Press Release No. 04/85

Press Release: IMF/World Bank Report Calls for Urgent Action on Poverty Reduction by All Countries

April 22, 2004

Most developing countries struggling to meet Millennium Development Goals by 2015; Report offers agenda for policies and actions by all partners in global campaign to reduce poverty.

Poor people in a large number of countries face little hope of emerging from lives of poverty and deprivation unless all actors in the development field-including governments in poor and rich countries alike-take urgent action now to address the root causes of poverty, according to a new report from the World Bank and the International Monetary Fund.

The Global Monitoring Report 2004 warns that, on current trends, most developing countries will fail to meet most of the Millennium Development Goals that serve as targets for the global effort to reduce poverty and improve services for the poor by 2015.

Accordingly, there is an urgent need to scale up action, on the part of all parties: rich and poor countries, and the international financial institutions such as the Bank and Fund. The agenda proposed by the Global Monitoring Report has three essential elements:

· Accelerating reforms to achieve stronger economic growth-progress in Africa will require a doubling of its current growth rate.

· Empowering and investing in poor people, by broadening and improving the delivery of basic human services.

· Speeding up the implementation of the Monterrey partnership, matching stronger reform efforts by developing countries with increased support from developed countries and international agencies.

The report argues that developed countries need to show leadership by delivering on the promises made at Monterrey Financing for Development conference in 2002, where they pledged to match stronger reform efforts in developing countries with increased support. Since that Monterrey gathering, and despite recent increases, aid remains at low levels relative to needs, and trade barriers continue to discourage developing country exports. Policies in developing countries are improving, but they need to keep to the reform path in the areas of economic growth and delivery of services to the poor, it said.

"The clear message of the report is that it is time for action, to move beyond rhetoric and actually deliver on commitments envisioned in the Monterrey compact," said James Wolfensohn, President of the World Bank.

"The Millennium Development Goals represent an enormous challenge to industrial and developing countries alike. But it is not a challenge that the world can walk away from. We at the IMF are determined to do all we can to further progress toward the MDGs and to help countries implement the agenda set out in this report," said Anne Krueger, Acting Managing Director of the International Monetary Fund.

The Global Monitoring Report 2004 will be the centerpiece of discussions by the Development Committee, the joint Ministerial body of the World Bank and the IMF, during this year's Spring meetings in Washington, April 24-25. Starting this year, the report will be produced annually to underpin the Development Committee's regular monitoring of progress on the policy agenda, and to reinforce the accountabilities of the key actors-developing and developed countries, as well as multilateral institutions.

"The value of the Global Monitoring Report is that it provides an integrated assessment of the policies and actions of all development partners. It is an accountability framework, to monitor how the various parties are living up to their part of the compact and to focus attention on the priorities for action," said Shengman Zhang, Managing Director of the World Bank.

Slow, Uneven Progress Toward MDGs

The report shows uneven progress toward meeting the first MDG of halving the global rate of income poverty between 1990 and 2015. While this goal is likely to be achieved at the global level-largely through progress in the world's two most populous countries, China and India-Africa will fall well short. The snapshot it affords of progress on other MDGs, particularly for health, education and environment, is even bleaker.

On current trends, the goals of reducing child and maternal mortality will not be attained in most regions, and only a small proportion-15-20 percent-of countries currently appear to be on track. The goal of halting and reversing the spread of HIV/AIDS and other major diseases like malaria, tuberculosis, appears daunting, as their incidence continues to rise.

The health goals are rendered more difficult by the large gaps in access to safe drinking water and basic sanitation. With current rates of progress at about half what is needed, most regions will fall well short.

But Past Achievements Give Cause for Hope

The MDGs present a daunting challenge, but past development successes give cause for hope. Globally, adult illiteracy was halved over the past 30 years and life expectancy at birth raised by 20 years over the past 40 years. Vietnam, a low-income country, reduced poverty from 51 percent to 14 percent during 1990-2002. In Sub-Saharan Africa, there are also encouraging stories of success. Botswana doubled the proportion of children in primary school in 15 years, nearly achieving universal primary education. Benin increased its primary enrollment rate and Mali its primary completion rate by more than 20 percentage points in the 1990s. Mauritania increased the ratio of girls to boys at school from 67 to 93 percent between 1990 and 1996.

