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Abstract

What is the human cost of the global economic crisis? This year’s Global Monitoring Report, The MDGs after the Crisis, examines the impact of the worst recession since the Great Depression on poverty and human development outcomes in developing countries. Although the recovery is under way, the impact of the crisis will be lasting and immeasurable. The impressive precrisis progress in poverty reduction will slow, particularly in low-income countries in Africa. No household in developing countries is immune. Gaps will persist to 2020. In 2015, 20 million more people in Sub-Saharan Africa will be in extreme poverty and 53 million more people globally. Even households above the $1.25-a-day poverty line in higher-income developing countries are coping by buying cheaper food, delaying other purchases, reducing visits to doctors, working longer hours, or taking multiple jobs. The crisis will also have serious costs on human development indicators: • 1.2 million more children under age five and 265,000 more infants will die between 2009 and 2015. • 350,000 more students will not complete primary education in 2015. • 100 million fewer people will have access to safe drinking water in 2015 because of the crisis. History tells us that if we let the recovery slide and allow the crisis to lead to widespread domestic policy failures and institutional breakdowns in poor countries, the negative impact on human development outcomes, especially on children and women, will be disastrous. The international financial institutions and international community responded strongly and quickly to the crisis, but more is needed to sustain the recovery and regain the momentum in achieving the Millennium Development Goals (MDGs). Developing countries will also need to implement significant policy reforms and strengthen institutions to improve the efficiency of service delivery in the face of fiscal constraints. Unlike previous crises, however, this one was not caused by domestic policy failure in developing countries. So better development outcomes will also hinge on a rapid global economic recovery that improves export conditions, terms-oftrade, and affordable capital flows—as well as meeting aid commitments to low-income countries. Global Monitoring Report 2010, seventh in this annual series, is prepared jointly by the World Bank and the International Monetary Fund. It provides a development perspective on the global economic crisis and assesses the impact on developing countries—their growth, poverty reduction, and other MDGs. Finally, it sets out priorities for policy responses, both by developing countries and by the international community.

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This volume is a product of the staffs of The World Bank and The International Monetary Fund. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Board of Executive Directors of The World Bank, the Board of Executive Directors of The International Monetary Fund, or the governments they represent.

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ISBN: 978-0-8213-8316-2

eISBN: 978-0-8213-8424-4

DOI: 10.1596/978-0-8213-8316-2

Cover image: “Escape Route,” by Iyke Okenyi, 2006, courtesy of the World Bank Art Program.

Cover design: Debra Naylor of Naylor Design.

Interior photographs: Yosef Hadar / World Bank (10), Curt Carnemark / World Bank (28), Ray Witlin / World Bank (68), Curt Carnemark / World Bank (96), Tran Thi Hoa / World Bank (120).

Contents

  • Foreword

  • Acknowledgments

  • Acronyms and Abbreviations

  • Goals and Targets from the Millennium Declaration

  • Overview: MDGs after the Crisis

  • 1 Millennium Development Goals: Gains Were Significant before the Crisis

  • 2 Lessons from Past Crises—and How the Current Crisis Differs

  • 3 Growth Outlook and Macroeconomic Challenges in Emerging and Developing Countries

  • 4 Outlook for Millennium Development Goals

  • 5 The International Community and Development—Trade, Aid, and the International Financial Institutions

  • Appendix: Classification of Economies by Region and Income, Fiscal 2010

  • Boxes

  • 2.1 Defining growth cycles in developing countries

  • 2.2 Aggregate economic shocks and gender differences: A review of the evidence

  • 2.3 Crises as opportunities for reform

  • 2.4 Using safety nets to lower the cost of reducing poverty

  • 2.5 Are external shocks becoming more important than internal shocks for developing countries?

