STRATEGIC CHOICE STRATEGIC CHOICE FOR ACHIEVING THE FOR ACHIEVING THE MDGs: A CRITIQUE MDGs: A CRITIQUE AND A STRATEGYAND A STRATEGY

Sanjay Reddy and Antoine HeutySanjay Reddy and Antoine Heuty

New York, August 18, 2004New York, August 18, 2004

Why is it necessary to Why is it necessary to estimate the cost of estimate the cost of

achieving the MDGs?achieving the MDGs?

AllAll MDG needs assessment and cost MDG needs assessment and cost estimation models make both implicit estimation models make both implicit and explicit assumptions concerning and explicit assumptions concerning appropriate strategies to achieve the appropriate strategies to achieve the MDGsMDGs

Evaluating the cost of achieving the Evaluating the cost of achieving the MDGs is one important prerequisite for MDGs is one important prerequisite for choosing strategies to achieve the MDGschoosing strategies to achieve the MDGs

A Rationale for cost A Rationale for cost estimatesestimates

Strategic choice for achieving the MDGs may be Strategic choice for achieving the MDGs may be helpful in answering two kinds of questions:helpful in answering two kinds of questions:

A normative question:A normative question: Should an end be pursued ? Should an end be pursued ? The feasibility of achieving the MDGs, given a sufficient The feasibility of achieving the MDGs, given a sufficient

application of resources and adequate policy and institutional application of resources and adequate policy and institutional reform , is not generally in doubt.reform , is not generally in doubt.

However , the discussion implicitly supposes that the However , the discussion implicitly supposes that the commitment to achieving the MDGs is not unconditional. commitment to achieving the MDGs is not unconditional.

An implicit rationale: Convincing developing countries and An implicit rationale: Convincing developing countries and donors that the MDGs can be achieved without undue sacrifice donors that the MDGs can be achieved without undue sacrifice of other objectives. of other objectives.

An operational question:An operational question: How should an end best be How should an end best be pursued?pursued?

Budgetary Planning: needs, gaps, “stickiness” (irreversibilities, Budgetary Planning: needs, gaps, “stickiness” (irreversibilities, cost of planning).cost of planning).

What is the most cost efficient approach to achieving the goals? What is the most cost efficient approach to achieving the goals? Within-country cost information is indispensable to developing Within-country cost information is indispensable to developing an effective country-specific plan for achieving the MDGs. an effective country-specific plan for achieving the MDGs.

Global cost estimatesGlobal cost estimates

Zedillo Report: “The cost of achieving the 2015 goals Zedillo Report: “The cost of achieving the 2015 goals would probably be on the order of an extra $50 billion would probably be on the order of an extra $50 billion a year”. a year”.

The Bank’s initial estimates of the cost (to donors) of The Bank’s initial estimates of the cost (to donors) of achieving Goal 1 range between US $ 54 billion and $ achieving Goal 1 range between US $ 54 billion and $ 62 billion a year. Its estimates of the cost of 62 billion a year. Its estimates of the cost of achieving the goal depend on ad hoc assumptions achieving the goal depend on ad hoc assumptions concerning, ‘poverty elasticities of income’, capital-concerning, ‘poverty elasticities of income’, capital-output ratios, national savings rates, and ‘absorption output ratios, national savings rates, and ‘absorption constraints’. constraints’.

The Bank estimates the total cost of achieving the The Bank estimates the total cost of achieving the other goals (by adding existing sectoral estimates, as other goals (by adding existing sectoral estimates, as does the Zedillo commission) as ranging between US does the Zedillo commission) as ranging between US $ 35 and $ 76 billion per year. $ 35 and $ 76 billion per year.

Limits of global approaches Limits of global approaches to MDG needs assessmentsto MDG needs assessments

These studies draw to a significant extent on existing These studies draw to a significant extent on existing global cost estimates developed for individual sectors global cost estimates developed for individual sectors (some of which predate the MDGs and do not refer to (some of which predate the MDGs and do not refer to the same targets). These sectoral estimates do not the same targets). These sectoral estimates do not generally account for generally account for causal interdependenciescausal interdependencies in in the achievement of the goals.the achievement of the goals.

