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Finance & Development
A quarterly magazine of the IMF
June 2007, Volume 44, Number 2

In Brief

Elusive MDGs

With seven years gone and eight to go, the global community has little to celebrate. In 2000, with great fanfare, world leaders pledged to boost living standards by achieving eight Millennium Development Goals (MDGs)—covering poverty, health, education, gender, and the environment—by 2015. But halfway through, although much progress has been made on some fronts, most of the MDGs remain stubbornly out of reach for most regions, according to the fourth annual Global Monitoring Report, produced jointly by the IMF and the World Bank.

Continued rapid global growth would help—although for some countries, the sustainability and quality of growth is being undermined by unsustainable resource extraction and pollution. The global community now needs to quickly scale up aid, show greater policy coherence, and better align assistance around national development strategies. It also needs to tackle two major risks to a brighter outlook: an unacceptably high level of gender inequality (see article on page 6) and the greater needs of fragile states (see box).

Missing by a long shot

The largest "MDG deficit" is in states with lax law and order, stymied by weak institutions and corruption, and often racked by civil conflict. With 9 percent of the developing world's population—nearly 500 million people—these fragile states account for over 25 of the world's extreme poor.

Despite the paucity of recent poverty data for fragile states, it is possible to construct a picture of progress for representative fragile and nonfragile states by inferring poverty rates from the average GDP per capita levels at purchasing power parity for these two groups of countries, and drawing on growth forecasts through 2015. The analysis shows that the average poverty level in fragile states has worsened since 1990, and these states will face an extreme poverty incidence of over 50 percent in 2015, falling far short of their income poverty target of 24.5 percent (see chart). On the health and education fronts, the news is similarly discouraging: fragile states account for nearly one-third of child deaths and for one-third of all 12-year-olds who fail to complete primary school. Moreover, if these states are not helped, they pose risks that may readily cross borders—through civil conflicts, risks to public health, and humanitarian crises.

Too fragile

What can be done? Bilateral donors and multilateral organizations need to step up their efforts to support these countries. Useful steps include a greater field presence, a greater ability to respond rapidly to windows of opportunity, better interagency collaboration, and basing advice and assistance on lessons learned from successful state-building policies elsewhere. The good news is that countries like Mozambique, Uganda, and Vietnam have successfully managed the transition from fragile state status.

Poverty: Overall, the world as a whole is on track to meet the goal of halving poverty by 2015 from its 1990 level—in fact, those living in extreme poverty (on less than $1 a day) number fewer than 1 billion for the first time. But sub-Saharan Africa (SSA) remains way off track, with the region now accounting for 30 percent of the world's extreme poor (up from 19 percent in 1990 and only 11 percent in 1981). The Middle East and North Africa is expected to reach the goal, albeit narrowly, and Europe and Central Asia, and Latin America and the Caribbean are likely to come close. The stars are East Asia and the Pacific and South Asia, which, thanks to spectacular and sustained growth, are projected to overshoot the target.

Education: More children than ever before are now completing primary school—the rate rose from 78 percent in 2000 to 83 percent in 2005. But one-third of developing countries are unlikely to reach universal primary completion. Plus, studies show that educational quality, measured as improvements in cognitive skills, has not necessarily followed the expansion in school enrollment. The most intractable groups are those that are "doubly disadvantaged": female and from excluded ethnic, religious, or low-caste groups (see article on page 16).

Health: Deaths from the measles have dropped by 75 percent in SSA following 550 million inoculations since 2000. But 10 million children under the age of 5 in the developing world die each year from diseases that are easy and inexpensive to prevent, and no region is on track to meet the target for reducing child mortality.

IMF adopts new fiscal transparency code

The IMF approved on May 8 a new fiscal transparency code that introduces nine new "good practices" governments should follow to promote better-informed public debate about how they tax and spend. The IMF's revised Code of Good Practices on Fiscal Transparency draws on the real-world experiences of developing countries, emerging markets, and advanced economies, and follows a broad public consultation process.

The revision retains the original code's four pillars of fiscal transparency: clarity of roles and responsibilities, open budget processes, public availability of information, and assurances of integrity. But it introduces nine new specific good practices and broadens the coverage of others. Among the areas the expanded code covers are revenue from natural resources, government contracts with resource companies, revenue collection, the legal basis for the use or sale of government assets, the impact of budget measures, and publication of a citizens' guide to the budget.

Richard Hemming, Deputy Director of the IMF's Fiscal Affairs Department, said the code "provides real value added because of the link between fiscal transparency, good governance and accountability, the quality and credibility of fiscal policy, and economic performance." In a teleconference with media and civil society organizations on May 15, he noted that the code is one of the "core economic and financial standards" used by the Reports on the Observance of Standards and Codes that "have been prepared on a voluntary basis by 86 industrial, emerging market, and developing countries worldwide, and they have proved useful in identifying shortcomings and establishing fiscal priorities."

Jon Shields, who heads the IMF's Fiscal Transparency Unit, said the new code also emphasizes the need for sufficient time to discuss, consider, and revise a proposed budget and for any supplementary spending proposals to be transparent. He noted that the code calls for periodic reports on long-term finances and that "all information is accessible. It's not enough that actions should be recorded somewhere in a gazette of which there are usually two or three copies. . . ."

A bigger club

The Organization for Economic Cooperation and Development (OECD) is to start talks with Chile, Estonia, Israel, Russia, and Slovenia that could lead to the five countries joining the 30-member group of advanced industrial economies. The Paris-based OECD also plans to strengthen ties with Brazil, China, India, Indonesia, and South Africa, a move that could culminate in membership.

The OECD was established in 1960 and groups member countries that meet its standards of democratic government and market-based economic policies. After starting out with a core group of advanced industrial economies, the OECD's membership widened during the 1990s to include Mexico (1994), the Czech Republic (1995), South Korea and Poland (1996), and the Slovak Republic (2000).

Running short

Thirty-three countries, most of them in Africa, will need emergency assistance to support their food supply this year, the United Nations Food and Agriculture Organization (FAO) predicts. The FAO's Crop Prospects and Food Situation report says a combination of hostile climatic conditions, economic crisis, and conflict is set to cut crop production in several vulnerable countries, even as global cereal production hits new records.

The Rome-based FAO said that although world cereal production is on course for a new high of 2,095 million tons this year, demand and prices are also increasing as biofuels use more grain and global cereal stocks slide to 20-year lows. The cereal import bill for low-income food-deficit countries is set to rise by one-fourth from last year, the FAO forecast.

Southern Africa faces a second successive year of reduced cereal production, with production especially affected in Zimbabwe, although a bountiful harvest in Malawi has left a substantial surplus available for export. A sharp decline is forecast in North African grain production.

Other countries with difficulties include Bolivia, where drought and floods have affected large numbers of farmers, and North Korea, where rising domestic production and increased food aid from South Korea have not alleviated food supply concerns.

Staying warm in Siberia

The European Bank for Reconstruction and Development is lending a municipality in Siberia, Russia, 20 million euros ($26.8 million) to replace public housing that cannot handle the region's seven-month, –50 degree winters. The bank's loan will finance construction of four new housing projects in the western Siberian city of Surgut. The 800 new apartments will be safer, warmer, and 30 percent more energy efficient.

Events in 2007

July 9–11, Brussels, Belgium
International Migration and Development, First Global Forum

August 2–3, Coolum, Australia
14th APEC Finance Ministers' Meeting

September 20, New York, USA
G-8 Foreign Affairs Ministers' Meeting

October 19–21, Washington, D.C.
Annual Meetings of the IMF and the World Bank

November 11–15, Rome, Italy
20th World Energy Congress and Exhibition