Give to­day’s chil­dren a chance

Financial Nigeria Magazine - - Contents - By Chris­tine La­garde and Vi­tor Gas­par

World lead­ers are gath­er­ing at the United Na­tions to dis­cuss how to de­liver on de­vel­op­ment for all that is eco­nom­i­cally, so­cially, and en­vi­ron­men­tally sus­tain­able – “The 2030 Agenda for Sus­tain­able De­vel­op­ment,” and its 17 Sus­tain­able De­vel­op­ment Goals (SDGs).

The long road to­wards de­vel­op­ment

The world has achieved a tremen­dous amount in the past five decades on the de­vel­op­ment front. Since 1990 alone, over a bil­lion peo­ple have lifted them­selves out of ex­treme poverty. Never be­fore in hu­man his­tory have we wit­nessed progress on this scale. It re­flects a com­bi­na­tion of im­por­tant eco­nomic re­forms that led to ro­bust eco­nomic growth in most of the de­vel­op­ing world and the con­certed ef­forts of the in­ter­na­tional com­mu­nity to sup­port coun­tries in achiev­ing the Mil­len­nium De­vel­op­ment Goals, agreed in 2000.

Let’s look at two In­done­sian women: Sri, the grand­mother, and Tuti, her grand­daugh­ter. Sri’s an­nual in­come was US$1,500. If she had not died dur­ing child­birth, then she surely would have lost one of her seven chil­dren be­fore the age of one. Tuti, on the other hand, has an an­nual in­come of US$11,200 and is hardly at risk of ei­ther dy­ing dur­ing child­birth or of los­ing a child.

In­done­sia con­tin­ues to progress along its de­vel­op­ment path. The In­done­sian gov­ern­ment is forg­ing ahead with plans to fund de­vel­op­ment needs in ed­u­ca­tion, health, and in­fra­struc­ture, to be fi­nanced by in­creas­ing tax rev­enues. Boost­ing rev­enues by an ad­di­tional five per­cent­age points of GDP over five years would en­sure that In­done­sia is on track to meet the SDGs by 2030.

Yet other coun­tries lag be­hind. In too many parts of the world, poverty re­mains a fun­da­men­tal bar­rier to eco­nomic ad­vance­ment. Take Benin, for ex­am­ple. A girl born in Benin to­day has the same life ex­pectancy as an In­done­sian woman born 40 years ago. Benin has about the same in­come per capita as In­done­sia did at that time. Even if Benin were to repli­cate In­done­sia’s fast progress, it would be 2050 be­fore Benin’s girls would reach the de­vel­op­ment stan­dards avail­able to In­done­sian girls in 2030.

Low-in­come coun­tries need to in­crease spend­ing in ed­u­ca­tion, health, wa­ter and san­i­ta­tion, roads, and elec­tric­ity.

The big chal­lenge

This is not good enough. The SDGs are about mak­ing sure that all chil­dren, wher­ever they are born, are given a fair chance by 2030.

The IMF has done some an­a­lyt­i­cal work to see what it would take for low-in­come de­vel­op­ing coun­tries such as Benin to meet the SDGs. We looked at five ar­eas that are crit­i­cal for sus­tain­able and in­clu­sive growth: ed­u­ca­tion, health, wa­ter and san­i­ta­tion, roads, and elec­tric­ity.

How much more spend­ing in these ar­eas is needed to put coun­tries on track to meet the SDGs? We es­ti­mate that low-in­come de­vel­op­ing coun­tries need ad­di­tional an­nual out­lays of 14 per­cent­age points of

GDP on aver­age. Across 49 low-in­come de­vel­op­ing coun­tries, ad­di­tional spend­ing needs amount to about US$520 bil­lion a year–an es­ti­mate that is in the same ball­park as that of other in­sti­tu­tions. Clearly, sig­nif­i­cant new spend­ing is needed.

Ad­dress­ing SDG spend­ing needs

So how can we tackle this im­mense chal­lenge–one that is es­sen­tial to the well­be­ing of whole gen­er­a­tions?

We all need to make a con­certed ef­fort, most im­por­tantly in­di­vid­ual coun­tries, but also in­ter­na­tional or­ga­ni­za­tions, of­fi­cial donors and phi­lan­thropists, the pri­vate sec­tor, and civil so­ci­ety.