  • 2.6 Human development suffered severely during crises in developing countries

  • 2.7 Gender differences in impacts of the crisis: Evidence from East Asia

  • 3.1 Quality of macroeconomic policies in low-income countries

  • 3.2 Mobilizing additional revenue in developing countries: Key issues for tax policy and revenue administration

  • 3.3 A fiscal rule for commodity exporters: The cases of Chile and Nigeria

  • 4.1 Uncertainty and risk in projecting attainment of the MDGs

  • 4.2 Estimating the impact of growth on human development indicators

  • 4.3 Assumptions for the archetype countries

  • 4A.1 MAMS: A tool for country-level analysis of development strategies

  • 5.1 Facilitating trade through logistics reforms

  • 5.2 The allocation of aid from private sources

  • 5.3 The IMF’s engagement with low-income countries

  • 5.4 Gender equality as smart economics: A World Bank Group action plan

  • 5.5 Crisis-related initiatives of the International Finance Corporation

  • 5.6 Action Plan for Africa

  • Figures

  • 1 Serious global shortfalls loom for the human development MDGs

  • 2 Key indicators plummet from their overall mean during growth decelerations, all countries

  • 3 The long-run effect of slower growth on selected MDGs is worrisome

  • 1.1 But Africa’s poverty rate is falling

  • 1.2 At the global level, serious shortfalls loom for the human development MDGs

  • 1.3 Since the 1990s growth in developing countries has accelerated

  • 1.4 Poverty reduction is substantial in all regions

  • 1.5 Another view: Poverty rates and the number of poor people are falling rapidly

  • 1.6 Net enrollment rates are rising in many countries

  • 1.7 Gender parity is close in primary education

  • 1.8 More people have improved sources of water

  • 1.9 Progress lacking on ratio of employment to population

  • 1.10 Female enrollment in tertiary education lags in Sub-Saharan Africa and South Asia, 2007

  • 1.11 The contraceptive prevalence rate is low for low-income countries

  • 1.12 HIV prevalence rates and estimated deaths are showing signs of decline

  • 1.13 Improving access to antiretroviral treatment is still far from universal

  • 1.14 Fragile states have made the least progress toward the MDGs

  • 1.15 Progress in Sub-Saharan Africa is significant but still insufficient—partly because of low starting points

  • 1.16 Many countries are falling short of most MDGs, 2009

  • 1.17 Poverty responds less to growth when the initial poverty rate is high

  • 2.1 Key human development and gender indicators plummet from their overall mean during growth decelerations, all countries

  • 2.2 Key human development and gender indicators also fall below their overall means during growth decelerations in Sub-Saharan countries, if less so

  • 2.3 During growth decelerations, economic and institutional indicators diverge far from the overall means

  • 2.4 Health spending growth rate is more volatile than its per capita level or GDP growth

  • 2.5 Public education spending is less closely tied to GDP growth than is health spending

  • 2.6 Aid to education and health does not appear to be closely related to GDP growth, 1998–2007

  • 2.7 Despite intense fiscal pressures, Mexico’s federal funding for health and education is set to rise in 2009–10

  • 2.8 Average pharmaceutical expenditures fall in Eastern Europe, especially in the Baltics, before beginning to rise again

  • 2.9 Undisbursed HIV/AIDS grants from the Global Fund to Fight AIDS, Tuberculosis, and Malaria, Rounds 1–7

  • 2.10 Food-related safety net programs are more common in Africa than elsewhere

  • 2.11 Economic performance and MDG outcomes are better with good policy

  • 2.12 Spending cutbacks in crisis-affected households are jeopardizing future welfare in Armenia, Montenegro, and Turkey

  • 2.13 The crisis sharply reduced wage earnings in middle-income countries

  • 2A.1 Projected Global Fund to Fight AIDS, Tuberculosis, and Malaria and U.S. PEPFAR HIV/AIDS grants as of April 2009

  • 2A.2 Projected Global Fund to Fight AIDS, Tuberculosis, and Malaria and U.S. PEPFAR HIV/AIDS grants per AIDS patient as of April 2009

