The latest update from the OECD shows that donors are continuing to slash aid to least developed countries, falling by 16% in 2014 alone. If this trend continues, how will this impact the achievement of the Sustainable Development Goals (SDGs)? What will happen if world leaders fail to redirect this pattern at the Financing for Development Summit in July?
An ODI report released this week tackles these questions head on. The costs of achieving three central elements of the SDGs, ending extreme poverty, ensuring every child receives a basic education and providing universal health care are compared to the financial resources available in low income countries. The best available estimates of the costs involved in reaching these SDGs, from sources such as UNESCO, show that the annual amount required for low income countries is $148 billion. This is significantly higher than the finance available in these countries that is estimated to be $75 billion a year. This figure is a combination of half of these countries revenue capacity and existing aid flows. Revenue capacity is estimated by using World Bank and IMF estimates of the optimal level of revenue that could be collected given a country’s stage of development. Only 50% of revenue capacity and aid flows are used because countries face many costs outside the social sectors, such as infrastructure, and on average OECD governments only spend around half of their revenue on social protection, education and health.
Low income countries collectively face a financing gap of $73 billion to be able to meet these SDGs. However some countries are much closer to the amount required than others. The graph below shows the size of the finance gap on a country by country basis for low income countries, ordered in terms of GNI per capita. The richest low income countries, like Kenya, are over three-quarters of the way towards covering the costs. While the poorest countries, like Burundi, are not even able to cover a quarter of the costs of the SDGs.
The global financing summit planned in July provides an opportunity to tackle these huge financing gaps required for the achievement of the poverty, health and education SDGs. This analysis identifies that relying on more taxes in low income countries will not be enough to ensure a global minimum standard of living for all. In addition to current levels, more aid will be required to pay for the shortfall.
But is it affordable? There are at least three reasons to believe that it is entirely affordable for the world to provide the additional finance required for low income countries to reach the SDGs:
- Within existing commitments – The extra finance required to meet these goals are well within the bounds of existing international aid commitments. Furthermore if current levels of international support was better targeted towards low income countries than most of the additional finance needed could be found.
- Small relative to other expenditure – The additional finance required to close the gap in low income countries only amounts to 4% of what the UK government spent on the 2008 financial crisis bank bail-out or less than 1% of global healthcare spending.
- It has never been as affordable as it is now. Take ending extreme poverty for example, less than 15% of the world’s population live in extreme poverty today compared to around half three decades ago and if current trends continue it is expected to reduce to around 5% by 2030. As the number of people in extreme poverty has reduced so has the cost, as only a fraction of one percent of world GDP would be required to bring everyone above the extreme poverty line.
To find out more check out the report available at: http://www.odi.org/financing-future
- In the last 200 years, life expectancy has doubled in every country across the world.
- Even the poorest countries in the world have life expectancies at least 10 years higher than the richest countries had two centuries ago.
- Since the 1950s, there has been rapid convergence in life expectancies for the richest and poorest countries and now over 80% of the world’s population is expected to live over 65 years old.
Today, living standards are dramatically higher than ever before (see here and here) and this has led to a rapid improvement in life expectancies across the world. As can be seen in the chart below, in 1800 the richest countries in the world had life expectancies below 40 years and this has doubled to over 80 years today. While increases in life expectancies in the poorest countries have been smaller in absolute terms they have still doubled from around 25 years in 1800 to over 50 years today.
In the last half a century there has been a significant convergence in life expectancies between the richest and poorest countries. Much of this advancement has been through improving the quality of life in poorer countries in the last 65 years. In 1950, life expectancies were twice as high in the richest countries in the world compared to the poorest countries. However, today the bottom 40% of the world’s population is expected to live around three-quarters as long as to top 10%. Even in today’s poorest countries, life expectancy is ten years higher than half of the world’s population in 1950 and the richest countries in the world in 1800.
Max Roser 2015 <http://www.maxroser.com>
The World Bank along with the International Institute for Applied Systems Analysis operate an online portal where you can find your place in the Global Population Pyramid. For example, if you are Australian and today was your 30th Birthday, this interactive website would show you that while the majority of the world’s population are younger than you, 60% of Australians are older than you. To find out more check out the following video or the website for yourself.
This initiative highlights that the shape of a country’s population pyramid tends to correspond with their overall level of development. Typically high income countries, like Japan or Australia, have an aging population where the average person is well over 30. While most middle income countries, like China and India, are in the process of benefiting from a demographic dividend whereby the bulk of the population are of working age. Whereas in the average low income country, such as Uganda or Mozambique, the vast majority of people are below the age of 30. You can use the online portal to see how your place in the global population pyramid would vary if you had been born in a different country or time period.
