THE END OF POVERTY

HOW WE CAN MAKE IT HAPPEN IN OUR LIFE TIME

JEFFREY SACHS

PENGUIN BOOKS 2005

PART XII

Chapter 14: A Global Compact to End Poverty

Ending global poverty by 2025 will require concerted actions by the rich countries as well as the poor, beginning with a “global compact” between the rich and poor countries. The poor countries must take ending poverty seriously, and will have to devote a greater share of their national resources to cutting poverty rather than to war, corruption, and political infighting. The rich countries will need to move beyond the platitudes of helping the poor, and follow through on their repeated promises to deliver more help. All of this is possible. Indeed it is much more likely than it seems. But it needs a framework. My colleagues and I in the UN Millennium Project have proposed just such a framework, focused on the period until 2015, called the Millennium Development Goals-Based Poverty Reduction Strategy.

A SHADOW PLAY

Many poor countries today pretend to reform while rich countries pretend to help them, raising cynicism to a pretty high level.
The aid agencies, on their part, focus on projects at a symbolic rather than national scale, just big enough to make good headlines.
In 2002, the United States Agency for International Development (USAID) proudly trumpeted its West African Water Initiative but contributed a pitiful $4.4 million over three years – less than a penny per person per year.
IMF officials told the Prime Minister of Ethiopia that “There’s no more money available for health.”
Ethiopia needs about $70 per person per year in development assistance (or $5 billion in total for a 70-million person economy), compared with the $14 per person it receives today (or $1 billion in total).

I believe that the senior IMF officials are wrong: there is more money available for Ethiopia, but only after we cut through the thicket of excuses and platitudes about aid, some of which the IMF itself propagates. In public, all of the standard reasons why aid to Ethiopia is at just the right level are marshalled: Ethiopia is doing fine (says the IMF-World Bank Staff Assessment), it has all the donor resources it needs, it could not absorb any more, corruption and mismanagement would undermine greater assistance. This is the standard litany of excuses used to justify the status quo. In private, virtually the entire development community knows that Ethiopia is starved for cash. Apparently, it is too embarrassing to the political bosses in the United States and Europe to make the point. This is a mistake. If we explain patiently and honestly to the taxpayers in the rich world that more money is needed and can be well used, it is much more likely to become available.

TWO SIDES OF THE COMPACT

Poor countries have no guaranteed right to meet the Millennium Development Goals or to receive development assistance from the rich countries. They only have that right if they themselves carry through on their commitments to good governance.
Our compact, our commitment, in the rich countries should be to help all poor countries where the collective will is present to be responsible partners in the endeavor.
For the others, where authoritarian or corrupt regimes hold sway, the consequences for the population are likely to be tragic, but the responsibilities of the rich world are also limited.

PLANNING FOR SUCCESS

Aid flows through certain pipes – bilateral donors, the World Bank, the regional development banks (such as the African Development Bank) – but these pipes are clogged or simply too narrow, not able to carry a sufficient flow of aid.
The UN secretary-general, overseeing the UN agencies and the Bretton Woods Institutions (which are also part of the UN family), should oversee the entire effort and should ensure that the global compact is put into operation.
Each low-income country should adopt a poverty reduction strategy (PRS) specifically designed to meet the MDGs.
The poverty reduction strategy papers are all publicly available on the IMF Web sites, so one can read for oneself what the countries have deemed to be their poverty reduction strategies.
The programs are often ingenious, but are all chronically underfunded compared with what is needed to achieve the MDGs.

Why today’s system is incoherent

The MDGs are expressed only as vague aspirations rather than operational targets.
Those countries with PDGs are told to be “realistic,” meaning that they should take as a given the limits of today’s constricted donor resources.
What is missing are the linkages between the MDGs and the poverty reduction plans.

In today’s arrangements, the country is presented with a fait accompli – “Here’s the amount of aid you will receive.” Instead, the process should be turned around. The first step should be to learn what the country actually needs in foreign assistance. After that, the IMF and World Bank should go out to raise the required amount from the donors.

Ghana is one of the best governed and managed countries in Africa, took seriously the MDGs and presented a strategy based on the investments that it would need to achieve the MDGs.

