluding remarks

The Asia-Pacific region has many gaps to close to meet the MDG targets by 2015. However, withreorientation of development policies in favour of those that promote the consumption of poor and

reduce inequalities along with growth, and mobilizing domestic resources to redouble their efforts toclose these gaps and with enhanced support from regional and global partners, it can meet thechallenge.


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Roundtable Discussion 2:Financing for the MDGs

Prepared by the ADB

Special Ministerial Meeting forMillennium Development Goals Reviewin Asia and the Pacific : Run Up to 2015

Jakarta, 3-4 August 2010


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Background Note on Roundtable 2 on Financing for the MDGs

1. Gaps in MDG Financing

A few studies have been conducted in the Asia and Pacific region to estimate the financinggap in achieving the MDGs. Appendix Table 1 shows the results for six countries, and includes bothdirect costs (for creating essential facilities such as building more hospitals and clinics, providingmedicines and equipment, and appointing sufficient nurses and doctors, in the case of the healthtargets) and indirect costs such as building rural roads for providing access, etc.

Rough estimates of the MDG gaps can be also calculated for other countries. These arepresented in Appendix Table 2. This shows that additional annual spending necessary for the leasdeveloped countries in the Asia and Pacific region has been estimated at $8 billion per annum until2015. For the 29 low income countries receiving concessional Asian Development Fund (ADF)resources from the Asian Development Bank (ADB), it was estimated at around $25 billion perannum. As part of the General Capital Increase (GCI) exercise, ADB also made an estimate for thegroup of 22 countries receiving loans from its market based Ordinary Capital Resources (OCR) loanwindow, at $53 billion per annum. As some ADF and OCR receiving countries overlap, for ADBsdeveloping member countries as a whole, the rough magnitude of the resources gap would be around$60-70 billion per annum.

Cost estimates for indirect infrastructure, such as roads and energy, for achieving the MDGsare high, as evident from the Appendix Table 1, but are also essential if the MDGs are to beachieved. A joint study done by the Asian Development Bank Institute and ADB suggests that thetotal infrastructure financing for Asia as a whole amounts to about $700 billion per annum indicatingthe large resource gap for infrastructure financing in general. Of this, indirect basic infrastructure insupport of the MDGs will be a large proportion.

2. Ways to raise resources for the MDGs

(i) Raising economic growth: Historical associations between economic growth and theMDG indicators suggest that a fairly strong inter-relationship exists between growth and the MDGs.Growth leads to increases in private incomes and therefore enables more people to access education,health, clean water and sanitation facilities, etc., improving MDG outcomes. Growth also providesmore revenue resources to Governments allowing them to spend more on MDG related expendituresThis indicates that maximizing growth is an important policy objective to attempt.

The 2008 ADB-ESCAP-UNDP joint MDG Report2

estimated the impacts of raising growthIt shows, however, that growth alone will not be able to help in MDG achievement. If growth wereraised by 3%, for example, as shown in the Appendix Table 3, only two additional countries wouldmeet the hunger target while 17 would still not. This story is similar for the other indicators. Only ifgrowth were increased by more than 5% would a significant impact be made. However, suchincreases are very unlikely, and so other measures need to be considered than merely relying ongrowth.

(ii) Raising more revenues. Countries can make more vigorous efforts to increase theirrevenues. Appendix Table 4 shows tax revenues as a percentage of GDP in sub-regions of Asia andthe Pacific compared to OECD countries and industrialized countries. The latter groups collectsignificantly more than countries in the Asia and Pacific region. Although reaching the tax effor

2United Nations Economic and Social Commission for Asia and the Pacific, Asian Development Bank, and United

Nations Development Programme. 2008.A Future Within Reach 2008: Regional Partnerships for the Millennium

Development Goals in Asia and the Pacific. Bangkok.


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levels of industrialized countries may take time, several actions such as improving tax governanceand attempting to expand the tax base can be taken.

(iii) Increasing budgets for the MDGs. Allocating more budgetary resources for basicsocial services such as education and health which are essential for the MDGs is another criticalmeasure to bridge the gap in resources for the MDGs. Appendix Table 5 shows public spending oneducation and health as a proportion of total government expenditure in selected countries in theAsia and Pacific region. The table reveals that there is considerable variation in allocation ofbudgets towards these vital social sectors among countries in the region and so there is scope for

lagging countries to prioritize more budgetary resources towards these areas.

