DDD "what would it take to achieve the #MDGs by 2015?"

1. 4th DAC Development Debate
What would it take to achieve the MDGs by 2015?
Can we still Achieve
the Millennium Development Goals?
FROM COSTS TO POLICIES
An OECD Development Centre study
Jean Philippe Stijns, Ph.D., Economist
OECD Development Centre

2. Motivation
The paper sizes the additional development resources
• that are needed
•And that are potentially available
to attain the MDG’s in developing countries
 2015 deadline is rapidly approaching, and progress remains to be made
 Growing demand for data on domestic resources available for
development, and how they compare to other flows (See AEO 2010-
2011). Cf. Los Cabos report of the G20 working group on development.
 MDG’s too often thought of as Millennium “Donor” Goals.
 Revisit MDG costing exercises from early 2000s
& extend to scope for domestic tax collection.

3. Outline
1 Why revisit the cost of achieving the MDGs?
2 How much would it cost?
3 How to pay for the MDGs?
4 What policy implications can we derive?

4. 1. Basis of cost estimates
6 out of 8 goals
 Poverty reduction target
 Halve the proportion of people living on <$1.25/day
 Education target(s)
 Achieved if net enrolment ratio reaches 100%
 Health related target(s)
 WHO : Multiple health related targets are met
if a level of total expenditure for health exceeds
60 USD per capita

5. 1. Costing MDGs
Direct transfers addressing MDG’s
Top-Down assuming unchanged quality of growth
Growth Dev’t
Poverty Poverty
Health Educ. Health Educ.
Poverty, Education and Health Bottom-UP
are addressed through
economic growth assuming
unchanged income distribution.
Source: Atisophon et al. (2011) – OECD DEV WP #306

6. 1. Limitations
(real & imagined)
1. MDGs were conceived to be met at the global level.
 Is it unfair to benchmark all countries the same way?
 Or is it good to apply some gently pressure?
 But what is the accountability and ownership dynamic?
2. The causal MDG achievement & development is questionable
 Some goals are outputs: e.g. school enrolment; but how about quality?
 Some goals are impacts: e.g. mortality / prevalence but how enabling is the
environment?
3. Development financing is not the same as ODA
 Yet, some countries are still highly dependent on aid (30-50% of revenues);
 Yet (more) efficient taxes don’t always translate in (more) efficient expenditure. Cf.
Global Forum on Development.
4. How reliable are the estimates?
 There are intersections between the MDGs.
 Conversely, there are serious capacity bottleneck issues.
 Even the bottom-up approach assumes constant quality of growth…

7. 2. The Big Number
2009 USD billion
20 Low-income
countries with
financing gap
Total
62.1 59.2 121.3 79 Low-and middle
income countries with
service provision
expenditures*
But nothing in the making of these numbers imply
that this gap necessarily needs to be
completely addressed by ODA…
Source: Authors’ calculations

8. 2. Top-Down vs. Bottom-Up
160
2009 USD billion
140
140
120
Bottom Up
100
79
80
62
60 Top Down
40 33 34
20
6
0
Upper-middle income
Lower-middle income Low income
Source: Authors’ calculations

9. 2. Top-Down vs. Bottom-Up
180 170
2009 USD billion
160
140
120
100 89
80
60
36
40 26
20 6 9 10
2 0.5 1 4
0.1
0
East Asia & South Asia* Middle East & Europe & Sub-Saharan Latin America
Pacific North Africa Central Asia Africa & Caribbean
Bottom Up Top Down
Source: Authors’ calculations

10. 3. Needs vs. Means
160
2009 USD billion
140
120
100
80
60
40
20
0
Low income Lower middle income Upper middle income
Financing Gap
Existing Development Resources
Bottom-Up Costs
Source: Authors’ calculations

11. 3. Development Resources
500 2008 USD billion
450
400
350
300
250
200
150
100
50
0
Private capital flows
Net grants by private voluntary organisations
Other official flows
ODA
Note: Net OOF flows were negative in 2000-01, 2004 and 2006-07.
Source: Authors’ calculations based on DOEC-DAC figures

12. 3. Potential Tax Increases
5.0% % of 2009 USD 70
GDP billion
4.5%
60
4.0%
3.5% 50 Total Potential Tax
Increase
3.0% 40
2.5%
2.0% 30
Average Potential
1.5% 20 Tax Increase as a
1.0% Share of GDP
10
0.5%
0.0% 0
Low-income Lower Upper
middle- middle-
income income
Source: Authors’ calculations

