Transcript IBEX - African Child Policy Forum

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Rethinking the Millennium Development Goals
Foreign
Aid
for Africa
Enablers and Disablers
Professor Stephen Peterson
Harvard University
Resident Finance Advisor: 1986-1994 Government of Kenya
“
1996-2008 Government of Ethiopia
What a Good Budget Does
“My role is to make everyone equally unhappy”
Allan Morris, Chairman
Commonwealth Grants Commission, Australia
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Preliminaries…………
BUDGET: 2 sides of the COIN


Expenditure (what is the slice going to children)
Revenue
(what is the cake)
APPROPRIATION (budget) -- ‘to take’
(the legal authority to spend)
COMPLIANCE : Paying the legal tax obligation
IMBALANCES: 2 Global Diseases (debt,
unemployment)
SUSTAINABILITY: Expenditure with stable Revenue NOT Debt
The Right to Sustainable Development
The 2 High performers in budgeting for children
(Chart 8, page 15, ACPF Report)
Country
FY
Tanzania
actual
05-06 (50%)
32.6%
47.8%
08
(24.4%)
45.6%
43%
Mozambique 08
actual
1.6%
73.7%
46%
Rule of Thumb
0%
30%
??
projected
Structural Capital/
Percent
Deficit % Recurrent FA dependent
Ratio
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Budgeting 101
Type of Expenditure
Prudent sources of funding
Recurrent Wage
Stable domestic revenue
Recurrent Operating and Maintenance
Stable domestic revenue
(possible external grants for
lumpy/non-perishable items-textbooks)
Recurrent statutory (interest, pensions)
Stable domestic revenue
Capital
Domestic: revenue/loan
External : grant/loan
The Financial Achilles Heel of MDGs/Social Sector
Expenditures:
>long-term liabilities (e.g. teacher salaries) should not be
funded by short term volatile sources of funds (foreign aid) 5
Stagnant present…..or…..better future?
South Korea
1953
1958
General services
14.8%
Defense
Social services
Economic services
Other
Ghana
Defense
Social services
1971
1974
1975
17.4% 20.0%
14.1%
11.3%
13.5%
68.4
34.9
27.3
17.5
18.0
17.1
6.2
18.7
28.3
31.3
26.2
24.4
10.1
26.3
23.3
35.0
38.9
43.8
0.6
2.6
1.2
2.1
5.7
1.2
1972
7.9%
1965
1980
3.7%
1987
6.5%
30.5
35.8
39.0
Economic services 15.1
20.7
15.7
Other
39.8
38.3
46.6
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Africa’s investment priorities
1970-2003
 Positive Growth: Services
 Negative Growth: Agriculture, Mining,
Manufacturing
[C. Rada, L.Taylor, ‘Developing and Transition Economies in the
Late Twentieth Century: Diverging Growth Rates, Economic
Structures and Sources of Demand,’ DESA Working Paper 34,
UNDP, Sept 2006]
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MDGs as ‘Palliative NOT Development Economics
MDG Development Strategy:
SLD (Service Led Development)
[I] shall argue that this palliative economics [the MDGs]
has, to a considerable extent, taken the place of
development economics. Indeed, the balance between
development economics (i.e. radically changing the
productive structures of poor countries) and palliative
economics (i.e. easing the pains of economic misery) is key
to avoiding long-term negative effects.
The MDG’s are Welfare Colonialism
[Erik S. Reinert, How Rich Countries Got Rich…and Why Poor Countries
Stay Poor (New York: Carroll and Graf, 2007), p. 240].