(iv) Additional resources from private sector participation. Considering the large gap inresources for the MDGs and the need to substantially increase resources within the next five years toachieve the MDGs by 2015, the need to involve the private sector in support of achieving the MDGsis urgent. While many areas of basic service provision may not appear attractive for the privatesector at present, more can be done to involve private businesses in areas such as water andsanitation, health insurance, rural roads and rural electrification through public - private partnershipsIn health insurance, for example, a private-public partnership can involve government subsidizationof private health insurance premiums for the poor. In infrastructure, more than 70% investmentshave traditionally been made by the public sector. Governments can provide more tax incentives

and undertake cost sharing in sectors where social returns are high.

(v) Encouraging more trade and foreign investments. Many estimates have been madeabout the benefits of a successful completion of the Doha round for developing countries whichshow large benefits from greater market access for them. Similarly, countries in the Asia and Pacificregion can also benefit from greater inflows of private foreign investments. Increasingly, intra-regional trade and investments are taking a larger share of total trade and investment and more couldbe done to increase regional cooperation in these areas.

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(vi) Greater flow of international assistance. Despite all the above measures, somecountries in the Asia and Pacific region, particularly the least developed countries, will need more

international assistance to meet the MDG targets.

As shown in Appendix Table 6, aid received by Asia on per capita terms is the lowestamongst all developing regions. While Africa received $45 per person in net ODA in 2008, Asiareceived only $12. Also as indicated in Appendix Table 7, the proportion of aid going to the socialsectors which support the MDGs has remained below 40% of total aid.

More regional cooperation efforts can also help augment aid from better off countries to theleast developed in the region. Such intra-regional flows already exist as shown in Appendix Table 8These may need to be augmented.

3See Chapter IV of United Nations Economic and Social Commission for Asia and the Pacific, Asian Development

Bank, and United Nations Development Programme. 2010. Achieving the Millennium Development Goals in an Era of

Global Uncertainty: Asia-Pacific Regional Report 2009/10. Bangkok.


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Appendixes

Appendix Table 1: MDG investment requirements, $ per capita, based on needs assessments

Source: United Nations Economic and Social Commission for Asia and the Pacific, Asian Development Bank, andUnited Nations Development Programme. 2008.A Future Within Reach 2008: Regional Partnerships for the MillenniumDevelopment Goals in Asia and the Pacific. Bangkok.

Appendix Table 2: MDG resource gap in Asia-Pacific

Number ofcountries

Annual resourcegap

Total ($ billion)

LDCs 14 8

ADF-receivingcountries 29 25

OCR countries 22 53

Source: United Nations Economic and Social Commission for Asia and the Pacific, Asian Development Bank, andUnited Nations Development Programme. 2008.A Future Within Reach 2008: Regional Partnerships for the MillenniumDevelopment Goals in Asia and the Pacific. Bangkok; and ADB. 2010. The fifth general capital increase tripled ADBscapital base to $165 billion (Update).ADB In Focus Series: General Capital Increase V (GCI V). Manila.


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Appendix Table 3: Per capita GDP growth gap to achieve MDG targets

Number ofcountries

Countrieswith

growthgap

Countriesgrowth

gap 0-1%

Countriesgrowth

gap 1-2%

Countrieswith GDPgrowth gap

2-3%


3-4%


4-5%


>5%

Goal 1Target 1

Populationbelow $1/day

(PPP)consumption

25 17 1 2 4 2 8

Goal 1Target 1

Poverty gapratio

25 18 1 2 4 1 3 7

Goal 1Target 2

Populationundernourished (%)

22 19 1 1 2 1 14

Goal 2Target 3

Net enrolmentratio inprimaryeducation,both sexes

18 18 1 1 1 15

Goal 2Target 3

Primarycompletionrate, bothsexes

18 15 1 1 13

Goal 3Target 4

Gender ParityIndex inprimary levelenrolment

29 23 1 3 1 2 16

Goal 3Target 4

Gender ParityIndex insecondarylevelenrolment

29 17 1 1 1 1 13

Goal 3Target 4

Gender ParityIndex intertiary levelenrolment

29 18 18

Goal 4Target 5

Maternalmortality ratioper 100,000live births

30 27 27

Goal 4Target 5

Childrenunder fivemortality rateper 1,000 livebirths

30 30 1 1 28

Goal 4Target 5

Mortality rate(0-1 year) per1,000 livebirths

30 30 1 1 28

Source: United Nations Economic and Social Commission for Asia and the Pacific, Asian Development Bank, andUnited Nations Development Programme. 2008.A Future Within Reach 2008: Regional Partnerships for the MillenniumDevelopment Goals in Asia and the Pacific. Bangkok.


