Doubling Down on Development

July 14, 2016

Good afternoon. Thank you, Rajesh, for your kind introduction.

I am delighted to return to the Center for Global Development (CGD), which this year marks its 15th anniversary. Combining idealism with realism, CGD has significantly enriched the global dialogue on development. And Nancy Birdsall—your founding president—has used her outstanding intellect and passion to spearhead this important agenda.

Let me mention a few contributions. When the global financial crisis hit, you advocated for a comprehensive support package to help developing countries cope. You pushed relentlessly for increased aid effectiveness and accelerated vaccine development. You advocated practical measures to support fragile countries—from Haiti, to Liberia, to South Sudan.

And—I cannot help but mention this one—you strongly and consistently supported the approval of the IMF’s quota and governance reforms.

Nancy: as you step down, I would like to thank you for your exceptional leadership. CGD is not just a “think-tank”—under your leadership, it has become a “think-and-do-tank.”

Ladies and gentlemen, it did not take the Brexit vote to understand that low growth, rising inequality, and a lack of jobs have combined with social and geopolitical concerns to fuel the rise of populism and inward-looking forces. The greatest challenge we face today is the risk of the world turning its back on global cooperation—the cooperation which has served us all well.

There is one group of countries that would be particularly affected by a breakdown of cooperation. Ironically, it is precisely those countries that offer promise to the future global economy as populations in advanced and emerging markets are aging, limiting their future role in global growth.

Of course, I am talking here of the group of low-income countries—which includes about 60 countries that together account for about one-fifth of the world’s population. Last year, the global community made historic commitments to achieve sustainable development goals in which “no one is left behind”—with the poorest countries needing greatest support to strengthen their development efforts.

Today, we must ensure that these commitments are becoming reality—even as we are facing challenges in many other areas.

1. Challenges for Low-Income Countries

Our mission to improve living conditions in developing countries has come a long way over the last fifteen years. One billion people escaped extreme poverty, helped by growth in China and India.i  Child mortality was drastically reduced. Inroads were made to tackle AIDS, malaria and tuberculosis.

And economic growth in most low-income countries was strong—averaging 6 percent, up from 3½ percent during the 1990s.ii

And yet, millions of people are being left behind. Growth in some fragile states has averaged just 2–3 percent since the turn of the millennium.iii Of the 60 low-income countries, just 16 met the target for extreme poverty reduction. Without a sharp improvement in growth, 20 of them are unlikely to meet it even by 2030.iv

This leaves the global community with a task expressed most clearly by Nelson Mandela:

“As long as poverty, injustice and gross inequality persist in our world,

none of us can truly rest.”v

So our main objective is clear. It has been defined and shaped by the Sustainable Development Goals that were agreed last year.

It may be tempting to think that we will make further progress if we simply continue down the steady path we have been following in the past. But existing obstacles evolve and new ones arise, and so we need to be ever mindful of the challenges in front of us. Let me mention three of them:

  • First, demographic change. By 2035, the number of sub-Saharan Africans reaching working age will exceed that of the rest of the world This can be a demographic dividend that could increase per capita incomes and drive growth in Africa and around the world.

But there is also a potential downside. If we are not able to provide this coming generation with a livelihood and a chance to share in global welfare, we should be prepared for migration and political strife at an unprecedented level. And let us have no illusions that this would stop at the water’s edge, or at borders secured by a wall or chain link fence.

  • Second, climate change. Natural disasters overwhelmingly affect poorer countries. Between 2006 and 2015, they hit low-income countries one and a half times more often than more developed countries.vii

And more than three-quarters of low-income countries are either highly or extremely vulnerable to climate change.viii These stresses could also translate into migration pressures and heightened risk of conflict.

  • Third, the risk of violent conflict indeed remains present, including from civil war or terrorism. The World Development Report—another seed sown by Nancy—has found that for every three years a country is affected by major violence, poverty reduction lags behind the average by almost 3 percentage points.ix

The impact on growth is also sobering. Since the turn of the millennium, real per capita GDP in fragile states has risen only by 15 percent or less—compared with 70 percent in other low-income countries.x

2. Policy Recipes

In addition to these long-term challenges, the global economic environment is not helping much at the moment. I had hoped that our July WEO Update would be more optimistic than our April projection for 3.2 percent growth in 2016. As previously mentioned, however, Brexit has added even greater uncertainty to the outlook.

And specifically for low-income countries, slowing demand from China and the commodity price drop has hurt exporters of raw materials while not providing the expected consumption boost for importers. So where does this leave us?