13. 3. Potential Tax Revenues (2)
40
36
35
30
25 23
20
15
10
5 2 2
0 1
0
East Asia & Pacific & Central Asia Middle East & North South Asia
Europe Latin America & Caribbean Africa Sub-Saharan Africa
Source: Authors’ calculations

14. 4.Putting it all together
160 Top-Down
Costs
140 Bottom-Up
Costs
120 FDI
100
Remittances
80
ODA
60
Tax revenues
40
Additional Tax
20 Potential
0
Low income Lower middle income
Upper middle income
Source: Authors’ calculations

15. 4.Policy Implications
• It’s at least as much about political will and policies
than about financing.
• Need for a major upgrade in the quality of public
policies and institutions:
• Policy coherence and aid effectiveness;
• Tax collection, public expenditure and investment climate.

16. 4.Policy Implications
• In upper middle-income countries: the goals are
affordable (with political will and smart policy
design) but:
• Political will and policy reforms will be needed
• And thus space for policy dialogue and capacity building
• In low-income countries: donor countries should
deliver on their aid commitments while the
momentum for tax reforms is sustained.

17. 4.Policy Implications
• More than ever, private capital, development co-
operation among countries of the
South, remittances from migrants and private
donations will need to complement aid.
• Ensure that all these resources and domestic
policies contribute to sustainable, inclusive growth
and to social development.

18. 4. So what’s next? Post-2015
 Do the high costs of MDG achievement offer any guidance on what
monitoring of international development objectives should be like after
2015?
 Is development “achieved” after overcoming the extreme poverty
embodied in the eight MDG’s?
 What is the balance between country-relevant objectives and
internationally comparable goals?
 Should enabling a growth environment be prioritized?
 Should tackling inequality or improving the quality of public
expenditure instead be the main focus of reform?
 Should instead it be aid effectiveness and capacity building?

19. THANK YOU
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Thank you for your attention (uk, us)
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(ar)

20. Background: the MDGs
 UN Millennium Declaration (8 Sept 2000):
adopts 8 goals to measure development progress 1990 – 2015.
 Goals are the broad objectives envisioned by member states in the
Millennium declaration.
Targets quantify how the goal can be achieved.
 Indicators allow the monitoring of progress towards reaching the targets
and achieving the goals.
The paper sizes the additional development
resources that are needed in developing countries
to attain the MDG’s

21. 5.Methodological Annex
Incomes Categories
(annual income per habitant – 2010)
 Upper-middle income: USD 3 976 – 12 275
 Lower-middle income: USD 1 006 – 3 975
 Low income: USD 1 005 or less
Source: OECD Development Centre based on World Bank data

22. 5.Methodological Annex
Reducing poverty through growth: Top-Down for MDG 1
We calculate growth in mean income needed to halve
the 1990 headcount ratio.
Poor
Headcount ratio = f( mean income, poverty line, Lorenz
0.25 curve parameters)
1990
2015 Since the per capita growth rate y = I/Y*1/ICOR – p
0.2 target and I =sY + additional resources + OF we can solve for
additional resources as shown on the slide, using the y
derived from the first step.
0.15
Where I is investment, Y is GDP, p is population
growth, s is the savings rate, OF is other flows, and
0.1
ICOR is the incremental capital output ratio (which we
calculate as the sum of all investment 1990-2015 divided
by the change in output between 2016 and 1990).
0.05
ICOR is the inverse of the marginal productivity of
capital– the higher it is the less productive investment is.
0
$0.00
Source: Authors’ calculations
Additional resources = (y + p) * Y * ICOR – s*Y - OF

23. 5.Methodological Annex
Reducing poverty through redistribution: Bottom-Up for MDG 1
 We can use the Poverty Gap (mean proportionate shortfall of the poor’s income from the
poverty line)
 For those countries which aren’t on track to achieve the target growth rates:
we calculate the poverty gap for 2015 using growth as predicted by the IMF WEO as a
baseline.
This is compared to the Poverty Gap that would obtain if the target growth rates are achieved
instead.
 The difference between these two ratios multiplied times the poverty line (1.25 USD day, or
38 USD per month, or $456 per year) and then times the population of the entire country
gives the aggregate transfer to the poor needed to eliminate poverty.