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Appendix Table 4: Tax revenue as % of GDP

Tax effort(% of GDP)

Year

World 16.75 2007

East Asia and Pacific 10.11 2006

South Asia 12.27 2008

Industrializedcountries

16.86 2007

OECD 16.82 2007

Source: The World Bank Group. World Development Indicators and Global Development Finance Databank.Retrieved fromhttp://databank.worldbank.org/ddp/home.do?Step=2&id=4&hActive DimensionId=WDI_SERIES(accessed 26 July 2010).

Appendix Table 5: Public expenditure on health and education as % of total government expenditure

Public Expenditureon Health

(2006)

Public Expenditureon Education(2000-2007)

South and South-West Asia

Bangladesh 7.4 14.2

Bhutan 7.3 17.2India 3.4 10.7

Iran 9.2 19.5

Nepal 9.2 14.9

Pakistan 1.3 11.2

Sri Lanka 8.3

Turkey 16.5

South-East Asia

Cambodia 10.7 12.4

Indonesia 5.3 17.2

Lao PDR 4.1 14.0

Malaysia 7.0 25.2

Myanmar 1.8 18.1

Philippines 6.4 15.2Singapore 5.4

Thailand 11.3 25.0

Viet Nam 6.8

East and North-East Asia

China 9.9

Mongolia 11.0

Republic of Korea 11.9 15.3

Source: United Nations Development Programme. 2009. Human Development Report 2009Overcoming barriers:Human mobility and development. New York.
http://databank.worldbank.org/ddp/home.do?Step=2&id=4&hActive%20DimensionId=WDI_SERIEShttp://databank.worldbank.org/ddp/home.do?Step=2&id=4&hActive%20DimensionId=WDI_SERIEShttp://databank.worldbank.org/ddp/home.do?Step=2&id=4&hActive%20DimensionId=WDI_SERIEShttp://databank.worldbank.org/ddp/home.do?Step=2&id=4&hActive%20DimensionId=WDI_SERIES


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Appendix Table 6: Net ODA receipts per person in 2008, $

Source: United Nations Economic and Social Commission for Asia and the Pacific, Asian Development Bank, andUnited Nations Development Programme. 2010, July 21. Paths to 2015: MDG Priorities in Asia and the Pacific (Asia-Pacific MDG Report 2010/11).(under preparation).

Appendix Table 7: Aid commitment to Social Sectors

Source: United Nations Economic and Social Commission for Asia and the Pacific, Asian Development Bank, andUnited Nations Development Programme. 2008.A Future Within Reach 2008: Regional Partnerships for the Millennium

Development Goals in Asia and the Pacific. Bangkok.


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Appendix Table 8: Intraregional flows of official development assistance

Source: United Nations Economic and Social Commission for Asia and the Pacific, Asian Development Bank, andUnited Nations Development Programme. 2005.A Future Within Reach: Reshaping Institutions in a Region ofDisparities to Meet the Millennium Development Goals in Asia and the Pacific. Bangkok.


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Roundtable Discussion 3:Promoting an Inclusive and Sustainable

Development for Advancing the MDGs for2015 and Beyond

Prepared by the World Bank

Special Ministerial Meeting forMillennium Development Goals Reviewin Asia and the Pacific : Run Up to 2015

Jakarta, 3-4 August 2010


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Promoting an Inclusive and Sustainable Development for Advancing the MDGs for

2015 and Beyond

Background Paper Prepared by the World Bank

The Changing Global Landscape

As the second decade of the 21st

century begins, we face a global landscape that has beentransformed. Only a few years ago, the global economy was riding a wave of robust and

widespread expansion, fueled by plentiful and low-cost capital and driven by rapidly expanding

trade. For those focused on development challenges, the news was favorable as well average

growth among developing countries was at record levels, with key emerging markets playing an

increasingly important role in driving the global expansion. Building on a sound macroeconomic

foundation, many developing countries that had been left out of previous global expansions were

globalizing and growing.

