Speech

Can the IMF Contribute to the Promotion of the MDGs Relating to Gender Equality? by Peter S. Heller, Deputy Director, Fiscal Affairs Department, IMF

September 20, 2003

One does not normally see a connection between the work of the IMF and the realization of the MDG targets related to gender equality. But the connections are there and worth considering. I wish to make three principal points today. First and perhaps most obvious, I want to talk about why promotion of the MDGs is so important if the Fund is to contribute to poverty reduction efforts, and why in particular, achieving the gender-related MDGs is critical to these efforts. Second, I want to describe both the role that the IMF already plays in the global effort to achieve the MDGs (including those which are gender-focused), but also what more the Fund could potentially do in this effort. Specifically, I believe that by paying more attention to a gender-focus in our economic and operational policy analysis, the Fund can enhance its ability to promote the realization of the MDGs. Third, it is also important to emphasize the inherent limits on what the Fund can do. These limits arise from both the narrowness of the Fund's core mandate as well as from some of the macroeconomic policy challenges that arise from a MDG-focused policy program. Needless to say, my views on these issues are mine alone.

The Importance of the MDGs

Let me begin by stating the obvious: the MDGs are a powerful tool for enhancing the economic welfare of girls and women in the poorest societies. Three out of the 8 MDGs address issues directly related to females, such as gender equality in primary and secondary education, full enrollment of girls in primary education, and improvements in maternal health. In addition, to achieve some of the non-gender-specific MDGs, policies would have to be tailored—in a non-neutral way—to disproportionately benefit girls and women, since it can be argued that they are presently disproportionately disadvantaged in terms of poverty rates, poor environmental conditions, and the direct and indirect burdens arising from the HIV/AIDS epidemic. In several countries, girls have lower life expectancy and are more poorly nourished than their male counterparts.

Moreover, as already mentioned by the Managing Director, while achieving the gender-related MDGs is an important goal in itself, it may also be instrumental in fostering growth.² Improving the education, health, and income status of women is key to reducing the fertility rate, increasing labor productivity, and raising human capital. Women who have been deprived of basic education are also more likely to have difficulties in rearing healthy and productive children, with repercussions for a country's human capital in the next generation. Achieving universal secondary education appears particularly critical. While a primary education may have positive benefits for the next generation, only a secondary education seems to redound in significant benefits to the women themselves. Perhaps this underlies recent World Bank estimates that an increase of 1 percentage point in the share of women with secondary education would be associated with an increase in per capita income of 0.3 percentage points.

Vicious and virtuous circles make the achievement of the MDGs particularly difficult for those countries at the bottom of the income range. In effect, being poor is itself a major obstacle towards achieving the MDGs and gender equality. Social indicators tend to be highly correlated with income levels. That is, richer countries have better indicators of health and education. In addition, higher income levels are generally associated with less gender disparities in basic education and health, both across and within countries. Thus, I believe that the principal challenge to be confronted is how to ensure the attainment of the MDGs in the poorest countries of the world, particularly those in Sub-Saharan Africa and parts of South Asia, Latin America, and the Caribbean. These countries need a per capita growth of at least 3 percent annually to halve poverty by 2015. In contrast, there is more cause for optimism about the ultimate achievement of the MDGs by 2015 globally and in many countries for which there are still shortfalls—notably China and India.

There is another very important reason why pegging our hopes to the MDGs is so important. They have been endorsed by virtually all nations, making them a truly universal yardstick for poverty reduction. It is therefore appropriate and legitimate for the IMF and the World Bank to be arguing for the MDGs to be the key framework to underpin country Poverty Reduction Strategy Papers (PRSPs) and, in the IMF's case, to shape PRGF-supported policies. And to so advocate would be fully consistent with the concept of country ownership. Moreover, the MDGs exert significant peer pressure on countries developing or refining their PRSPs. The evidence suggests that recent PRSPs increasingly exhibit a broader coverage of MDG indicators, including disaggregation by gender.

How can the IMF promote the realization of the MDGs?

The IMF has an important role to play in achieving the MDGs, although in many instances the means are indirect:

· IMF-supported programs in countries facing balance of payment crises are vital in restoring sustainable growth, which in turn is a necessary condition for poverty reduction.

· Through its surveillance efforts, particularly with the industrial countries, the IMF plays a crucial role in facilitating the global economic growth necessary to support growth in the poorest countries.