  • 3.1 Short-term indicators of production and trade are recovering

  • 3.2 Commodity price indexes rebounded strongly in 2009

  • 3.3 Bond spreads have declined in emerging markets and developing countries

  • 3.4 Share prices have recovered sharply

  • 3.5 Exchange rates have been less volatile: Daily spot exchange rates

  • 3.6 The cost of external debt financing has come down

  • 3.7 The share of nonperforming loans to total loans has been rising

  • 3.8 Bank financing to emerging markets dropped sharply in 2009

  • 3.9 Changes in terms of trade have swung sharply since 2008

  • 3.10 External imbalances have come down in emerging and developing countries

  • 3.11 Almost all countries rebuilt their international reserves in 2009

  • 3.12 Deteriorating terms of trade sometimes reinforce contraction in economic activity

  • 3.13 Monetary policy conditions became more accommodating in 2009

  • 3.14 Average year-on-year growth in money and the money gap in emerging markets

  • 3.15 Fiscal deficits expanded in 2009

  • 3.16 Growth in real primary spending, 2010 projections

  • 3.17 Most countries responded with expansionary fiscal and monetary policy

  • 3.18 After previous crises, low-income countries recovered more slowly than the world economy

  • 3.19 Growth of terms of trade and external demand in low-income countries in past and current crises

  • 3.20 Output losses are highly persistent, especially under external demand shocks

  • 3.21 In Sub-Saharan Africa terms-of-trade shocks have larger and more persistent effects

  • 3.22 In low-income countries, growth downbreaks are more associated with terms-of-trade shocks, giving hope for smoother recovery

  • 4.1 Framework linking policies and actions with development outcomes

  • 4.2 The long-run effect of slower growth on selected MDGs is worrisome

  • 4.3 The long-run effect of slower growth is especially worrisome in Sub-Saharan Africa

  • 4.4 Annual GDP growth for LIRP under four cases

  • 4.5 Simulated MDG outcomes for the LIRP archetype under alternative cases

  • 4.6 Simulated MDG outcomes for the LIRR archetype under alternative cases

  • 5.1 Trade has bottomed out and started to recover

  • 5.2 Baltic Dry Index points to a fragile rebound in shipping by sea

  • 5.3 Short-term trade finance messages increased steadily from Jan. 2009 to Feb. 2010

  • 5.4 Tariff rates fell except in upper-middle-income countries, 2008–09

  • 5.5 About 350 trade-restrictive measures and 80 trade-liberalizing measures have been implemented or initiated since the onset of the crisis, but some have already been removed

  • 5.6 Net official development assistance rose in real terms in 2008 and 2009

  • 5.7 Significant amounts of official development assistance are in debt relief and humanitarian assistance

  • 5.8 Trends in gross official development aid from bilateral donors, by type, 2000–08

  • 5.9 Gross official development aid from bilateral donors, 2008

  • 5.10 Fragile states received $21.3 billion net official development assistance in 2008

  • 5.11 Net official development assistance from all sources, by income group, 2000–08

  • 5.12 Net ODA varies widely as a share of GNI in Sub-Saharan Africa

  • 5.13 Debt stock of heavily indebted poor countries is expected to come down by 80 percent in end-2009 NPV

  • 5.14 Multilateral development banks substantially increased their disbursements, 2000–09

  • Maps

  • 1.1 Africa is the only region with high extreme poverty

  • 1.2 Proportion of population living with HIV is still high but declining in Sub-Saharan Africa, 1990, 2001, and 2007

  • 2.1 Around 9 million young children die before their fifth birthday

  • 2.2 An infant in a developing country is ten times more likely to die than a newborn in a developed country

  • 3.1 How the crisis undermined GDP growth in 2009

  • 3.2 Across the world, 884 million people lack access to safe water—84 percent of them in rural areas

  • 4.1 In 2007, 72 million children worldwide were denied access to education

  • 4.2 Tuberculosis kills around 1.3 million people a year, or 3,500 a day

  • 5.1 Each year of a girl’s education reduces, by 10 percent, the risk of her children dying before age five

  • 5.2 Emissions in high-income countries overwhelm those in developing countries

  • Tables

  • 1 Global output

  • 2 Poverty in developing countries, alternative scenarios, 1990–2020

  • 1.1 Poverty reduction is more difficult in poor countries

  • 1.2 Poverty reduction is several times more difficult in Sub-Saharan Africa

  • 1.3 Poverty gaps and ratio of mean income of the poor to the $1.25-a-day poverty line are worse for low-income regions or countries, 2005