Events of the last two years have changed this outlook. The sequence of crises first high food

prices, then high and volatile fuel prices, finally a string of financial shocks and institutional failures

created the ingredients leading to global recession, the first such downturn since the Depression

Global growth fell at least 5 percentage points below potential, and world trade registered its

largest decline in 80 years. The global contraction has been unprecedented, not only in its breadth

and depth, but also in the magnitude and coordination of the policy response.

Most signs suggest that the most damaging phase of the crisis is now behind us. Most advanced

economies have emerged from recession. More normal conditions are steadily returning to globa

financial markets, and for many of the most dynamic emerging market economies, growth rates

are climbing toward or even past pre-crisis levels. But it is too soon to declare victory continuing

tremors in financial markets and growing concerns over fiscal sustainability highlight globa

tensions, and the nascent recovery could still stall, with a resulting slide into a second recession ora protracted period of anemic and jobless growth.

Beyond the risks associated with the global recovery, the fallout from the crisis will change the

landscape for finance and growth over the next decade. Developing countries are likely to face

reduced access to global capital flows for a protracted period. In particular, cross-border bond and

bank lending, as well as portfolio equity flows, are likely to be constrained in the new globa

financial environment. Foreign bank participation in developing country financial systems may also

be limited by the need for parent banks in advanced countries to build up capital in a more

restrictive regulatory environment, as well as through financial protectionism that places

pressure on banks to concentrate on home markets. LICs may suffer the most from this shrinkage

as their already small share of total private capital flows (2.6 percent in 2007) dwindles to almost

nothing in 2010 and is not expected to bounce back anytime soon.

The Development Challenges Ahead

Amid these changes, development challenges remain complex and daunting. Efforts to reduce

poverty and meet the Millennium Development Goals (MDGs) have taken on increasing urgency

and new dimensions. Beyond this agenda, new challenges have also emerged: the need to foster

multi-polar growth; respond to complex global interactions; and anticipate risks, potential new

shocks and unpredictable crises.


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Redoubling efforts to meet the MDGs: With only five years remaining before the deadline toreach the MDGs, there is an urgent need to intensify efforts to achieve these targets, with specialattention to increasing investment in girls and women and identifying innovative and targetedapproaches, particularly in Sub-Saharan Africa, where 38 percent of the population, or 366million people, will be living on less than $1.25 per day by 2015. The upcoming High LevelPlenary Meeting of the UN General Assembly on the Millennium Development Goals providesthe final review opportunity on MDG progress prior to the 2015 target, and will hopefullyencourage a recommitment to and renewed energy for the MDG process by member states anddevelopment institutions.

Fostering multi-polar growth and integrating rising economic powers: The stronger relativegrowth of developing countries over the last decade has led to a growing share in globaleconomic activity with some economies emerging as dynamic and competitive growth polesThese countries, if well-supported, can help expand global demand further by creating newmarkets and investment opportunities, with benefits for both developing and developedcountries. Supporting multi-polar growth requires large investments in physical and humancapital going well beyond the traditional focus on poverty reduction and the MDGs. Forexample, larger investment needs are materializing for middle-income countries (MICs) intransportation and communication, while the need to innovate and improve competitiveness israising demand for secondary and tertiary education.

Responding effectively to complex global interactions: As globalization deepens linkagesamong countries and across regions, and global interactions become more complex, the globalpublic goods (GPG) arena presents unprecedented challenges, one of the most notable of whichis climate change. As the world struggles to cope with the myriad effects of climate changerecent events in Copenhagen illustrate the difficulty in identifying a basis for a durableequitable, and effective global agreement. In addition to environment, there is a need tostrengthen the global trading system while minimizing protectionism, strengthen theinternational financial architecture, respond to agriculture and food security needs, and find andimplement win-win solutions to address water scarcity and security. Special attention should begiven to promoting stability in fragile and post-conflict environments, which create risks that cancross borders through civil conflict, illegal trade in narcotics, human trafficking, terrorism, andhumanitarian crises.

Promoting environmentally and socially sustainable development: Beyond climate changethere is a broader sustainability agenda that must be addressed. The shifting economic center ofgravity makes more prominent issues such as social exclusion and gender inequality andcomplex growing economies require institutions and policies to help address these issues.Protecting against irreversible environmental damage such as biodiversity loss, fisheriescollapse, and water pollution is critical. Demand for energy in developing countries is expectedto increase dramatically in coming decades, with 1.6 billion people currently lacking access toelectricity. Meeting their needs in an environmentally-sustainable manner is an urgent yetdifficult challenge, requiring innovative policies and instruments.