· In this surveillance context, the IMF also seeks to prevent financial crises affecting developing countries, the burden of which falls disproportionately on the poor, with long-lasting effects on human capital formation. For women particularly, this preventive role may be the most important one, since women may be the most susceptible to the adverse effects of a financial crisis (as discussed below).

· Also through its surveillance efforts, the IMF strongly emphasizes the need for increased development assistance and in particular for meeting the UN target for ODA of 0.7 percent of industrial country GNP.

· The IMF promotes increased budget allocations to poverty-reducing expenditure programs in low income countries. In countries with PRGF-supported programs, such spending has increased, on average, by 1½ percentage points of GDP since the launching of the facility in late 1999.

· The IMF, in collaboration with the World Bank, provides substantial technical assistance on budget systems to ensure that increased social spending reaches its intended users. This includes the promotion of fiscal transparency in a country's budget operations and helping countries put in place systems to track and report poverty-reducing expenditure.

· The IMF, along with the World Bank, has been deeply involved in the effort to promote significant debt relief for poor countries—in this way, budgetary resources have been freed for social spending. As of September 2003, the HIPCS initiative has benefited 26 countries, which will see their debts fall by two thirds in net present value terms.

· The IMF continues to be a strong advocate for freer access to industrialized countries' markets as a prime strategy to achieve the MDGs. In this context, the IMF has applauded the recently negotiated amendments to the rules on intellectual property rights to give poor countries access to cheaper generic medicines.

· Finally, the Fund undertakes substantial policy analyses on macroeconomic issues in low-income countries. A recent pamphlet on the topic lists some 500 research papers, mostly written within the last five years, and covering issues such as the macroeconomic impact of HIV/AIDs; the design of social safety nets during fiscal adjustments; and the link between corruption and social spending.

The question can then be posed: given its mandate and limitations, what else can the Fund do to promote the realization of the MDG targets for women and girls? First, we should ensure that a sufficient MDG focus underlies countries' PRSPs. Given the special emphasis of the MDGs on gender-equality, a focus on achieving the MDGs perforce ensures that attention is paid to promoting policies that differentially favor women and girls. A key challenge lies in translating medium-term goals into national budgets year by year on the basis of actual policies and available financing. The PRSP and budget exercises provide poor countries with an opportunity to discuss with different stakeholders, including the international community, the actions and resources needed to overcome the gap between realistic budgets and the longer-term policy goals implied by the MDGs.

Second, I believe that a gender focus may be valuable in shaping our views on macroeconomic policy. Much remains to be done to enhance our understanding of these issues at an analytical level and, importantly, to give greater impetus for IMF macroeconomists to focus on these issues. For example,

· Official GDP figures substantially underestimate the contribution of women to economic performance. Women make up some 60 to 80 percent of informal sector activity, which is usually poorly covered by official GDP statistics. In addition, women are engaged in unpaid work, such as child care, household maintenance, subsistence farming, and care for the sick, which goes completely unrecorded. Maternal health and nutrition also bear on the health of the child, and thus on quality of the capital endowed to the next generation. Women's time allocation to market activities may be affected by government policy decisions that influence the costs associated with necessary nonmarket activities (e.g., investment in infrastructure on water or roads). There is a growing literature which suggests that a failure to model this "nonmarket" sector of the economy can result in distortions in both analysis and operational policy conclusions which would be particularly significant for developing economies where the nonmarket role of women is particularly important.

· Economic assessments of the impact of price liberalization on production may benefit from taking gender considerations into account. In many cultures, women may be disadvantaged in terms of their decision-making power within the family, their control over the use of household incomes, and in their access to and ownership rights to assets. This may affect the extent to which they respond, in their production and investment decisions, to improved market incentives, e.g., in terms of price liberalization or interest rate movements.

· Assessing the welfare and macroeconomic effects of trade policy measures may also gain from such a gender focus. Trade liberalization may affect men and women in different ways. There is some evidence to suggest that in developing countries, greater trade openness is associated with an increased share of women in paid employment, particularly in labor intensive sectors. Women may also benefit by their extensive involvement in the agricultural sector to the extent that there is greater openness to industrial country markets and in situations where they are not disadvantaged in their access to such resources as land, credit, and education.

· Conversely, assessments of the impact of economic shocks may also be biased to the extent that gender factors are not taken into account. Women may be excessively exposed to the effects of commodity price shocks or negative trends in the terms of trade in primary commodities. Because women are overrepresented in export-oriented industries, they may also be far more vulnerable to external shocks than their male counterparts. There are 200 export processing zones in some 50 countries around the world, employing two million workers. UNCTAD estimates that 80 percent of these workers are women.