As a nec­es­sary first step, low-in­come de­vel­op­ing coun­tries must own the re­spon­si­bil­ity for achiev­ing the SDGs. Coun­try ef­forts should fo­cus on strength­en­ing macroe­co­nomic man­age­ment, en­hanc­ing tax ca­pac­ity, tack­ling spend­ing in­ef­fi­cien­cies, ad­dress­ing the cor­rup­tion that un­der­mines in­clu­sive growth, and fos­ter­ing busi­ness en­vi­ron­ments where the pri­vate sec­tor can thrive. Ac­tion in these ar­eas will sup­port the growth that is fun­da­men­tal to SDG progress–and the IMF will work closely with its mem­ber coun­tries to ac­tively sup­port this re­form agenda.

Se­condly, coun­tries have sub­stan­tial scope to raise tax rev­enues. An am­bi­tious but rea­son­able tar­get for many coun­tries is to in­crease their tax ra­tio by 5 per­cent­age points of GDP; this will re­quire strong ad­min­is­tra­tive and pol­icy re­forms, where the IMF and other de­vel­op­ment part­ners can play a key sup­port­ing role.

Boost­ing tax rev­enues by this amount may be suf­fi­cient to put achieve­ment of the SDGs in reach for emerg­ing mar­ket economies such as In­done­sia, but it will not be suf­fi­cient to meet the fi­nanc­ing needs of most low-in­come de­vel­op­ing coun­tries, in­clud­ing Benin.

For low in­come coun­tries, in ad­di­tion to us­ing ex­ist­ing re­sources bet­ter, fi­nan­cial sup­port will be needed from bi­lat­eral donors, in­ter­na­tional fi­nan­cial in­sti­tu­tions, and phi­lan­thropists–and from pri­vate in­vestors. These in­vestors can make an im­por­tant con­tri­bu­tion in sec­tors such as in­fra­struc­ture and clean en­ergy if the re­quired re­forms are put in place to im­prove the busi­ness cli­mate. En­cour­ag­ing pri­vate in­vest­ment that sup­ports na­tional de­vel­op­ment is pre­cisely the goal of ini­tia­tives such as the Com­pact with Africa.

Ex­tra fi­nanc­ing can also be ob­tained from in­ter­na­tional fi­nan­cial mar­kets and lenders. In gen­eral, bor­row­ing on com­mer­cial terms is a dou­ble-edged sword if fund­ing is not used for high-re­turn projects. As the IMF has em­pha­sized in re­cent years, debt bur­dens are ris­ing: forty per­cent of low-in­come de­vel­op­ing coun­tries are now as­sessed by the IMF and World Bank to be at high risk of debt dis­tress or in debt dis­tress–debt dis­tress that would sig­nif­i­cantly dis­rupt the eco­nomic ac­tiv­ity and em­ploy­ment growth on which progress to­wards the SDGs de­pends.

For­eign aid, prefer­ably in the form of grants, re­mains cru­cial in sup­port­ing the de­vel­op­ment ef­forts of poorer coun­tries. Ad­vanced economies can do more, in­clud­ing by mov­ing to­wards 0.7 per­cent of gross na­tional in­come in aid–and can also bet­ter tar­get their aid bud­gets to sup­port coun­tries most in need of such as­sis­tance. Bud­get con­di­tions are tight in many ad­vanced economies, but the eco­nomic re­turns on well-tar­geted aid–in terms of poverty re­duc­tion, job creation, and im­prov­ing se­cu­rity and sta­bil­ity–are very high.

Beyond spend­ing

Yet the chal­lenges go beyond ramp­ing up de­vel­op­ment out­lays.

The ex­am­ple of In­done­sia shows that de­vel­op­ment and eco­nomic growth re­in­force each other. An im­por­tant as­pect of the broader chal­lenge is the en­vi­ron­ment in which coun­tries seek to gen­er­ate and sus­tain sta­ble growth. This re­quires a va­ri­ety of global pub­lic goods in­clud­ing geo-po­lit­i­cal sta­bil­ity, open trade, and cli­mate ini­tia­tives, as well as good gov­er­nance, which de­pends on tack­ling both the sup­ply and de­mand el­e­ments of cor­rup­tion. These im­por­tant foun­da­tions for de­vel­op­ment un­der­score the need for joint ac­tion by all stake­hold­ers for the SDGs to be re­al­ized.

Kofi An­nan, whose re­cent death we still mourn, once said: “We have the means and the ca­pac­ity to deal with our prob­lems, if only we can find the po­lit­i­cal will.” This is true for the en­tire SDG agenda. Let us sum­mon that po­lit­i­cal will to give all of our chil­dren a chance.

Some chil­dren at the UN head­quar­ters in New York dur­ing the 2017 World Chil­dren’s Day cel­e­bra­tion

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