I am sure I will not surprise you: first and foremost, our advice is to maintain resilience through sound macroeconomic management.

The reason is simple: a big part of low-income countries’ relative success in recent years is owed to sound macroeconomic policies—by which I mean low inflation, manageable fiscal deficits, competitive exchange rates and low public debt levels.

The experience of the last financial crisis clearly demonstrated the value of preparing for a rainy day through prudent policies. In 2009, for instance, while others were left reeling, growth remained positive in over 80 percent of low-income countries—thanks in part to measures implemented in the years before.xi

Indeed, we estimate that as much as three-fifths of a country’s economic performance depends on domestic policies as opposed to changes in the external environment.xii

Now, you will rightly ask whether all the IMF has to offer is grandmotherly advice to maintain low inflation and prudent public finances.

Indeed, I would like to focus your attention on three strands of work that we have engaged in with our member countries in recent years. They focus on (i) raising resources for development, (ii) promoting efficient infrastructure investment, and (iii) inclusive growth—key ingredients for successful development.


Preparing for the challenges of the future costs money. Low-income countries increasingly have the tools to mobilize it themselves by broadening tax basesand strengthening tax administration. Given that half of these countries have tax ratios below 15 percent, there is ample room to boost domestic revenue mobilization.xiii

At the same time, the international community also needs to prevent artificial shifting of business profits to low-tax locations and tax evasion by high net-worth individuals. We are working closely together with the OECD and the World Bank on this in the so-called BEPS project.

Official aid accounts for a more modest share of flows to developing countries these days, but it remains important. Official ODA has risen by 7 percent in real terms in 2015, but the statistics are a little misleading—much of the increase reflects domestic spending on refugees. The bottom line is that ODA as a share of gross national income remains at just about 0.3 percent—well below the 0.7 percent target.xiv

Clearly, there is room to lift both the level and the effectiveness of aid—and I encourage all countries to raise their game in this area.

One more point on resources: workers’ remittances are a growing source of revenues for poorer countries, but transaction costs are high—averaging 8 percent.xv It is time to get serious on the G-20 commitment to reduce these costs.

I will also be in New York next week to give a speech on the importance of maintaining correspondent banking relationships with low-income countries—access to financial markets remains imperative for development.


These resources, of course, have to be put to good use. Our main focus has been on improving public infrastructure.

Consider this: the 48 countries in sub-Saharan Africa together generate only the same amount of electricity as just one advanced economy—Spain.xvi Clearly, if the continent is to realize its potential, better infrastructure is needed.

The price tag, however, is significant. UNCTAD estimates that total infrastructure investment needs in developing countries range from $3.3 trillion to $4.5 trillion a year.xvii Striking the right balance between scaling-up spending and maintaining sustainable debt is therefore critical, and our revised debt policies toward low-income countries reflect this tradeoff.

Moreover, to make sure that any new investment has a lasting positive impact, we at the Fund have expended considerable efforts in providing member countries with the tools and know-how to scale up public investment in a transparent and cost-effective way.


Beyond resources and infrastructure, we have worked with our membership on ways to make growth more inclusive. Lowering inequality is not just a social imperative—it makes growth more robust and sustainable.

We probably all agree on the need to develop human capital—especially by investing in health and education. These investments yield high returns—boosting both productivity and human well-being. In particular, educating girls is probably the single best investment that a developing country can make.

More broadly, improving gender equity—particularly access to health and finance—is a “safe bet” to promote inclusive growth. I am quite encouraged by the results of a new Working Paper by our staff: it finds that empowering women can also support economic diversification!

The paper—which is being published today—goes so far as to suggest that increasing gender equality has the potential to lift a country from the lowest rank for export diversification to about average.xviii This message should ring especially loudly for many commodity-exporting countries.

Finally, let me note the importance of promoting financial inclusion. “Financial development”—by which I mean widening the use of existing financial instruments and adopting new ones—can pay big dividends. In sub-Saharan Africa, for example, we estimate that growth could be about 1½ percentage points higher if we were able to bring the level of financial development closer to the international average.xix

3. The Role of the Bretton Woods Institutions

Dear Nancy, there is quite an agenda left as you step down from the helm at CGD. I trust the Center will continue in the same exemplary way that you have built it. But I would also like to assure you that the IMF and—if they allow me to speak for them at this occasion—our friends and colleagues at the World Bank will continue to carry the work forward.

