The Millennium Development Goals – bankable pledge or sub-prime asset?

1. The Millennium Development Goals – bankable pledge or sub-prime asset? UNESCO Future Forum - 2 March 2009 Kevin 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

4. 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

5. 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)

6. 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

9. 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

10. 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

11. The economic downturn 9 , 0 7 , 0 Good news recovery projections – not to be taken too seriously 5 , 0 GDP annual growth rate (%) 3 , 0 1 , 0 2006 2007 2008 2009 2010 - 1 , 0 The deteriorating picture for 2009 - 3 , 0 10 , 0 Emerging and Developing regions 8 , 0 apr-2008 oct-2008 6 , 0 nov-2008 4 , 0 GDP annual growth rate (%) jan-2009 2 , 0 Advanced economies 0 , 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 - 2 , 0 Source: International Monetary Fund data

12. Economic growth rate – regional & country variations • 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 Source: International Monetary Fund

13. 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

14. 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%)

15. Most developing countries lack fiscal capacity to respond to crisis • 43 out of 48 low-income countries with data lack fiscal space • 55 out of 87 middle-income countries lack fiscal space 100 90 80 70 60 Number of countries 50 Total number of countries 40 Countries with low fiscal space 30 20 10 0 Middle-Income Low-Income countries countries Sources: International Monetary Fund, World Bank, GMR team calculations

16. 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

18. Low EDI countries at major risk Low Education Development Index (EDI) countries (29) Low-income country with low fiscal space 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

19. 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 30 40 50 60 70 80 90 100 Survival rates to last grade (%) Sources: International Monetary Fund, World Bank, GMR team calculations

20. Most ‘high exposure’ countries face severe fiscal constraints Countries close to UPE 100 Madagascar Cambodia Bangladesh Net enrolment rate in primary (%) Nicaragua India 90 Lao PDR Benin Togo Nepal Mozambique Mauritania 80 Rwanda Bhutan Kenya Ethiopia Senegal 70 Pakistan Mali 60 Burkina Faso 50 Eritrea Niger 40 Countries with low fiscal space 30 20 30 40 50 60 70 80 90 100 Survival rates to last grade (%) Sources: International Monetary Fund, World Bank, GMR team calculations

21. 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

22. 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

23. 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

24. The development financing gap Aid to basic education in low-income countries (LIC) 12 versus aid to banks during a crisis 10 8 6 $US billons 4 2 Current level of aid to basic education 0 EFA financing gap Sources: International Monetary Fund, GMR

25. The development financing gap Aid to basic education in low-income countries (LIC) 400 versus aid to banks during a crisis 350 300 250 Bank capital funded by public monies 200 $US billons 150 100 50 Lower bound estimate of MDGs financing 0 EFA financing gap Sources: International Monetary Fund, GMR

26. Presentation • The MDGs – Where we are today • The impact of the financial crisis • Risks for the MDGs • Responses to the crisis

27. 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

28. 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

29. 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

30. 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.