Foreword and Acknowledgements
In 2000, the international community came together to agree upon the Millennium Development Goals (MDGs) and in so doing committed itself to working together to put an end to poverty, hunger, disease and lack of adequate shelter by 2015. Gender equality, education and environmental sustainability were to be promoted along with basic rights to health, education, safe drinking water and sanitation. To achieve these goals, the international community, including the OECD, agreed to build up a global partnership for development.
The biggest gathering of world leaders ever assembled occurred in New York in 2000 to set eight broad, time-bound and quantified targets to beat extreme poverty, now known around the globe as the Millennium Development Goals (MDGs). With three years to go until the 2015 deadline to meet the MDGs, the question of how much it will cost and who will pay for one of the biggest campaigns ever launched by the international community is returning to everyone’s lips.
This study contributes to the current debate on achieving the Millennium Development Goals (MDGs), their relevance and what can be done after 2015, by looking at estimates of the cost of reaching the goals in 2015. In particular, it sizes the additional resources needed in developing countries to attain the goals. The demand for cost estimates is growing as the 2015 deadline looms. Surprisingly, few recent works have sought to estimate and to find solutions for addressing the corresponding funding gaps.
The Millennium Development Goals
The Millennium challenge
Several years after the Monterrey Conference, progress on meeting the Millennium Development Goals (MDGs) has been uneven. Therefore, in the run up to the 2015 deadline, assessing the magnitude of the financing challenge is crucial. This study estimates the size of the corresponding financial costs, putting this in the context of both domestic and external development resources that are currently and could potentially become available. The estimated cost of attaining the goals is around USD 120 billion and is split evenly between low- and middle-income countries. The cost-effective option for low-income countries1 is to close their financing gap so as to raise their growth rates in a sustainable manner. In the case of middle-income countries,2 it is rather about targeted transfers and expenditure. From this perspective, it is extremely important to continue reforming tax administration and improving the quality of public expenditure.
The cost of measures to fight poverty and to improve health and education
The bottom-up estimate of the global cost of targeted transfers to lift half of the world’s poor out of extreme poverty (MDG 1) is nearly USD 5 billion. To achieve universal primary education (UPE - MDG 2-3), slightly less than USD 9 billion would have to be spent. On average, countries that still need to achieve UPE would need to increase spending on education by slightly more than 7%. The most challenging rate of increase in baseline expenditure is in sub- Saharan Africa, above 20%. However, it is middle-income countries that have the largest absolute expenditure shortfall, almost USD 8 billion in total. The highest costs are associated with health (MDGs 4-6) in low- and lower-middle income countries, at around USD 60 billion. In terms of regions, South Asia, and sub-Saharan Africa require the most, USD 35 billion, and USD 20 billion, respectively. The cost estimate for the promotion of gender equality and the empowerment of women (MDG 3) is partially covered by UPE (MDG 2). This study is not able to provide a cost for ensuring environmental sustainability (MDG 7). It is assumed that the global partnership for development (MDG 8) is the quintessential tool for addressing the estimated cost and not an additional cost per se.
How to pay for the Millennium Development Goals?
Upper-middle-income countries (i.e. countries where annual income per capita is roughly between USD 4 000 and 12 000) should be able to finance their Millennium goals themselves. Doing so would require the political will to confront income inequalities and their causes. In contrast, MDGs remain a financial major challenge for low- and lower-middle-income countries (i.e. countries where annual income per capita is approximately below USD 4 000). Filling at least partly these countries’ financing gap through increased private capital flows is a real option. This would, however, require managing their volatility and adapting policy to optimise the social development spillovers. In the foreseeable future, it is doubtful that tax collection can make a significant contribution in the low-income countries with the largest relative needs. If the needs of the poorest citizens of the poorest countries are to be met, all the development resources – aid, private contributions, remittances, domestic taxes and private capital from traditional and emerging partners – will have a role to play. Establishing coherent policies for development will also be crucial.
What strategies to achieve the Millennium Development Goals?
Upper-middle-income countries (annual income per capita just above above USD 4 000) should succeed in meeting the MDGs using their domestic resources, through targeted cash transfers and expenditure programmes addressing poverty, education and health. In low-income and lower-middleincome countries (annual income per capita roughly below USD 4 000), it is important to pursue institutional reforms to enhance tax collection in order to ensure adequate financing for the MDGs. In low-income countries (annual income per capita below approximately USD 1 000), the incremental cost of meeting the Millennium goals is close to country programmable aid currently being spent globally. Now more than ever, private voluntary donations, cooperation mechanisms with emerging countries, migrant remittances and private capital flows will be required to complement aid. In developing countries, the challenge is twofold: first, to adapt national development strategies to ensure that these various flows contribute to inclusive growth, job creation and social development; second, to implement reforms to improve the quality of public expenditure. As for advanced economies, they are now obligated to improve aid effectiveness and to adopt policies that are more coherent for development.
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