Like CGD, the Bretton Woods sisters have a proud history of supporting our low-income member countries. Just to highlight a few:

  • Through the Heavily Indebted Poor Countries (HIPC) Initiative, we have delivered over $76 billion of debt relief for the world’s poorest countries since 1996.xx Since 2005, the Multilateral Debt Relief Initiative (MDRI) delivered an additional $50 billion.xxi

By alleviating these debt burdens, recipient countries managed to increase poverty-reducing expenditure, on average, by almost 3 percentage points of GDP.xxii

  • Following the global financial crisis, the IMF provided $13 billion in concessional financing. Last year—in the context of the Financing for Development effort—we expanded access to concessional lending by 50 percent and retained zero percent interest rates.
  • In addition, and importantly, we have increased our capacity development efforts—in areas such as domestic revenue mobilization and public financial management. I just listed these two areas as key priorities for our work going forward, and that is where we are stepping up capacity building efforts in a significant way.

Indeed, we have a major fundraising effort currently underway to allow us to provide this service to our members at the required scale.

And of course, Fund staff are collaborating closely with our colleagues across 19th Street. I very much welcome the Bank’s initiatives on helping refugees, fighting infectious diseases, and of course their goal on ending extreme poverty by 2030.

Much has been written lately about the Bank trying to expand its lending business in areas that are normally covered by the Fund. I can assure you that we are closely in touch on those operations, and both institutions are well aware of the Fund’s mandate in the area of economic stability and growth-friendly macro policies.


This brings me to my conclusion.

As I said at the outset, we stand at a critical moment. We know that globalization—and increased integration—over the past generation has yielded many economic benefits for many people. But at the same time, large groups of people have been left behind.

Unless we get it badly wrong in the next few years, I firmly believe that the 1.3 billion people living in low-income developing countries have greater opportunities than ever before to benefit from, and contribute to, the global economy. This is good news for them, and also for the other 6 billion citizens who will benefit from this global good.

With the right policies to reap its demographic dividend, for instance, per capita income in sub-Saharan Africa could be—I ought to say “ should” be—50 percent higher by 2050.xxiii

Reaching this target, however, requires strong external support and major investment in human and physical capital. Around 18 million new jobs will be needed each year between now and 2035, alongside a major shift from informal to formal work.xxiv

This is a tall order and I wish, Nancy, that we could continue to count on your leadership in this effort. But we will carry on in your spirit, doubling down on the quest for economic development.

By way of closing, let me return to Nelson Mandela:

“When people are determined, they can overcome anything.”xxv

Thank you.

[i]United Nations, The Millennium Development Goals Report 2015

[ii]World Economic Outlook

[iii]World Economic Outlook

[iv]IMF, Macroeconomic Developments in Low-Income Developing Countries, October 2014, p.17

[v]Address by Nelson Mandela for the “Make Poverty History” Campaign, London, United Kingdom, February 3, 2005.

[vi]IMF, Regional Economic Outlook for Sub-Saharan Africa, April 2015, p. 25

[vii]IMF, Macroeconomic Developments and Prospects in Low-Income Developing Countries, November 2015, p.32


[ix]World Development Report 2011, p. 4

[x]IMF, Financing for Development—Revisiting the Monterrey Consensus, July 2015, p.10

[xi]IMF, Macroeconomic Developments in Low-Income Developing Countries, October 2014, p.12

[xii]IMF, World Economic Outlook, Chapter 4, October 2012

[xiii]IMF, Financing for Development—Revisiting the Monterrey Consensus, July 2015


[xv]IMF, Financing for Development—Revisiting the Monterrey Consensus, July 2015

[xvi]Vivien Foster and Cecilia Briceño-Garmendia (eds.), 2010, Africa’s Infrastructure: A Time for Transformation. A copublication of the Agence Française de Développement and the World Bank

[xvii]UNCTAD, World Investment Report 2014

[xviii]IMF Working Paper: Gender Equality and Economic Diversification, July 2016

[xix]IMF Regional Economic Outlook, Sub-Saharan Africa—Time for a Policy Reset, April 2016, p. 52

[xx] IMF Factsheet: Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative

[xxi]IMF and World Bank, Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI)—Statistical Update, March 2016

[xxii]IMF and World Bank, Public Debt Vulnerabilities in Low-Income Countries: The Evolving Landscape, December 2015

[xxiii]IMF, Regional Economic Outlook for Sub-Saharan Africa, April 2015, p. 25

[xxiv] Ibid

[xxv]Interview, Johannesburg, South Africa, November 14, 2006

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