The global economic crisis has slowed the pace of poverty reduction in developing countries, and is hampering progress toward the other Millennium Development Goals (MDGs), says a new report from the World Bank Group and the International Monetary Fund. The crisis is having an impact in several key areas of the MDGs, including those related to hunger, child and maternal health, gender equality, access to clean water, and disease control and will continue to affect long-term development prospects well beyond 2015, says the Global Monitoring Report 2010: The MDGs after the Crisis.

As a result of the crisis, 53 million more people will remain in extreme poverty by 2015 than otherwise would have. Even so, the report projects that the number of extreme poor could total around 920 million five years from now, marking a significant decline from the 1.8 billion people living in extreme poverty in 1990. Based on these estimates, the developing world as a whole is still on track to achieve the first MDG of halving extreme income poverty from its 1990 level of 42% by 2015.

Both the 2008 food price crisis and the financial crisis that hit that year have played a role in exacerbating hunger in the developing world. The critical MDG target of halving the proportion of people suffering from hunger from 1990 to 2015 appears very unlikely to be met as over a billion people struggle to meet basic food needs, the report says.

Malnutrition among children and pregnant women has a multiplier effect, accounting for more than one-third of the disease burden of children under age five and over 20 percent of maternal mortality. According to World Bank projections, for the period from 2009 to the end of 2015, an estimated 1.2 million additional deaths may occur among children under five due to crisis-related causes.

Yet these effects might have been much more serious without sound pre-crisis policy reforms by developing countries, as well as strong actions by countries and by international financial institutions to counter the effects of the crisis. Government spending on social safety nets appears to have remained relatively steady, at least through 2009 and massive efforts by the international community to limit economic contraction and contagion have paid off.

"The financial crisis was a severe external shock that hit poor countries hard. Its effects could have been far worse were it not for better policies and institutions in developing countries over the past 15 years," said Murilo Portugal, IMF Deputy Managing Director. "The crisis in the developing world has a potentially serious impact in everyday life since the margin of safety for so many people is so slim in even the best of times."

Spurred by recent strong performance in emerging economies and the recovery of global trade, GDP growth in developing countries is projected to accelerate to 6.3 percent in 2010, up from 2.4 percent in 2009, according to new IMF projections contained in the report. Global output, meanwhile, is projected to increase to 4.2 percent this year, reversing a decline of 0.6 percent in 2009. But the recovery is still fragile, with implications for the MDGs.

"While the MDGs are still within reach in certain regions and countries, we know from past crises that human progress—whether in terms of income, nutrition, health or education—tends to decline sharply in bad times, while recovery in good times takes much longer," said Justin Yifu Lin, World Bank Chief Economist.

Uneven progress across regions and goals

Long before the crisis, progress in reducing extreme poverty had been uneven across the developing world. East Asia saw extreme poverty plummet from 55 percent in 1990 to 17 percent in 2005, and a likely 6 percent by 2015. In Sub-Saharan Africa, where a resurgence of growth helped extreme poverty fall from 58 percent in 1990 to 51 percent in 2005, the number of poor people still rose from 296 million to 388 million. By 2015, 38 percent of the region’s population will likely remain poor, falling short of MDG 1. (See attached table for all regions.)

Progress on the individual MDGs was also mixed even before the crisis. For example, the share of children under five who are underweight declined from 33 percent in developing countries in 1990 to 26 percent in 2006, a much slower pace than needed to halve it by 2015. Progress has been slowest in Sub-Saharan Africa and South Asia, with severe to moderate stunting affecting as many as 35 percent of children under five.

Crisis responses and official aid

So far, crisis responses by international financial institutions such as the World Bank Group and IMF have been well aligned with their comparative strengthens and capabilities. While the IMF provided the resources and policy advice to help prevent the crisis from spinning out of control, the World Bank Group and other development banks sought to protect core development programs, strengthen the private sector, and help poor households. More than US$150 billion (two-thirds from the World Bank Group) has been committed by multilateral development banks since the beginning of the crisis. The IMF, meanwhile, had committed about US$175 billion for crisis-related support as of the end of February 2010.

Although aid from countries in the OECD’s Development Assistance Committee (DAC) rose by 0.7 percent in real terms in 2009 to US$119.6 billion, it still falls well short of earlier commitments, especially for Sub Saharan Africa. When debt relief is excluded, ODA rose last year by 6.8 percent in real terms. Meanwhile, assistance from non-DAC donors as well as from private sources is rising fast. And progress continues in reducing poor countries debt burden through World Bank and IMF initiatives.

Strong external funding is needed to ensure fiscal sustainability while maintaining key investments in infrastructure and social sectors. Developing countries also need to continue to match external support with domestic reforms to make government spending and service delivery more efficient, the report concludes.

(China Development Gateway April 26, 2010)