The World Population Project 2015 <http://www.population.io/>
Have you ever thought to yourself how unequal the playing field is in the Cricket World Cup? Some of the world’s richest countries, like Australia and the United Kingdom, compete against some of the world’s poorest countries, like Zimbabwe and Afghanistan. To indicate the upper hand some countries have over others, the graph below ranks countries by income per person and the size of their middle class population (measured by developed country standards).
The richest country, Australia, has 100 times more income per person than the poorest country, Afghanistan. Surely this unparalleled high standard of living partly explains why Australia has won more World Cup titles than any other country.
The United Kingdom has around 1000 times more people in the middle class than Zimbabwe. The size of the middle class is a better measure than just population alone because despite some countries like India having large populations, many live in extreme poverty. Defining middle class by developed country standards (living over $US13 a day) ensures a fair comparison of the same standard of living can be made across both developed and developing countries. Ultimately this measure illustrates the point that countries are not competing on a level playing field.
So this World Cup, are you going to go for a rich and highly populated country or a country that despite being relatively poor is punching above its weight?
For other blogs that illustrate how uneven many global sporting contests are, check out these popular posts in relation to the Football World Cup and the Commonwealth Games
World Bank 2015 <http://data.worldbank.org/data-catalog/world-development-indicators>
World Bank 2015 <http://iresearch.worldbank.org/povcalnet/index.htm>
- Extreme Poverty was only eliminated in the developed world relatively recently, around 50 years ago, having only begun falling dramatically from around 1850. This illustrates that progress in the fight against poverty can occur quite rapidly.
- For the whole of human history prior to 1850, more than four-fifths of the world’s population lived on less than $1.25 a day. Today less than 15% of the world’s population live in extreme poverty and it is projected to potentially fall below 5% by 2030.
Extreme poverty was the common experience for most of human history until recent generations (see here for more information about the Beginning of the End of Extreme Poverty). Former World Bank Economist, Martin Ravallion, has estimated the historic reduction in the number of people living below $1.25 a day in the developed world using data on income and inequality. While it is difficult to be exact, he provides the best insight available into historical trends in poverty reduction, which are shown in the chart below.
Note: ACN – Australia, Canada, New Zealand, ACH – Austria-Czechoslovakia-Hungary BSM – Benelux-Switzerland-Micro-European States PS – Portugal, Spain, UKI – United Kingdom and Ireland
It was not too long ago that developed countries had similar rates of extreme poverty to what developing countries have today. For example, in the late-19th century, the United States had a similar rate of extreme poverty to what India has today, while at that time the United Kingdom had a similar extreme poverty rate to Ghana today. Another example is that over three-quarters of the populations of Australia, Canada and New Zealand were in extreme poverty 200 years ago, which is on par with the poorest countries in the world today, like the Central African Republic. However extreme poverty reduced to around 5% of their populations by 1915 and was eliminated by around 1950.
Significant progress against extreme poverty began in the 1800s and by the mid 20th century it was completely eliminated. The relatively recent elimination of extreme poverty in the developed world provides hope that rapid progress can occur and that it is feasible that one day soon the world could be free from extreme poverty.
Centre for Global Development 2014 <http://www.cgdev.org/blog/poverty-rich-world-when-it-was-not-nearly-so-rich>
- Most poor countries do not have enough money in their economies to bring everyone out of extreme poverty through redistributing taxes alone.
- Only once countries tend to have reached upper middle-income country status does it become theoretically feasible for them to be able to eliminate extreme poverty on their own.
Most low and lower middle-income countries can’t afford to eliminate extreme poverty by redistributing taxes on their non-poor population to those in extreme poverty. Former World Bank economist, Martin Ravallion, illustrates this. He defines being non-poor by a developed country standard, living above the US poverty line of $13 a day (or an annual income of around US$5,000). Ravallion calculates what the additional (marginal) tax rate would need to be in a developing country on the non-poor population to be able to raise enough tax revenue to be able to theoretically bring everyone out of extreme poverty (see chart below). For example a country with an average income of around US$1000 a year would need to raise the tax rate on their non-poor (or ‘rich’) population by 60 percentage points to generate enough tax revenue to give to the poor to lift them out of extreme poverty. This is quite unrealistic politically.
As incomes in poor countries rise, through economic growth and other measures, the additional tax rate required to raise enough revenue to eliminate extreme poverty becomes more politically feasible. However in the meantime, external funding sources such as aid, are needed in most low and lower middle-income countries to be able to eliminate extreme poverty. Relying on redistributing taxes alone would push the non-poor back into poverty (by developed country standards). This seems to suggest that the rush by some aid donors to abandon providing aid to some middle-income countries is premature. Assistance is still needed to end extreme poverty in many of these countries.