  • 2.1 Correlation coefficients between growth acceleration and deceleration and human development indicators

  • 2.2 Frequency of growth acceleration and deceleration, growth rates, and GDP per capita, 1980–2008

  • 2.3 Correlation coefficients between economic cycles and economic and institutional indicators

  • 2.4 World Bank lending for safety nets before and since the food, fuel, and financial crises, 2006–11

  • 2.5 World Bank portfolio allocations to social safety nets, by region, 2009–10

  • 2A.1 Differences between sample averages: Human development and gender indicators

  • 2A.2 Differences between sample averages: Sub-Saharan Africa

  • 2A.3 Differences between sample averages: Economic and institutional indicators

  • 3.1 Global output

  • 3.2 Net financial flows

  • 3.3 Inflows of international remittances

  • 3.4 Growth regression results

  • 4.1 Poverty in developing countries, alternative scenarios, 1990–2020

  • 4.2 Trends for other MDG human development indicators by region and alternative economic scenarios

  • 4A.1 Alternate scenarios for poverty reduction, based on a poverty line of $1.25 a day, by region

  • 4A.2 Alternate scenarios for poverty reduction, based on a poverty line of $2.00 a day, by region

  • 4A.3 Detailed data for archetypes

  • 5.1 World Bank Group trade-related activities, 2007 and 2008

  • 5.2 Distribution of debt distress by country group, end-July 2009

  • 5.3 Gross commitments by IFIs, 2007–09

Foreword

The world is five years from the target date for the Millennium Development Goals (MDGs). We are still recovering from a historic financial and economic crisis. The recovery is uncertain and likely to be uneven. We know from past crises that the harms to human development during bad times cut far deeper than the gains during upswings.

Under these conditions, it is especially important to consider actions to achieve the MDGs by the 2015 deadline. We need to learn lessons from MDG experiences to date. This 2010 Global Monitoring Report can contribute to that assessment, as part of an MDG review led by the United Nations.

How has the world performed in overcoming poverty and fostering human development since the onset of the crisis? This year’s report, The MDGs after the Crisis, aims to answer this and other critical questions. It highlights lessons from the crisis and presents forecasts about poverty and other key indicators.

We learned from the 1990s crises that macroeconomic stabilization is not enough. If strong safety nets are not in place when crises hit, malnutrition and school dropouts increase, potentially leading to the loss of an entire generation.

A key lesson from this financial crisis is that the economic and social impact of the downturn would have been far worse if not for the effective—and often extraordinary—policy responses adopted by many advanced, emerging, and developing countries, as well as the swift and sizable assistance provided by international financial institutions and multilateral development banks. Policy responses and international cooperation have been better than in previous crises.

The postcrisis MDG scorecard is still being tallied. Numbers can only be gathered with time-lags and are often incomplete. It is therefore difficult to take a sharp snapshot of the developing world and to analyze the effectiveness of international aid in real time.

Despite these measurement challenges, we will certainly see significant harm to education, health, nutrition, and poverty indicators, especially in low-income countries. This is not a time for complacency. It is a time for exceptional efforts. For example, timely and well-designed conditional cash transfer programs not only increase household incomes, but also help children—boys and girls—stay in school and learn. To beat major diseases and reduce maternal mortality, we need to work on health systems in a holistic manner. This means addressing issues ranging from financing, service delivery systems, regulation, to governance of the systems. To mitigate the damaging effects of the crisis, we must ensure inclusive and sustainable global growth, maintain and expand an open international trade and financial system, deliver on aid commitments, and encourage the private sector.

To meet the MDGs, the developing world must revive its growth and reinforce its resilience to shocks. Countries that sowed in times of plenty were able to reap in times of loss. Fiscal policy buffers must therefore be rebuilt to allow for future countercyclical responses. Effective and efficient social safety nets—the first line of defense against adverse shocks to the poor—must be strengthened.