Managing risks and anticipating potential shocks and new crises: With increasing globalintegration, the speed at which problems can be transmitted from one country to another is alsoincreasing. Periodic crises, aggravated by inadequate strategies and weak institutional capacity,have slowed down the development of many countries. One overriding lesson from previouscrisesand driven home again in the current environmentis the importance of laying thegroundwork for a crisis response before it is needed.


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Post-Crisis Development Priorities

Setting development priorities in a post-crisis environment requires balance in several dimensions

First, the balance between the traditional focus on poverty reduction and the MDGs, and the

emergence of newand to some extent, more complexpriorities and challenges. Second, the

balance between comprehensiveness and the urgent need for selectivity and a greater focus on

what can work most effectively in particular environments. Finally, the balance between the urge

to expand instruments and institutions to address new problems and the need to avoid further

fragmentation of the development effort. One of many possible conceptual frameworks that can

help organize these complexities identifies five distinct themes:4

Target the Poor and Vulnerable: While overcoming poverty remains a core development objective

it must be recognized that the characteristics of the poor and vulnerable are changing. First, the

geographic dimensions of poverty have shifted; in some countries and regions, substantial progress

has been achieved, with the result that extreme poverty (measured at less than $1.25 a day) has

become less of a concern. Extreme poverty was projected (before the crisis) to fall to almos

insignificant levels in East Asia by 2015, concentrating most of the remaining one billion poor in

South Asia and Sub-Saharan Africa, each accounting for roughly 40 percent of global poverty. On

the other hand, deep poverty (below $2 a day) was expected to remain widespread, at close to 2

billion people by 2015, with two-thirds living outside IDA-only countries. In most of thesecountries, poverty is regionally and/or ethnically concentrated. Second, progress on non-income

MDGs was more limited, so that even as millions benefited from rising incomes, wide gaps

remained in access to basic services, leaving households vulnerable to shocks and downturns in the

short run, and less able to sustain improvement in their well -being in the long run.

Looking ahead, short-term vulnerability must be addressed by improving the targeting and

effectiveness of existing social safety nets so they can be scaled up or established where none exist

Addressing long-term vulnerability (e.g. food, water and sanitation, education, maternal and child

health) requires expanding access, quality and affordability of basic services to enhance

opportunities to invest in human capital and help those facing discrimination and empower families

and communities in lagging regions and areas.

Create Opportunities for Growth: Evidence indicates that sustained growth offers the most robust

and durable path to overcome poverty. Promoting environmentally- and socially-sustainable

growth calls for a broad range of policy actions, ranging from improving investment climates to

enhancing opportunities for human capital creation (especially empowering women and girls) to

fostering innovation and competitiveness. In the aftermath of a crisis, creating productive jobs is

particularly important since employment opportunities and income are expected to recover only

slowly and with a lag, leaving lasting scars on human capital, labor productivity, and prospects for

long-term growth and poverty reduction. The next decades will also see growing pressure to

create jobs in LICs in the face of labor supply growth due to sharp increases in working agepopulation and rising female labor market participation rates. But LIC labor markets, particularly in

fragile states, tend to have small bases of productive wage employment, with extremely high rates

of self- and informal employment. In such environments, policies that enhance the productivity of

micro and small enterprises will be required. Traditional active labor markets policies that might

work in MICs might not adequately serve poorer and more fragile economies.

4These themes underpin the recent paper on the post-crisis strategic directions for the World Bank Group, as described

inNew World, New World Bank Group: (I) Post-Crisis Directions,April 2010.


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Expanding support for growth should center on addressing a set of critical challenges: promoting

agriculture and food security; addressing pressing infrastructure needs, including efficient energy;

fostering an investment climate and private sector that encourages innovation and productivity;

harnessing trade opportunities through improved competitiveness; fostering womens economic

empowerment; and addressing critical public finance challenges.Promote Global Collective Action: The recent wave of crises and the resulting need for

comprehensive, coordinated and global responses highlights the importance of developing

cooperative models for dealing with existing and emerging challenges. In this context, internationa

institutions are critical to providing and managing global public goods (GPGs). They are needed to

build on, reinforce and coordinate national actions, channel funds to national programs, and

monitor and report on progress. Many multilateral and specialized institutions are already

engaged in these areas, with some fully dedicated to a single issue, which suggests the need for

careful consideration before new institutions or mechanisms are proposed.