Global sector estimates are limited by Global sector estimates are limited by inadequacies inadequacies in datain data and in knowledge of the causal processes by and in knowledge of the causal processes by which outcomes are jointly produced. They depend which outcomes are jointly produced. They depend on ‘heroic’ generalizations.on ‘heroic’ generalizations.

Appropriately, all of the reports recognize the limits Appropriately, all of the reports recognize the limits of global estimates and call for country-level cost of global estimates and call for country-level cost estimates to be produced. estimates to be produced.

Approaches and Limits to Approaches and Limits to CostingsCostings

MDG needs assessment at MDG needs assessment at the country levelthe country level

UNDP country offices have participated in a pilot project UNDP country offices have participated in a pilot project which has attempted to estimate the cost of attaining the which has attempted to estimate the cost of attaining the MDGs in six countries.MDGs in six countries. The reports focused on six MDG The reports focused on six MDG targets: income poverty, primary education, child targets: income poverty, primary education, child mortality, maternal health, HIV/AIDS and water. mortality, maternal health, HIV/AIDS and water.

The Millennium Project is also preparing a number of The Millennium Project is also preparing a number of country case studies to map out the major policies and country case studies to map out the major policies and investments required to achieve the MDGs in the investments required to achieve the MDGs in the countries concerned.countries concerned.

The World Bank approach gives priority to the Poverty The World Bank approach gives priority to the Poverty Reduction Strategy (PRS) previously defined by each Reduction Strategy (PRS) previously defined by each country, and asks how, giving priority to the objectives country, and asks how, giving priority to the objectives and strategy of the PRS, the MDGs can best be achieved. and strategy of the PRS, the MDGs can best be achieved. PRSPs often prominently feature macroeconomic policy PRSPs often prominently feature macroeconomic policy objectives that are not directly referred to among the objectives that are not directly referred to among the MDGs. MDGs.

Requirements of an Requirements of an estimateestimate

Accurate specification of the cost conceptAccurate specification of the cost concept Accurate identification of the baseline Accurate identification of the baseline

scenarioscenario Accurate identification of the cost functionAccurate identification of the cost function

Identification of unit costsIdentification of unit costs Projection of unit costs over the coverage Projection of unit costs over the coverage

rangerange

Main methodological Main methodological problems - Choice of problems - Choice of

AssumptionsAssumptions Existing national and global cost estimates Existing national and global cost estimates

are not robust to the choice of assumptions. are not robust to the choice of assumptions.

ExamplesExamples Constant unit costs; Constant unit costs; ““Absorptive capacity”; Absorptive capacity”; Aid ineffectiveness and "good policies" ;Aid ineffectiveness and "good policies" ; Complementarities between the distinct MDGs – Complementarities between the distinct MDGs –

Studies vary widely in their (ad hoc and perhaps Studies vary widely in their (ad hoc and perhaps overly optimistic) assumptions;overly optimistic) assumptions;

Assumptions concerning future growth rates, Assumptions concerning future growth rates, future tax/GDP ratios, and the balance of public future tax/GDP ratios, and the balance of public and private financing of expenditure that may and private financing of expenditure that may reasonably be expected.reasonably be expected.

Data WeaknessesData Weaknesses

Data for baseline scenario of the MDGs and Data for baseline scenario of the MDGs and monitoring are severely deficient.monitoring are severely deficient.

As a result, it is often not possible As a result, it is often not possible meaningfully to judge either the extent of meaningfully to judge either the extent of progress required or the costs of achieving progress required or the costs of achieving progress. progress.

Data on unit costs are rare, and where Data on unit costs are rare, and where available are produced using methodologies available are produced using methodologies that are most often both inadequately that are most often both inadequately specified and idiosyncratic. specified and idiosyncratic. Confusion between average and marginal costsConfusion between average and marginal costs Unclear cost conceptsUnclear cost concepts

Unpredictable Future Unpredictable Future ShocksShocks

Unpredictable future shocks are sure Unpredictable future shocks are sure eventually to undermine the accuracy of eventually to undermine the accuracy of MDG cost estimates. MDG cost estimates.