The Ghana strategy was exceptionally well designed and argued but the donors balked. The first draft was rejected by the donors. The government cut back on its ambitions, and slashed the aid request to just $6 billion over five years. The donors balked again. The plan was slashed again. By the end of this excruciating process, the poverty reduction plan was funded at around $2 billion for the five-year period.

A MILLENNIUM DEVELOPMENT GOALS-BASED POVERTY REDUCTION STRATEGY

The creative work by the World Bank, the UN agencies, and the bilateral donors has prepared the plumbing system to handle a much greater flow of resources.
Ghana’s donors have reached agreement to coordinate their efforts around the Ghana strategy and to pool their financial resources to support the plan.
The new donor program for Ghana is called the Multi-Donor Budget Support (MDBS) policy.

A true MDG-based poverty reduction strategy would have five parts:

v A Differential Diagnosis, which identifies the policies and investments that the country needs to achieve the MDGs

v An Investment Plan, which shows the size, timing, and costs of the required investments

v A financial Plan to fund the Investment Plan, including the calculation of the MDGs Financing Gap, the portion of financial needs that the donors will have to fill

v A donor plan, which gives the multiyear donor commitments for filling the MDGs Financing Gap

v A Public Management Plan that outlines the mechanisms of governance and public administration that will help implement the expanded public investment strategy

The Financial Plan and the Millennium Development Goals Financing Gap

A proper financial plan begins with an estimate of the unit costs of providing the key investments: teachers, classrooms, kilowatt hours of electricity, health clinics, kilometres of road, and so forth, and then examines the increased populations to be covered by these interventions. These costs of scaling up can be estimated with considerable detail, and they should cover not only the capital costs of the projects, but also the costs of operations and maintenance. In the past, donors often have helped countries to build clinics, but then rejected the plea to help cover the salaries of doctors and nurses to staff the clinics. The predictable result has been the construction of empty shells rather than operating health facilities. Donors need to be prepared to finance not only the physical infrastructure, but also the salaries of public sector workers.

The financial plan must include a realistic picture of what the poor can actually pay and what they can’t pay.
The financial plan should also estimate the share of GDP in tax revenues that can be devoted to the MDGs. Here again realism is vital.

With these assumptions, it is possible to calculate a Millennium Development Goals financing gap, which measures how much the donor community would have to contribute to enable the low-income country to finance the investment plan. The following chapter details these calculations. One point to stress here is that help will be needed not just for a few years, but for most (or all) of the period until 2025. Funding plans cannot realistically expect that poor countries will suddenly pick up the tab for expanded projects after just a few years. Sustainability of the investment plans will require sustained large-scale donor financing for at least a decade to come, and in many cases for two decades.

The donor plan

The donors have put great stress on the need for countries to improve their governance, but much too little stress on how donors themselves need to improve their own performance. As part of every MDG-based poverty reduction strategy, we need a donor plan that spells out in a transparent manner the way that donor commitments will be fulfilled. A donor plan should focus on four aspects of aid flows:

v Magnitude. Aid must be large enough to enable the recipient country to finance its investment plan.

v Timing. Aid must be long term enough to enable the recipient country to follow through on a ten-year program of scaling up.

v Predictability. Aid must be predictable enough so that stops and starts in the aid flows do not jeopardize the investment program or the macroeconomic stability of the recipient country.

v Harmonization. Aid must support the MDG-based poverty reduction strategy, and specifically the investment plan, rather than the pet projects of the aid agencies.

A public management strategy

Regional infrastructure

GLOBAL POLICIES FOR POVERTY REDUCTION

The debt crisis

Global trade policy

Science for development

Environmental stewardship

WHO CONDUCTS THE INTERNATIONAL SYSTEM

NEXT STEPS

Extreme poverty is a trap that can be released through targeted investments if the needed investments are tested and proved and the investment program can be implemented as part of a global compact between rich and poor countries, centered on a Millennium Development Goals-based poverty reduction strategy. That is all great news. But can we afford to do all of this? Would helping the poor in fact bankrupt the rich? I answer this underlying question, in some detail, in the next chapter.

Chapter 15: Can the Rich Afford to Help the Poor?

Chapter 16: Myths and Magic Bullets

Chapter 17: Why We Should Do It

Chapter 18: Our Generation’s Challenge

The End of Poverty Part 12