Looking ahead, one priority for the development community is to enhance the capacity of existing

cooperative models to deal with global challenges, since the absence of internationally-agreed

principles and frameworks in some areas (e.g. trade-distorting policies, financial market volatility

climate change) can disproportionately affect the poor. Promoting better aid coordination in low-

income countries will also be essential, especially in fragile states. The growing number of actors inthe development arena puts pressure on the standard country-based model and strains the

capacity of policymakers and implementing agencies within developing countries. As development

efforts focus on overcoming poverty and improving lives for the poorest and most vulnerable, the

need for leadership to reduce fragmentation and promote aid effectiveness becomes even more

evident.

Strengthen Governance: Good governance and institutional capacity are critical to sustainable

development. They are essential for the efficient and adequate supply of public services, while

checks and balances help ensure that governments are accountable to the public. Governments

worldwide are asking how to more effectively manage resources, how to better support service

delivery to achieve concrete results, and how to rebuild citizens trust in public institutions. The

growing focus on strengthening governance stems from its link to poverty reductiona capable and

accountable state creates opportunities for poor people, provides better services, supports growth

and improves results. In contrast, weak governance results in poor economic outcomes and

deterioration in public trust, and creates fertile ground for corruption.

Moving ahead, work on this agenda at a country level requires bringing together knowledge of

what has worked around the globe with detailed knowledge of country circumstances on the

ground in core areas such as anti-corruption, public finance, public administration reform,

decentralization, mechanisms for accountability, fiduciary systems and procurement, while at a

global and regional level, it focuses on bringing together or supporting regional and globalnetworks to focus on a wide range of key governance issues, such as transparency and governance

identifying and recovering proceeds of corruption, preventing illegal tax havens, and helping

address the problem of non-cooperative jurisdictions.

Manage Risk and Prepare for Crises: Two defining features of globalization are the extent to which

economies have become interconnected, and the increasing speed with which problems that

develop in one part of the world can spread to others. These factors are evident in the transmission

of the financial crisis from industrialized countries to the rest of the world; in the spread of

communicable diseases; and in the accelerating pace of global climate change. More often than


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not, it is developing countriesespecially LICsthat are least prepared and most vulnerable to

emerging financial, environmental, epidemiological and other threats. The current downturn is

estimated to have resulted in 30,000 to 50,000 additional infant deaths in sub-Saharan Africa in

2009, with more girls than boys dying in all regions, underscoring the need for policies to protect

girls in times of crisis. Periodic disasters aggravated with inadequate strategies and weak capacities

to manage them have slowed the development of many countries.

Future work on improving capacity to manage risk and prepare for crises should focus on

developing better global approaches to disaster and post-conflict needs assessments; helping

countries design fiscal policy to smooth expenditures and revenues; developing risk-sharing

mechanisms and political risk insurance products to ensure sustained lending to SMEs and facilitate

better-designed PPP contracts to minimize adverse impact during downturns; designing innovative

finance and insurance products to spread and manage risk; helping governments establish

institutions and capacity to use market mechanisms to manage energy and food price movements

developing contingency plans for the financial sector, debt, and pensions; helping countries

manage reserves to provide a better cushion against external shocks. The new global economic

and financial architecture emerging from the crisis also calls for renewed efforts to provide

appropriate knowledge and policy expertise to developing countries through customized

development solutions integrating diagnostics, finance, technical assistance, risk management, and

increasingly, peer (South-South) learning.

Conclusion

The world is changing. New global challenges, the global nature of crisis, and a new international

economic power configuration are transforming the development landscape. As the economic

center of gravity shifts, there is a pressing need to better integrate rising economic powers into the

international system. The success of this integration will have profound implications for how the

world comes up with solutions to address unprecedented global challenges. Global efforts that

focus on: (1) targeting the poor and vulnerable; (2) creating opportunities for growth; (3)

promoting collective action; (4) strengthening governance; and (5) managing risk and preparing for

crisis can help underpin a development framework capable of making progress on the MDG targets

while also opening up opportunities for more inclusive and sustainable growth through 2015 and

beyond.

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