Examples: Examples: Diseases (such as HIV/AIDS);Diseases (such as HIV/AIDS); Climatic events (such as El Niño and global Climatic events (such as El Niño and global

warming);warming); Civil wars and regional wars (e.g. that in the Civil wars and regional wars (e.g. that in the

Great Lakes region). Great Lakes region). Shocks to terms of trade and global demand Shocks to terms of trade and global demand

may influence the share of overall MDG costs may influence the share of overall MDG costs that will have to be borne by developed that will have to be borne by developed countries.countries.

Technocratic approaches lead Technocratic approaches lead to poor strategic choicesto poor strategic choices

EXPERT DRIVEN EXPERT DRIVEN

APPROACHAPPROACH

RIGID FRAMEWORKRIGID FRAMEWORK

COST ESTIMATES DERIVED COST ESTIMATES DERIVED

FROM INACCURATE MODELSFROM INACCURATE MODELS

INCORRECT

MDG COST

ESTIMATES

LONG TERM DAMAGE FOR MDG COUNTRY STRATEGY

Rationale for an MDG Rationale for an MDG Institutionalized Financing Institutionalized Financing and Learning Mechanism and Learning Mechanism

(IFLM)(IFLM) What is the most sensible way to determine countries’ needs What is the most sensible way to determine countries’ needs

and allocate resources? and allocate resources?

Cost estimates are necessary but not sufficient. A flexible Cost estimates are necessary but not sufficient. A flexible and comprehensive approach is needed: An and comprehensive approach is needed: An MDG MDG Institutionalized Financing and Learning Mechanism Institutionalized Financing and Learning Mechanism (IFLM)(IFLM). .

Purpose of the IFLM: a flexible, contextualized and capacity-Purpose of the IFLM: a flexible, contextualized and capacity-enhancing approach to planning and financing at both the enhancing approach to planning and financing at both the country and global level.country and global level.

The IFLM will limit the damage potentially arising from The IFLM will limit the damage potentially arising from inappropriate strategic choices through its focus on inappropriate strategic choices through its focus on short short and intermediate termand intermediate term strategies planning towards the MDGs strategies planning towards the MDGs rather than once and for all selecting optimal strategies for rather than once and for all selecting optimal strategies for the long-term.the long-term.

Empirical ideas underlying Empirical ideas underlying the MDG IFLMthe MDG IFLM

The IFLM is motivated by two core empirical ideas:The IFLM is motivated by two core empirical ideas:

The importance of learning: The importance of learning: It cannot be known in It cannot be known in advance how the MDGs can be best achieved. As a result, it advance how the MDGs can be best achieved. As a result, it is necessary to foster individual and collective learning and is necessary to foster individual and collective learning and lesson-sharing about alternative strategies, and their costs lesson-sharing about alternative strategies, and their costs and benefits.and benefits.

The importance of flexibilityThe importance of flexibility: It cannot be known in : It cannot be known in advance what it will cost to achieve the MDGs. As a result, it advance what it will cost to achieve the MDGs. As a result, it is necessary periodically to reassess these costs (and is necessary periodically to reassess these costs (and associated resource gaps) on the basis of new information. associated resource gaps) on the basis of new information. Budgetary planning and strategic choice should incorporate Budgetary planning and strategic choice should incorporate these periodic reassessments, as a way to avoid costly long-these periodic reassessments, as a way to avoid costly long-term errors. term errors.

Normative ideals Normative ideals underlying the MDG IFLMunderlying the MDG IFLM

The IFLM approach is further underpinned The IFLM approach is further underpinned by two core normative principles directly by two core normative principles directly reflected in the “Monterrey Consensus”reflected in the “Monterrey Consensus”::

A need principle:A need principle: Countries ought to have Countries ought to have access to the resources they need to meet the access to the resources they need to meet the MDGs.MDGs.

A capacity principle:A capacity principle: Countries -- whether Countries -- whether developed or developing -- ought to provide the developed or developing -- ought to provide the resources required to meet the MDGs to the resources required to meet the MDGs to the extent of their capacities. extent of their capacities.