Uganda reduced HIV/AIDS infection rates for eight consecutive years in the 1990s. And Zambia may soon become the second African country to slow the spread of this scourge. These achievements demonstrate that rapid progress is possible, given good policies and the support of partners.

The achievement of the Millennium Development Goals will require rising above current trends and accelerating the pace of development, and doing so swiftly. This means improving policy performance, encouraging better governance, and strengthening the fight against corruption in developing countries. This also implies expanded markets for developing countries' exports of goods and services. More aid, more effectively delivered by developed countries and aid agencies, is also essential, the report states. Aid will need to be almost doubled from the current annual amount of US$58 billion if developing countries are to stand a chance of achieving the MDGs.

Priorities for Developed Countries

Overall, developed country actions to date have fallen well short of the Monterrey vision, according to the report. Progress seriously lags commitments in most areas. This must change quickly if the world is not to fall even further behind in its efforts to achieve the development goals.

For developed countries, priorities relate to trade and aid policies, and maintenance of strong and stable economic growth in the global economy, which requires an orderly resolution of the current large fiscal and external imbalances, the report says. The report presents a set of newly developed indicators for monitoring trade and aid policies at the level of individual countries.

On trade, developed countries need to lead by example by delivering a timely and pro-development outcome to the current Doha round of trade negotiations. They should aim for reform targets that are sufficiently ambitious, such as complete elimination of tariffs on manufactured products; complete elimination of export subsidies and complete decoupling of agricultural subsidies from production, and reduction of agricultural tariffs to no more than, say, 10 percent; and commitment to ensure free cross-border trade in services delivered over telecommunications links and to liberalize the temporary movement of workers. The liberalization of trade is particularly important in agriculture, where average protection in the OECD countries is more than 7 times as high as in manufacturing.

Aid will also need to rise significantly to achieve the MDGs, the report notes. Although donors have pledged to increase development assistance by US$18.5 billion a year by 2006, research shows that developing countries could effectively absorb an increase of US$30 billion. Additionally, as the developing countries improve their policies and institutions, the amount of additional aid they could use will rise into the range of US$50 billion a year that estimates suggest will be needed to support the achievement of the MDGs.

Finally, the developed countries need to remove the contradictions in their policies that often help developing countries on the one hand, and penalize them on the other. Some developed countries, for example, provide significant levels of development aid, but also maintain restrictive trade regimes that block developing countries imports.

"Analysis presented in the report underscores the need for improved coherence of rich country policies in terms of their development impact," said Zia Qureshi, lead author and coordinator of the report.

Priorities for Developing Countries

Policies in developing countries have improved, enhancing their ability to better direct funds toward development priorities. However, developing countries themselves must stay the course on economic reform and trade liberalization, including shifting the emphasis from heavy business regulation to the strengthening of market institutions, the report states.

Economic growth and stability are essential in the fight against poverty, requiring sound fiscal management, adherence to rule of law, and more open markets for trade and investment. Developing countries also need to build capacity in the public sector, and improve the quality of governance, particularly by tackling corruption.

Governments in these countries also need to invest more in infrastructure and human development services, the report argues, and better target these services to the poor. Infrastructure spending fell in developing countries in the 1990s and needs to rise by an average of 3.5-5.0 percent of gross domestic product in low-income countries and 2.5-4.0 percent of GDP in lower-middle-income-countries.

Priorities for International Financial Institutions

A review of how the international financial institutions are playing their role in reducing poverty and contributing to the achievement of the MDGs shows that they have made progress in enhancing their development effectiveness. This is reflected in progress in country focus and ownership, results orientation of operations, transparency and accountability, and partnership. But there is more to do.

For institutions such as the IMF and the World Bank, the challenge is to refine and strengthen their role in support of low-income countries, where more work is needed to coordinate their efforts and align them to country-owned national strategies. The Bank and other multilateral development banks also need to continue their efforts to build their work around results-based agendas that are regularly monitored and evaluated for performance, the report concludes.