THE FINANCIAL CRISIS MENACES 2015 MILLENIUM DEVELOPMENT GOALS

by Amin Ahmed

25 April 2009

The global financial crisis is imperilling attainment of the 2015 Millennium Development Goals (MDGs) and creating an emergency for development, warned an IMF-World Bank report released on Friday.

Most of the eight globally-agreed goals are unlikely to be met, including those related to hunger, child and maternal mortality, education, and progress in combating HIV/AIDS, malaria and other major diseases.

The Global Monitoring Report 2009: A Development Emergency (GMR) warns that, although the first goal of halving extreme poverty by 2015 from its 1990-level is still reachable based on current projections, risks abound.

Indeed, new estimates show that more than half of all developing countries could experience a rise in the number of extreme poor in 2009. This proportion is likely to be still higher among low-income countries and countries in Sub-Saharan Africa-two-thirds and three-quarters, respectively.

It is estimated that an additional 55 to 90 million people will be trapped in extreme poverty in 2009 due to the worldwide recession. The number of chronically hungry people is expected to climb to over 1 billion this year, reversing gains in fighting malnutrition and making the need to invest in agriculture, especially urgent.

The crisis will affect all developing countries over the next two years, through contracting export volumes, lower prices, slowing domestic demand, declining remittances and foreign investment, reduced access to financing, and shrinking revenues.

Developing world growth is projected to fall to 1.6 per cent in 2009, from an average of 8.1 per cent in 2006-07, according to new IMF projections. Global output, meanwhile, is projected to contract by 1.3 per cent this year.

The GMR cautions that, while the crisis calls for a special focus on social protection programmes and services that shield poor and vulnerable people from immediate hardship, it is also vital to speed up progress toward the human development goals, particularly those related to health where prospects are gravest.

Net private capital flows to developing countries are in steep decline and could be more than $700 billion lower in 2009 compared to their 2007 peak.

To fill the growing financing gaps in developing countries, G-20 leaders agreed early this month to support a tripling of resources for the IMF to $750 billion. They also supported a general SDR allocation equivalent to $250 billion, $100 billion of which will go directly to developing countries ($19 billion to low-income countries). The IMF’s concessional lending capacity for poor countries will be doubled.

The G-20 supported an increase in multilateral development bank (MDB) lending of $100 billion to a total of $300 billion over the next three years. They will support the World Bank’s Vulnerability Framework, which funds infrastructure projects, safety nets programmes, and financing for small and medium enterprises.

The number of people living on under $1.25/day in the developing world in 2005 was 1.375 billion, or 25 per cent of the population. The MDG target is to halve the 1990 poverty rate (41.7 per cent) to 20.9 per cent by 2015. With extreme poverty projected to fall to15 per cent by 2015, it still appears the target will be met, but this may change as the poverty reduction rate slows with declining growth. Sub-Saharan Africa will not meet MDG1.

Efforts to meet the health and education MDG targets must include strengthened social safety nets, more donor support, more efficient spending, and better leveraging of and involvement by the private sector. In Sub-Saharan Africa and South Asia, half of MDG-related maternal, reproductive, and child health service provision is supplied by private entities (including civil society organisations). In South Asia, 30 per cent of primary and secondary education is delivered by private institutions.

Developing countries need about $900 billion (7 to 9 per cent of their GDP) a year to maintain infrastructure and start new projects, yet only half this amount is actually spent. The funding gap for new infrastructure projects has risen by about $20 billion a year as prospects for private sector financing recede.

In response, the World Bank is launching a new Infrastructure Recovery and Assets (INFRA) platform which could provide at least $15 billion per year over the next three years, to help developing countries and provide the foundation for rapid recovery from the global economic crisis.

The crunch in international trade finance will be addressed through the April 2009 G-20 agreement to ensure the availability of at least $250 billion of trade finance over the next two years through their export credit and investment agencies, and through the MDBs, including up to $50 billion of trade liquidity support over the next three years through the IFC’s Global Trade Liquidity Pool.

Published byDawn.com