A Peer Review Mechanism A Peer Review Mechanism for the MDGs: Definition for the MDGs: Definition

and Historyand History DefinitionDefinition

OECD: a peer review mechanism involves “the systematic examination OECD: a peer review mechanism involves “the systematic examination and assessment of the performance of a State by other States, with the and assessment of the performance of a State by other States, with the ultimate goal of helping the reviewed State improve its policy making, ultimate goal of helping the reviewed State improve its policy making, adopt best practices, and comply with established standards and adopt best practices, and comply with established standards and principles”.principles”.

A peer review system for the MDG would help to assess developed and A peer review system for the MDG would help to assess developed and developing country governments’ current efforts toward the goals and developing country governments’ current efforts toward the goals and systematically to identify systematically to identify bona fidebona fide resource gaps, as well as resource gaps, as well as opportunities to generate additional resources, reallocate efforts, and opportunities to generate additional resources, reallocate efforts, and reorient policies.reorient policies.

HistoryHistory Pioneered by the OECDPioneered by the OECD UN bodies and specialized agencies, the European Union, the IMF UN bodies and specialized agencies, the European Union, the IMF

and WTO also use peer review to evaluate national policies in various and WTO also use peer review to evaluate national policies in various sectors.sectors.

OEC DAC peer review for evaluating development cooperation efforts OEC DAC peer review for evaluating development cooperation efforts and the African Peer Review Mechanism within the New Partnership and the African Peer Review Mechanism within the New Partnership for Africa’s Development (NEPAD) are important sources of inspiration for Africa’s Development (NEPAD) are important sources of inspiration for the IFLM.for the IFLM.

Actors & Functions of the Actors & Functions of the MDG peer review MDG peer review

mechanism mechanism The frequency of the reviews would depend on The frequency of the reviews would depend on

practical judgments concerning the most effective practical judgments concerning the most effective planning horizon and the capacities of planning horizon and the capacities of participants. participants.

The IFLM SecretariatThe IFLM Secretariat supports the review supports the review process, by process, by Providing financial and human resources to peer-review Providing financial and human resources to peer-review

committees;committees; Organizing missions and meetings;Organizing missions and meetings; Maintaining the quality and the continuity of the Maintaining the quality and the continuity of the

process;process; Disseminating the results of the reviews to the public.Disseminating the results of the reviews to the public.

The membersThe members: Any country wishing to undergo : Any country wishing to undergo an MDG-related peer review process may do so.an MDG-related peer review process may do so.

Procedures of the MDG Procedures of the MDG peer and partner review peer and partner review

mechanismmechanism

Preparatory phasePreparatory phase

ConsultationConsultation

Assessment

Communication

Incorporation into Resource Generation Mechanism

Size, Scope and CoverageSize, Scope and Coverage

Developing countries will have an incentive to Developing countries will have an incentive to participate in the peer review process so as to participate in the peer review process so as to attract additional resources, improve their attract additional resources, improve their capacity to achieve the goals, and highlight capacity to achieve the goals, and highlight their commitment to the MDGs.their commitment to the MDGs.

Developed countries will have an incentive to Developed countries will have an incentive to participate in the peer-review process so as to participate in the peer-review process so as to improve their individual and collective capacity improve their individual and collective capacity to promote the goals, and highlight their to promote the goals, and highlight their commitment to the MDGs.commitment to the MDGs.

In all instances, participation will be voluntaryIn all instances, participation will be voluntary

Principles, criteria and Principles, criteria and standards of MDG peer standards of MDG peer

reviewsreviews A set of common criteria and indicators for a fair, credible and A set of common criteria and indicators for a fair, credible and

internationally comparable review process should be developed.internationally comparable review process should be developed.

The criteria for assessment should reflect the following The criteria for assessment should reflect the following principles:principles:

Full incorporation of MDG Needs Assessments and expert judgments Full incorporation of MDG Needs Assessments and expert judgments into the peer review process, with due emphasis on their respective into the peer review process, with due emphasis on their respective limitations. The IFLM seeks to pluralize expert models, which should limitations. The IFLM seeks to pluralize expert models, which should enter into the review process and appropriately be synthesized by enter into the review process and appropriately be synthesized by decision-makers. No one set of expert judgments will be decision-makers. No one set of expert judgments will be automatically privileged. automatically privileged.