Progress on Goal 1—halving extreme poverty and hunger—is advancing in fits and starts. Poverty rates are forecast to continue falling in the wake of the crisis, but will do so more slowly. The global rate for extreme poverty is projected to be 15 percent in 2015, down significantly from 42 percent in 1990. Much of the progress in reducing extreme poverty has taken place in East Asia, where poverty dropped from 55 percent in 1990 to 17 percent in 2005. If this report’s baseline projection for a recovery holds, the developing world will reach the poverty reduction goal by 2015.

However, the crisis has harmed many people. By the end of this year, we estimate that an additional 64 million people will fall into extreme poverty due to the crisis. And by 2015, 53 million fewer people will have escaped poverty. We estimate the poverty rate for Sub-Saharan Africa will be 38 percent by 2015, rather than the 36 percent it would have been without the crisis. The continent will therefore fall short of Goal 1.

Goal 1 also encompasses the aim of halving the proportion of people who suffer from hunger. The developing world is off track to meet this goal. Reducing malnutrition deserves more attention, because nutrition has a multiplier effect on the success of other MDGs, including infant mortality, maternal mortality, and education. Child malnutrition accounts for more than a third of the disease burden of children under five. And malnutrition during pregnancy accounts for more than 20 percent of maternal mortality.

We will likely meet the Goal 3 target of achieving gender parity in primary and secondary education by 2015. More girls than ever in history complete primary school. Almost two-thirds of developing countries reached gender parity at the primary school level by 2005. However, at higher levels of schooling, female enrollment lags seriously. And the quality of secondary and tertiary education needs significant improvement.

Progress in reducing maternal mortality is advancing more quickly than we had estimated earlier. This report includes the new findings just reported in The Lancet that the maternal death toll worldwide dropped from 526,300 in 1980 to around 342,900 in 2008, far below the latest UN estimates of some 500,000 for the same year. These signs of improvement are encouraging. But the progress is fragile and we are still far from reaching the global target of a 75-percent reduction in maternal deaths by 2015 from the ratio that prevailed in 1990. As we emerge from the crisis, we must also renew our efforts to achieve universal access to reproductive health.

The World Bank Group and the International Monetary Fund have stepped up to the challenge posed by the crisis. We have taken numerous initiatives to limit the slide in global economic growth and avert the collapse of the banking and private sectors in many countries. We have also provided financing to governments and the private sector, helping to soften the impact of the crisis on the poor. And we have scaled up our support for social safety nets.

With the deadline for the MDGs fast approaching, we must recognize and overcome obstacles in reaching the targets for tackling extreme poverty, hunger, and disease. Business as usual will not work. At a time of uncertainty, we need to extend our limited resources further. We must build upon the progress made in improving gender equality, education, and environmental sustainability. The actions we take today will shape future opportunities and challenges.

Robert B. Zoellick

President

The World Bank Group

Dominique Strauss-Kahn

Managing Director

International Monetary Fund

Acknowledgments

This report has been prepared jointly by the World Bank and the International Monetary Fund (IMF). In preparing the report, staff also consulted and collaborated with the African Development Bank (AfDB), the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), and the Inter-American Development Bank (IDB). The cooperation and support of staffs of these institutions are gratefully acknowledged.

Delfin S. Go was the lead author and manager of the report. Richard Harmsen led the team from the IMF. Principal authors of the various parts of the report included Jorge Arbache, Jean-Pierre Christophe Chauffour, Ste-fano Curto, John Elder, Vijdan Korman, Maureen Lewis, and Hans Lofgren (World Bank); Andrew Berg, Chris Papageorgiou, Catherine Pattillo, and Jarkko Turunen (IMF); Malvina Pollock, Karen Thierfelder, Sherman Robinson, and William Shaw (consultants). Sachin Shahria and Song Song were key members of the core team and assisted with the overall preparation and coordination of the report.