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My view: MDGs are a subsidy to non-taxpayers in developing countries
The Global Crisis (box 2, pg 3)
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1% (the decline in global GDP in 2008—first decline since the depression)
9% (the decline in global trade in 2008—the largest in 15 years)
$10.5 trillion to $1.9 trillion(82% decline in capital flows from 2007 to
2008)
$30 billion to $13 billion (net capital flows to low income countries from
07-09)
$11.6 billion (funding gap or social services for the poorest countries)
40% (decline in exports from Africa in 2008)
7.9% (decline in remittances to Africa)
6.5% to 1% (decline in Africa’s economic growth rate)
$59 billion (external financing needs of low-income countries)
89 million (more people living in extreme poverty by end of 2010)
350 million (out of 650 million, the number of African’s living below $1.25
per day)
1 billion plus (number of people who go to bed hungry)
$21.8 billion (projected 2009 bonus pool at Goldman Sachs)
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The Global LIE (box 3, page 5)
Leverage
Private sector
 $600 trillion in derivative contracts in 2008 up from 100 trillion in 2000
 25% of all mortgages in the US exceed asset value
Public sector
 $12 trillion in bonds which OECD countries must issue in 2008, $9 trillion in 2000
 13% of GDP, Russia’s loan guarantees to state companies
 10% of GDP, Turkey’s loan guarantees to state companies
 53% of GDP, UAE’s loan guarantees to state companies
✓ Threat of Sovereign Default (Greece, Dubai), downgrade (US Treasury AAA
bonds)
Institutions
Financial, accounting and audit firms
 Central banks /
 Credit agencies
Regulatory agencies Bretton Woods agencies
Accounting and Audit standards agencies The Academy
Experts
Accountants and Auditors
Academicians in public and private financial management, economists
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More Pressing Millennium Goals (box 7, pg. 36)
 MDGs contribution goals ($140+ billion) will not be met
 MEG’s: Millennium Entitlement Goals
 US: 10% of GDP 2008; 18% in 2050
 MTG’s: Millennium Terrorist Goals
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US Cost of Afghanistan--$209 billion (since 2001 to 2008)
US, UK (Germany?; France?!?) troop buildup (Dec 1—09
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Iraq ($3 trillion?)
 MCG’s: Millennium Climate Goals
 European Commission Proposal Copenhagen ($80 billion per
annum)
 MUGs: Millennium Unwinding Goals
 Private Sector ($600 trillion derivative contracts; $100 in 2000)
 Public Sector ($12 trillion OECD bonds up $3 trillion in 2 yrs)
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Sovereign debt (default?) Dubai $60 billion, US (AAA)
Govt guarantees of company loans (Russ—13% of GDP, Tur 10%,
Emirates 53%
The Crisis is NOT over
• G-20 debt has reached 118% of GDP
• Will take a decade of spending cuts and tax increases of
8% of GDP to bring debt down to 60%
• Conclusion
– Low growth
– Fiscal austerity
– Sovereign default?
[Source: Financial Times, November 4, 2009]
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Who do you call to fix the global problem?
‘A Lost Profession’
‘Today, not only is our economy in a shambles, but
so to is the economic paradigm that
predominated in the years before the crisis—or
at least it should be.’
Joseph Stiglitz
On the occasion of the founding of:
Institute for New Economic Thinking (INET)
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What to Do?
DIGs
Decade
Infrastructure Goals
DTGs
Decade Tax Goals
‘Taxes are the price
of living in a civilized
society—on that has
social services’
Domestic revenue
>driver of social services
>driver of absorption of
foreign aid
DRGs
Decade Road Goals
Rural roads: win-win
(human welfare & growth)
DAGs
Decade Agriculture Goals
1 billion people go hungry
(Estimated: by 2050 the
world will not be able to
feed itself)
Livelihood of 75% of the poor
Investment in Agriculture:
2005: 5% of revenue
1980-2006 FA decline 75%
Yields : 1960’s 3-6%; now 0%
DPGs
Decade Power Goals
(Lots of power, not electricity)
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No Magic Bullets ………but
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A Proven Golden Bullet
Fact: 7-9 to 1 return on investment in tax auditing
Return to your countries and advocate an
increase of 25% in next years budget for tax audit
Take the nominal amount of that 25% increase to
the audit budget, multiply by a factor of 7 to 9
Ring fence that revenue increase to social
services
Advocate for continuous 25% per annum
increases in tax audit budgets
Monitor tax compliance
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Parting Points
DIGS not MDGs—Best Bet for Africa
The Millennium Development Goals (MDGs) are not the
best bet for the bottom billion: they have never been
adequately funded, are unlikely to be adequately funded,
are fiscally unsustainable, and not the best investment
for poor countries in terms of level and certainty of
return. The global economic crisis requires a rethink of
development, a return to fundamentals, a return to
growth and a return to fiscal probity.
Thank you for listening
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