24. 5.Methodological Annex
Calculating Expenditure to Meet Education-related Goals (MDGs 2 & 3)
NER Pessimistic
100
Universal completion of primary education can be
restated as reaching a NER equal to 100%.
90
For the funding gap, we first estimate the baseline
spending on education.
80
We estimate the spending that is needed to be spent
to achieve the universal enrolment in primary
70
education.
The funding gap, which is equal to the difference
60
between the two estimates, is calculated.
2009 2010 2011 2012 2013 2014 2015
100 For the baseline scenarios: 2 assumptions are
Optimistic
assumed.
90
 NERs remain constant at their 2009 level.
80 (pessimistic)
70  NERs grow linearly following the preceding decade
trend. (optimistic)
60
2009 2010 2011 2012 2013 2014 2015
Source: Authors’ calculations Baseline

25. 5.Methodological Annex
Achieve health related MDGs
Estimation strategy:
 According to WHO study, “the money needed to reach the health related MDGs in 49
low-income countries, suggest that, on average (un-weighted), these countries will need
to spend a little more than USD 60 per capita by 2015.
 Projected per capita expenditure for health based on historical data and estimated the
yearly financial gap between the required linear trends to reach per capita 60 USD
expenditure by 2015.
 These costs per inhabitant are multiplied by population projections coming from the
United Nations’ World Population Prospects, the 2010 Revision (United
Nations, Population Division). Our baseline is a constant scenario, where initial per
capita expenditure for health in 2009 remains constant.

26. 5.Methodological Annex
Estimating the Scope for Scaling-up Domestic Resources Mobilisation
The scale-up of domestic resource mobilisation is explained by an adoption from the
techniques used by Piancastelli (2001) and Bird et al. (2004; 2008).
To calculate “tax effort” in developing countries, we use this index to compare predicted
tax revenues to actual tax revenues and to estimate how much extra tax revenue may be
collected if a country improves tax collection.
Empirically, taxes as a share of GDP can be shown to depend on the economy’s level of
development, on the share of the economy that is formal or industrialised and on the
openness of the economy to trade.
 Generally, higher levels of development and higher levels of openness coincide with
higher levels of tax collection.

27. ODA vs. Private Capital Flows
0.9% ODA, other official flows and net grants by
% GDP of DAC
0.8% private voluntary organisations
member Countries
0.7% Private capital flows
0.6%
0.5%
0.4%
0.3%
0.2%
0.1%
0.0%
Source: Authors’ calculations based on OECD-DAC

28. How Much for poverty?
0.2 Middle East &
Upper-middle 0.1 North Africa
income 0.6
Europe & Central
Lower-middle Asia
2.4 2.3 income Latin America &
4.2 Caribbean
Low income Sub-Saharan
Africa
62
130 170
140
78 1.9
8.5
10 89

29. How Much for Health?
Health needs (MDGs 4-6) measures by Income Group The Big Picture
and Region (2009 USD bn)
0 Most of the extra spending on health
will be needed in sub-Saharan Africa
and South Asia. in order to cut child
Upper-middle income
mortality by two thirds, reduce the
28.8 Lower-middle income
maternal mortality ratio by three
30.1 Low income quarters and halt AIDS, malaria and
other major diseases.
The highest costs are associated with
health (MDGs 4-6) in low- and lower-
0.2 Middle East & North middle
0
Africa countries, USD 59 billion, and, in terms
0.2
Europe & Central Asia of regions in South
4.3
Asia, USD 35 billion, and in sub-
19.5 East Asia & Pacific Saharan Africa, USD 20 billion.
Latin America &
Caribbean
South Asia
34.8
Sub-Saharan Africa

30. How Much for Education?
Education needs (MDGs 2-3) measures by The Big Picture
Income Group and Region (2009 USD bn)
Upper-middle
1.1 income Although overall school attendance has
increased over the past decade, it will still
Lower-middle
income
cost up to USD 8.8 billion to achieve
2.2 universal primary education by 2015.
Low income
5.5
The region which requires the highest
increase in spending compared to baseline
expenditure is Latin America and the
Caribbean because of the high cost per
Middle East & North
0.4 student in the region.
Africa
Europe & Central Asia
1 The most challenging rate of increase in
2.3
East Asia & Pacific baseline expenditure that is required is with
Sub-Saharan Africa, 22.3%, while middle-
1.3 Latin America & income countries have the largest
Caribbean
expenditure shortfall, USD 7.7 billion in
1 South Asia
total.
2.9 Sub-Saharan Africa
Source: Authors’ calculations