1
The Millennium Development Goals – bankable pledge or
sub-prime asset?
UNESCO Future Forum - 2 March 2009Kevin Watkins and Patrick Montjourides
2
Presentation
The MDGs – Where we are today
The impact of the financial crisis
Risks for the MDGs
Responses to the crisis
3
The pre-crisis MDGs – the ‘good news’ report
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
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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
International cooperation - Aid $50bn pledged by 2010 but $30bn pipeline deficit and no deal on trade
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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)
Donors back-tracking on aid commitments – aid fell by 4.5% in 2006 and 8% in 2007 (OECD 2008)
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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)
Education inequalities holding back progress
Gender disparities magnified by poverty
The lesson – equity matters for the MDGs
7
Presentation
The MDGs – Where we are today
The impact of the financial crisis
Risks for the MDGs
Responses to the crisis
8
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
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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:• impacts• distribution of shocks• capacity for fiscal stimulus• Policy choice – adjustments can be pro-poor or anti-poor
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Putting the brakes on economic growth
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
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Advanced economies
Emerging and Developing regions apr-2008
oct-2008
nov-2008
jan-2009
Source: International Monetary Fund data
-2,0
0,0
2,0
4,0
6,0
8,0
10,0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
GD
P an
nual
gro
wth
rate
(%)
-3,0
-1,0
1,0
3,0
5,0
7,0
9,0
2006 2007 2008 2009 2010
GD
P an
nual
gro
wth
rate
(%)
Good news recovery projections – not to be taken too seriously
The economic downturn
The deteriorating picture for 2009
12
janv-09
avr-08oct-08
nov-08
0
2
4
6
8
10
12
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
GD
P gr
owth
rat
e (%
)Sub-saharan Africa
janv-09
avr-08oct-08nov-08
0
2
4
6
8
10
12
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
GD
P gr
owth
rat
e (%
)
Developping Asia
In sub-Saharan Africa:• Growth reduction represents $72bn or $85 per capita• Impact below the poverty line (390 million people)
- $18bn or $46 per capita- Loss represents 20% of
average income
2008 2009
China 9 6,7India 7,3 5,1Argentina 6,5 0,01Indonesia 6,1 3,5Brazil 5,8 1,8South Africa 3,1 1,3Mexico 1,8 -0,3Turkey 1 -1,5
Source: International Monetary Fund
Economic growth rate – regional & country variations
Latin America and Caribbean
janv-09
avr-08oct-08nov-08
0
2
4
6
8
10
12
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
GD
P gr
owth
rat
e (%
)
Middle East
janv-09
avr-08oct-08nov-08
0
2
4
6
8
10
12
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
GDP
grow
th ra
te (%
)
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Growth reversals linked to wider macro-economic problems
International trade• Terms of trade for commodity exporters are deteriorating (sub-
Saharan 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
0
10
20
30
40
50
60
70
80
90
100
Middle-Income countries
Low-Income countries
Total number of countries
Num
ber
of
coun
trie
s
Sources: International Monetary Fund, World Bank, GMR team calculations
• 43 out of 48 low-income countries with data lack fiscal space
• 55 out of 87 middle-income countries lack fiscal space
Countries with low fiscal space
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Presentation
The MDGs – Where we are today
The impact of the financial crisis
Risks for the MDGs
Responses to the crisis
17
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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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
Low-income country with low fiscal space
Low Education Development Index (EDI) countries (29)
Low EDI countries at major risk
Sources: International Monetary Fund, World Bank, GMR team calculations* No data available
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Education indicators for 43 ‘high exposure’ countries
30
40
50
60
70
80
90
100
20 30 40 50 60 70 80 90 100
Survival rates to last grade (%)
Net
en
rolm
ent
rate
in
pri
mar
y (%
)
Sources: International Monetary Fund, World Bank, GMR team calculations
Countries close to UPE
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Bangladesh
Benin
Bhutan
Cambodia
Burkina FasoEritrea
Ethiopia
India
Madagascar
Mali
MauritaniaMozambique
Niger
Nepal
Nicaragua
PakistanSenegal
Togo
Rwanda
Most ‘high exposure’ countries face severe fiscal constraints
Kenya
Lao PDR
30
40
50
60
70
80
90
100
20 30 40 50 60 70 80 90 100
Survival rates to last grade (%)
Net
en
rolm
ent
rate
in
pri
mar
y (%
)
Sources: International Monetary Fund, World Bank, GMR team calculations
Countries close to UPE
Countries with low fiscal space
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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
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
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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
Aid- dependent countries facing acute threats
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Current level of aid to basic education
0
2
4
6
8
10
12
Aid to basic education in low-income countries (LIC)
EFA financing gap
versus aid to banks during a crisis
The development financing gap
$US billons
Sources: International Monetary Fund, GMR
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0
50
100
150
200
250
300
350
400
$US
billo
nsAid to basic education in low-income countries (LIC)
EFA financing gap
Lower bound estimate of MDGs financing
versus aid to banks during a crisis
Bank capital funded by
public monies
The development financing gap
Sources: International Monetary Fund, GMR
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Presentation
The MDGs – Where we are today
The impact of the financial crisis
Risks for the MDGs
Responses to the crisis
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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
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
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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
Scale up support for social protection to protect productive assets, health and education
Set equity targets for the MDGs
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Conclusion
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.