The work was carried out under the general guidance of Justin Lin, Senior Vice President and Chief Economist, and Hans Timmer, Director, DEC Prospects Group, both of the World Bank. The circle of advisers included Shantayanan Devarajan, Shahrokh Fardoust, Deon Filmer, Ariel Fiszbein, Ann Harrison, Mohammad Zia Qureshi, Martin Ravallion, Augusto de la Torre, and Dominique van der Mensbrugghe.

Several staff members also made valuable contributions, including the following from the World Bank: Luca Bandiera, Uranbileg Batjargal, Shaohua Chen, Julien Gourdon, Lire Ersado, Mariem Malouche, Andrew Mason, Claudio Enrique Raddtz Kiefer, Prem San-graula, Nistha Sinha, Carolyn Turk, Marijn Verhoeven, and Hassan Zaman.

Other contributors from the IMF included John Brondolo and Mario Mansour; research assistance was provided by Emmanuel Hife and Ioana Niculcea.

Contributors from other institutions included Gaston Gohou and Timothy Turnere (AfDB); Indu Bhushan, Valerie Reppelin-Hill, Gina Marie Umali, and Edeena Pike (ADB); Yannis Arvanitis, Gary Bond, and James Ear-wicker (EBRD); and Susana Sitja Rubio and Luis F. Diaz (IDB).

Guidance received from the Executive Directors of the World Bank and the IMF and their staffs during discussions of the draft report is gratefully acknowledged. The report also benefited from many useful comments and suggestions received from the Bank and IMF management and staff in the course of its preparation and review. Additional information and data, including background papers, are available on the dedicated Web site, www.worldbank.org/gmr2010. The multilingual Web sites accompanying the report were produced by Roula Yazigi, Rebecca Ong, Swati Priyadarshini Mishra, and Mohamed Hassan. Rebecca Ong and Merrell Tuck-Primdahl managed the dissemination activities. The translation process was coordinated by Sheila Keane and Jorge del Rosario.

Bruce Ross-Larson was the principal editor. Martha Gottron did the final copyediting. From the World Bank’s Office of the Publisher, Stephen McGroarty, Susan Graham, and Denise Bergeron managed the design, production, printing, and distribution of the report.

Abbreviations and Acronyms

ADB

Asian Development Bank

AfDB

African Development Bank

AIDS

acquired immune deficiency syndrome

AfDF

African Development Fund

AsDF

Asian Development Fund

CIS

Commonwealth of Independent States

CPIA

Country Policy and Institutional Assessment

DAC

Development Assistance Committee

EBRD

European Bank for Reconstruction and Development

EU

European Union

FDI

foreign direct investment

G-8

Group of Eight

G-20

Group of Twenty

GDP

gross domestic product

GNI

gross national income

HIPC

heavily indebted poor country/countries

HIV

human immunodeficiency virus

IBRD

International Bank for Reconstruction and Development

IDA

International Development Association (World Bank Group)

IDB

Inter-American Development Bank

IFC

International Finance Corporation (World Bank Group)

IFI

international financial institution

IMF

International Monetary Fund

MCI

Monetary Conditions Index

MDGs

Millennium Development Goals

MIGA

Multilateral Investment Guarantee Agency (World Bank Group)

NGO

nongovernmental organization

ODA

official development assistance

OECD

Organisation for Economic Co-operation and Development

OPEC

Organization of the Petroleum Exporting Countries

PEPFAR

President’s Emergency Plan for AIDS Relief

PPP

purchasing power parity

SDR

special drawing rights

UN

United Nations

WTO

World Trade Organization

Goals and Targets from the Millennium Declaration

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Source: United Nations. 2008. Report of the Secretary-General on the Indicators for Monitoring the Millennium Development Goals. E/CN.3/2008/29. New York. Note: The Millennium Development Goals and targets come from the Millennium Declaration, signed by 189 countries, including 147 heads of state and government, in September 2000 (http://www.un.org/millennium/declaration/ares552e.htm) and from further agreement by member states at the 2005 World Summit (Resolution adopted by the General Assembly–A/RES/60/1). The goals and targets are interrelated and should be seen as a whole. They represent a partnership between the developed countries and the developing countries “to create an environment—at the national and global levels alike—which is conducive to development and the elimination of poverty.”
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