· The Asian financial crisis illustrated that women may bear a disproportionate share of the burden of such crises, being more subject to layoffs or displacement by temporary workers or male workers. Women may be forced into the informal sector at lower rates of remuneration in order to generate some cash incomes for family support. Girls may be forced to drop out of school to share the responsibilities to income generation and nonmarket activities. Women's nonmarket efforts may be more burdened, with increased time costs associated with seeking low cost foods, fuel and water and in the preparation of meals. Women also appear to act as the de facto safety net in societies where formal social safety nets are not in place or poorly developed.

· The adverse effects of crisis may also be exacerbated to the extent that governments, in their efforts to respond under Fund-supported programs to the need to strengthen the fiscal position, cut back on social services—in education and health—for which women would normally disproportionately benefit. Higher charges may be imposed for tuition and health services, forcing greater dropouts by young girls and reduced access to services. As noted above, the effects of girls' education may be particularly powerful in terms of influencing fertility decisions and labor productivity. The disproportionately adverse effects on girls and women in the context of an economic crisis may have longer term consequences than might be immediately apparent.

· Gender inequality is an important factor in the spread of HIV/AIDS, which in turn has had significant macroeconomic implications in affected countries. Budgets are being strained owing to increasing health costs and orphan allowances; labor supply and human capital is being eroded, with women bearing a disproportionate burden in the caring of those infected and orphaned by the epidemic (thus ironically subsidizing the health care costs that countries might otherwise have borne); and in the worst affected countries, GDP per capita could well be about 5 percent lower by 2010.

· Would a gender perspective influence the choice by the IMF of macroeconomic policies? The answer is not easily provided. Possibly the modeling of the nonmarket economy might results in a different policy set, or at least an awareness of the need for supplementary measures to offset effects that would have a particularly adverse effect on productivity or output. Certainly, a gender focus would influence the choice of the specific expenditure or revenue instruments used to consolidate the fiscal position. Policy choices on social safety nets (see below) would also be influenced These issues would be particularly the important if the analysis of the sources of growth were to suggest that influencing the distribution of income and assets by gender might have a beneficial effect. Some policies, particularly those promoting health and education, or promoting greater women's property rights and control over assets or access to credit, technology, and transport, are likely to be win-win policies in terms of higher growth, greater gender equality, and reduced susceptibility of women to economic shocks.

Third, I believe the IMF should explore the opportunities and challenges of a gender-focused perspective on government budgets. This would allow for greater analysis of the incidence of government expenditures and revenues by gender and help governments decide where policies need to be adjusted and resources reallocated to promote gender-equality. It also provides a way to hold governments accountable for its commitments to gender-equality. The main challenges to this approach are weak budget systems in many developing countries, including the lack of gender-disaggregated data and budget classifications. It is worth applauding South Africa, Uganda, and Tanzania, which have undertaken gender budget initiatives in recent years.

Fourth, the IMF could work closely with our development partners to explore more unconventional approaches to stimulating growth and addressing structural and institutional weaknesses of the poorest countries. This might include doing more to encourage educational training programs that facilitate flows of emigration to aging industrial countries—the experience of India and the Philippines in the training of nurses is one obvious example, particularly when such programs are tailored to ensure that they do not result in shortages of paramedical staff. Policies on financial services liberalization could explore how to reduce the transaction costs associated with remittances, a factor which disproportionately taxes female migrants in many countries. In the context of Fund surveillance, industrial countries should be urged to increase spending on global public goods that benefit poor countries and, in particular, contribute to the realization of the MDGs—R&D on vaccines for communicable diseases and improved treatment options for diseases of poor countries are obvious examples.

Finally, the IMF, in collaboration with the Bank, should ensure that social safety nets are appropriately targeted towards girls and women during economic crises and associated adjustment programs. Being poorer, less educated, and overrepresented in informal work arrangements without adequate safety nets, they are more vulnerable in times of distress. Girls are the first to drop out of school during economic downturns, and women are the first to be laid off. Adolescent girls in particular are extremely vulnerable (from AIDS, sexual assault, pregnancy leading to school dropouts) and yet not receiving services (being neither children nor mothers). In some instances, safety nets targeted at women seem to be efficient. Food stamps which mostly fall under the control of women have a greater impact on children's health and nutrition than cash benefits. Similarly, micro-lending to women seems to have a greater impact on household consumption, than lending to men. The increased emphasis on Poverty and Social Impact Analyses (PSIAs) also offers the prospect that a more acute diagnosis of the gender impact of alternative macroeconomic policy instruments may yield improvements in policy design, but such analyses are still very much a work in progress.