National MDG efforts (measured for instance by the pattern and National MDG efforts (measured for instance by the pattern and level of public expenditures and the transparency of the level of public expenditures and the transparency of the administration) should be assessed on the basis of national MDG administration) should be assessed on the basis of national MDG reports and supplementary information.reports and supplementary information.

Due attention should be given to the resources required to build Due attention should be given to the resources required to build institutional capacities and relax “absorptive capacity” constraints.institutional capacities and relax “absorptive capacity” constraints.

All assessments should reflect a country’s economic, political and All assessments should reflect a country’s economic, political and social conditions.social conditions.

Making the IFLM work for Making the IFLM work for the Poorthe Poor

The IFLM is potentially compatible with PRSP, but a clear The IFLM is potentially compatible with PRSP, but a clear hierarchy must be defined:hierarchy must be defined: MDGs and PRSP objectives are differentMDGs and PRSP objectives are different PRSPs should recognize the MDGs as legitimate long-term PRSPs should recognize the MDGs as legitimate long-term

objectives. objectives. The IFLM approach highlights problem solving and “fair brokering” The IFLM approach highlights problem solving and “fair brokering”

rather than conditionalitiesrather than conditionalities

For the rich countries, the peer review mechanism will provide For the rich countries, the peer review mechanism will provide a basis for assessing their commitment to the MDGs in terms of a basis for assessing their commitment to the MDGs in terms of aid, policies and practices.aid, policies and practices.

In developing countries, the peer review process will: In developing countries, the peer review process will: identify identify bona fidebona fide resource requirements to achieve the MDGs resource requirements to achieve the MDGs suggest relevant policy changes. suggest relevant policy changes.

A global report drawing attention to the balance between global A global report drawing attention to the balance between global needs and global resources (“needs and gaps”) shall be needs and global resources (“needs and gaps”) shall be prepared periodically by the central secretariat of the IFLM.prepared periodically by the central secretariat of the IFLM.

Global Contingency Fund:Global Contingency Fund: Principles & Modalities Principles & Modalities

The formation of a GCF would secure the timely The formation of a GCF would secure the timely provision of adequate resources to cope with provision of adequate resources to cope with extreme events, to avoid human development extreme events, to avoid human development reversals, and to enhance the feasibility of reversals, and to enhance the feasibility of achieving the MDGs in all countries. achieving the MDGs in all countries.

The scope of the fund is limited to helping The scope of the fund is limited to helping countries facing adverse shocks achieve their countries facing adverse shocks achieve their MDGs strategy. The GCF will provide additional MDGs strategy. The GCF will provide additional resources in the form of grants to governments of resources in the form of grants to governments of the affected countries, when required. A GCF can the affected countries, when required. A GCF can potentially take many forms. It need not require potentially take many forms. It need not require creating a new institution. creating a new institution.

FROM TECHNOCRATIC TO DEMOCRATIC FROM TECHNOCRATIC TO DEMOCRATIC

STRATEGIC CHOICE FOR ACHIEVING THE MDGsSTRATEGIC CHOICE FOR ACHIEVING THE MDGs

EXISTING EXISTING APPROACHAPPROACH

EXPERT DRIVENEXPERT DRIVEN RIGID FRAMEWORKRIGID FRAMEWORK COST ESTIMATES COST ESTIMATES

DERIVED FROM DERIVED FROM INACCURATE MODELSINACCURATE MODELS

ASYMMETRYASYMMETRY

PROPOSED MECHANISM PROPOSED MECHANISM (IFLM)(IFLM)

COUNTRY DRIVENCOUNTRY DRIVEN

FLEXIBLE PROCESSFLEXIBLE PROCESS

EVIDENCE BASED EVIDENCE BASED POLICY MAKINGPOLICY MAKING

EQUITYEQUITY