World Bank 2012 <http://blogs.worldbank.org/developmenttalk/should-we-care-equally-about-poor-people-wherever-they-may-live>
- Recently, this year’s Commitment to Development Index was released, which ranks rich countries based upon a number of factors, such as Aid, Trade and Environmental policies.
- Northern European Countries, such as Denmark, Sweden and Norway continue to be on the top of the list. While South Korea, Japan and Switzerland are at the bottom.
- Interestingly, New Zealand substantially outperforms Australia, while the United States and Germany are on par with Greece and Spain respectively.
- The index shows that all rich countries could be doing much more to contribute to international development.
Each year the Centre for Global Development, an international development think tank, ranks rich countries based upon how their policies enable or inhibit development in poor countries. The seven factors included in the index relate to Aid, Trade, Finance, Migration, Environment, Security and Technology. The latest rankings released in early January are shown in the Figure below.
The index measures rich countries commitment to international development beyond comparing aid levels alone, which dramatically alters the rankings of some countries. Luxembourg falls from 1st place based upon aid as a share of GNI to 18th place based upon the more comprehensive index. While Portugal moves much higher up the list to 6th place compared to 12th place when comparing just aid.
Importantly, this index shows that rich countries could be doing much more to contribute to international development. Every country performed poorly in at least one of the seven factors included in the index.
Centre for Global Development 2015 <http://www.cgdev.org/publication/commitment-development-index-2014>
The eradication of extreme poverty is possible, even taking into account the destabilising force of climate change, according to a recent paper just released by the Overseas Development Institute (ODI): http://www.developmentprogress.org/sites/developmentprogress.org/files/case-study-report/zero_zero_discussion_paper_-_02_december_2014.pdf
However achieving zero extreme poverty on the pathway to zero net emissions can only be achieved through reducing inequality.
- Extreme Poverty will not be eliminated by 2030 unless there is a historically unprecedented reduction in inequality.
- The continuation of recent high economic growth rates for the next 15 years will not be enough to reach a 3% global extreme poverty rate by 2030.
- For extreme poverty to be eliminated, the incomes of the bottom 40% of the income distribution (the poorest people) must grow an extra two percentage points higher than the average economic growth rate for the next 15 years.
The latest estimates from the World Bank show that eliminating extreme poverty by 2030 is beyond humanity’s grasp, unless unparalleled steps are taken to reduce inequality. This is an important finding given that world leaders are set to commit to ‘Zero Poverty’ by 2030 as part of the United Nations Sustainable Development Goals (SDGs) Agenda. Reducing poverty and the SDGs are clearly about more than increasing incomes through economic growth. They are about broader issues such as health, education, gender equality, environmental sustainability, employment etc. However at the heart of SDGs is the notion of eliminating extreme poverty (defined as 3% or less of the world’s population living below $1.25 a day).
The continuation of recent high economic growth rates throughout most parts of the developing world will not be enough to reduce extreme poverty. Figure 1 shows how the global poverty rate is likely to change based upon historical growth patterns. Even in the best-case scenario, extreme poverty is likely to remain above 5% of the world’s population by 2030. While if growth rates are lower than they have recently been, like they were in the 1980s, then the global extreme poverty rate could be as high in 2030 as it is today.
Figure 1 – Changes in Extreme Poverty based upon different growth rates
The above predictions hold inequality constant. However if inequality was also reduced, along with these patterns of economic growth, extreme poverty could be eliminated. Figure 2 shows that if the incomes of those in the bottom 40% of the income distribution grow by an extra two percentage points faster than the average growth rate the target of a 3% global extreme poverty rate can be reached. This relies on growth rates continuing to be as high as they were in the 2000s and that the poorest people benefit the most from economic growth.
Figure 2 – Changes in Extreme Poverty based upon Growth for the Bottom 40%
Reducing inequality alongside growth appears to be a key factor in eliminating poverty. However achieving this will require significant changes to see the poor benefit the most from economic growth. These changes are essential if world leaders are serious about Zero Poverty being reached by 2030.
World Bank 2014 <http://www.worldbank.org/en/topic/measuringpoverty/publication/a-measured-approach-to-ending-poverty-and-boosting-shared-prosperity>
This week World Leaders are meeting in Brisbane, Australia for the 2014 G20 Summit. To find out more about what this has to do with the World’s Poor, check out the infographic below and this blog.