Recognizing the limits on the IMF's role in achieving the MDGs

But there are limits as to what the Fund can do alone, given its mandate and core areas of expertise.

· The IMF's mandate is to promote international monetary cooperation, the balanced growth of international trade, and a stable system of exchange rates, leaving little room for detailed microeconomic and sectoral policy analysis.

· According to several IMF Board decisions, the Fund's role in the design and monitoring of structural conditionality should be selective and should focus on the IMF's core area of expertise, relying on the Bank in those areas where important conditionality lies outside our expertise; in the fiscal area, these principally relate to tax policy and administration; issues related to fiscal transparency; and budget execution. Issues of expenditure policy, which are more powerful in affecting gender disparities, fall more in the domain of the World Bank, UNICEF, WHO, and other multilateral agencies.

· While the goals and indicators included in the PRSP are expected to be framed against the backdrop of the MDGs, countries are free to take into account their specific circumstances and national priorities.

· The IMF has only a limited amount of subsidized resources which it can use to finance programs with the poorest countries. As of today, some 10 percent of outstanding loans are under the PRGF, the facility that provides loans at subsidized rates.³

Thus, cooperation with country authorities, the World Bank, UNIFEM, NGOs, and other agencies is critical for progress in achieving the MDGs.

Moreover, the IMF also faces important tensions when pursuing policies consistent with both its prime mandate and the achievement of the MDGs.

· There is the tension between ambition and realism in terms of policies to achieve the MDGs. It is estimated that an additional US$ 40 to 60 billion in ODA is needed per year to achieve the MDGs by 2015. Yet, these funds are still slow to materialize: recent commitments, if fulfilled, will add only around $16 billion, or about one third of what is needed. In working with countries on a day-to-day basis, the Fund cannot build a credible, operationally-relevant, macroeconomic policy framework on the assumption of financing that does not exist or is unlikely to materialize.

· There is also a need to ensure consistency between long-term and short-term objectives. Additional ODA of US$ 50 billion per year would raise the ratio of ODA to domestic revenues in developing countries from currently 41 to 125 percent, on average. Additional aid flows of this magnitude would almost certainly lead to inflationary pressures and a real appreciation of the exchange rate, thus, seriously undermining the external competitiveness of the poorest countries. Such inflows may also have moral hazard effects, weakening the resource mobilization incentives of recipient countries, creating a culture of dependency. Let me be clear. The IMF is publicly committed to work with countries to help them absorb as much ODA as they are able to receive, but this is not to deny that there will be macroeconomic issues and tensions to resolve.

· There also exists a tension between the expectations of the international community and the implementation capacity of poor countries. Many developing countries still lack budget systems that are able to ensure that additional ODA resources are utilized efficiently and well-targeted to their intended purposes.

· Finally, there may still be some tensions between the international communities' strategic vision of how to reduce poverty and the principle of country ownership. As argued earlier, this tension may have somewhat subsided, aided by the broad international endorsement of the MDGs.

. . .

In conclusion, I believe that support for the MDGs perforce requires a greater emphasis on gender-related issues. Recognizing that much of the work on such issues must be the principal responsibility of our development partners in countries and among donors, I nevertheless believe that we in the IMF must be open to considering the need to address gender-related biases in our macroeconomic analyses and policy advice. Failure to do so will mean that the world community is likely to fall increasingly short in its efforts to realize the MDGs for the poorest countries of the world.

References

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¹ Remarks addressed to the Meeting of High-Level Women in International Finance, Economics, and Development, Dubai, September 20, 2003 were written by Peter S. Heller, Deputy Director, and Erik Lueth, Economist, Fiscal Affairs Department, International Monetary Fund. Acknowledgments for helpful comments from Nancy Birdsall, Geeta Rao Gupta, Sanjeev Gupta, Wayne Camard, and James Boughton.

² The evidence is not fully conclusive; papers by Seguino show that in some contexts, gender inequality has been a stimulus to growth, particularly when there are gender inequalities in labor markets.

³ The numbers exclude expired arrangements with outstanding credit.