The deepening global recession, rising unemployment, and high volatility of commodity prices in 2008 and 2009 have severely affected progress toward poverty reduction (Millennium Development Goal [MDG] 1). The steady increases in food prices in recent years, culminating in exceptional price shocks around mid-2008, have thrown millions into extreme poverty, and the deteriorating growth prospects in developing countries will further slow progress in poverty reduction. The prospects for an economic recovery, essential for alleviating poverty, are highly dependent on effective policy actions to restore confidence in the financial system and to counter falling international demand. While much of the responsibility for restoring global growth lies with policy makers in advanced economies, emerging and developing countries have a key role to play in improving the growth outlook, maintaining macroeconomic stability, and strengthening the international financial system.
Economic growth is central to achieving the Millennium Development Goals (MDGs) and related development outcomes, and a vigorous private sector is vital for strong and sustainable growth. The private sector drives job creation, increases in productivity, and economic growth.1 Private sector jobs provide most of the income in developing as well as developed countries. Revenues from private sector transactions and incomes pay for many of the public goods provided by governments. Competition can help spur technological advancements and productivity gains that are the key to sustained long-term growth.
The Millennium Development Goals (MDGs) strongly emphasize human development-related outcomes, with five of the eight MDGs having health, nutrition, and education results as key indicators for monitoring progress. Governments have a special responsibility to their citizens, especially their poorest citizens, to ensure attainment of primary education, basic maternal and child health and nutrition, and control of communicable diseases. Previous Global Monitoring Reports have largely focused on strengthening this government role. Yet experience in many countries, including some of the poorest, shows that the private sector is also extensively involved in the delivery of services that address these MDGs.
The global financial crisis is impacting an increasing number of developing countries. Low-income countries, which had previously been relatively shielded from the immediate effects of the crisis, are now particularly vulnerable. They are facing shrinking export markets, sharply lower commodity prices, and declining growth rates. The global crisis has raised the risk of poverty and hardship for households in poor countries—about 40 percent of developing countries are highly exposed to the poverty effects of the crisis, and a majority of them are in Sub-Saharan Africa. At the same time, the weakening of economic activity is depressing fiscal revenues in these countries, even as social, infrastructure, and other public spending needs are rising. More than half of low-income countries could see a decline in revenue-to-GDP ratios in 2009. But most low-income country governments will not be able to make up the shortfall in their budgets by borrowing domestically or internationally. The increased fiscal pressures are placing the delivery of basic services at risk and constraining these countries’ ability to undertake countercyclical spending.
External competitiveness and access to international markets are paramount for poor countries to realize the development promise of international trade. Pressing ahead with trade openness is a powerful means for countries to help mitigate the impact of the financial crisis and enhance prospects for economic recovery.
The international financial institutions (IFIs) have a crucial role to play in supporting an effective response to the global crisis and the development emergency that now confronts many developing countries.1 As a result, the focus of the IFIs has shifted to counteracting and mitigating the global private credit crunch and recession. This contrasts with 2007, when the impact of the IFIs stemmed largely from their ability to leverage private capital, which reached record levels of about $1 trillion in net terms in that year.
This third edition of the Global Monitoring Report examines the commitments and actions of donors, international financial institutions, and developing countries to implement the Millennium Declaration, signed by 189 countries in 2000. Many countries are off track to meet the Millennium Development Goals, particularly in Africa and South Asia, but new evidence is emerging that higher-quality aid and a better policy environment are accelerating progress in some countries, and that the benefits of this progress are reaching poor families. This report takes a closer look at the donors' 2005 commitments to aid and debt relief, and argues that rigorous, sustained monitoring is needed to ensure that they are met and deliver results, and to prevent the cycle of accumulating unsustainable debt from repeating itself. International financial institutions need to focus on development outcomes rather than inputs, and strengthen their capacity to manage for results in developing countries.
A Development Emergency: the title of this year's Global Monitoring Report, the sixth in an annual series, could not be more apt. The global economic crisis, the most severe since the Great Depression, is rapidly turning into a human and development crisis. No region is immune. The poor countries are especially vulnerable, as they have the least cushion to withstand events. The crisis, coming on the heels of the food and fuel crises, poses serious threats to their hard-won gains in boosting economic growth and reducing poverty. It is pushing millions back into poverty and putting at risk the very survival of many. The prospect of reaching the Millennium Development Goals (MDGs) by 2015, already a cause for serious concern, now looks even more distant. A global crisis must be met with a global response. The crisis began in the financial markets of developed countries, so the first order of business must be to stabilize these markets and counter the recession that the financial turmoil has triggered. At the same time, strong and urgent actions are needed to counter the impact of the crisis on developing countries and help them restore strong growth while protecting the poor. Global Monitoring Report 2009, prepared jointly by the staff of the World Bank and the International Monetary Fund, provides a development perspective on the global economic crisis. It assesses the impact on developing countries, their growth, poverty reduction, and other MDGs. And it sets out priorities for policy response, both by developing countries themselves and by the international community. This report also focuses on the ways in which the private sector can be better mobilized in support of development goals, especially in the aftermath of the crisis.
Trade reform is an important aspect of the Fund’s purposes and objectives. Article I of its Articles of Agreement explicitly refers to the importance of trade for economic prosperity and growth.1 The Fund’s role in the area of trade policy is complementary to that of other international institutions, in particular, the World Bank and the World Trade Organization (WTO) (Box 1).2
A liberal trade regime is an important factor in encouraging economic growth and efficient resource allocation. The case for open trade policies and consequent resource allocation improvements and enhanced medium-term growth prospects are well known and supported by a large body of theoretical and empirical work (Box 2).