Download The Triple Crisis and the Global Aid Architecture

The Triple Crisis and the Global
Aid Architecture
Tony Addison, Channing Arndt & Finn Tarp
UNU-WIDER
UNU Worldwide
UNU Office at the United Nations, New York
28 January 2010
Introduction
• The global economy in turmoil: Immediate
concern the financial crisis
• But there are – in reality – at least three global
crises at work: Finance, food and climate
• At present the three crises sit in their separate
”policy silos”
• Key argument: the three crises interact – a
”triple crisis” with implications for development
assistance
2
CRISIS 1: FINANCE
3
-4
-2
0
2
4
IMF Forecast
6
8
Real GDP Growth in World and Major Economic Groupings (1970-2014)
1970
1975
1980
1985
1990
1995
Year
2000
World
2005
2010
2015
Advanced Economies
Emerging and Developing Economies
Source:IMF World Economic Outlook Database October (2009)
Present economic downturn deepest in 60 years, and no
region untouched + a lot speculation as to recovery
4
0
5
IMF Forecast
10
15
World Trade Volume (1970-2014)
-2.66
Dot Com Bubble
Second Oil Crisis
-10
-5
First Oil Crisis
0.24
-0.93
-11.89
-15
Financial Crisis
1970
1975
1980
1985
1990 1995
Year
2000
2005
2010
2015
World Trade Volume
Source:IMF World Economic Outlook Database October (2009)
World trade has experienced its sharpest decline in decades +
5
uncertain future
3
Net Private Capital Flows to Emerging and Developing Economies (1990-2014)
0
1
2
IMF Forecast
2.98
-1
-0.71
1990
1995
2000
2005
2010
2015
Year
Net Private Capital Flows
Source: IMF World Economic Outlook Data Base April (2009)
Net private capital flows to the South have fallen
dramatically
6
Changes in Private Capital Flows by Region Between 2007 and 2008 ($ Billion)
-$88 Billion
(-41%)
500
400
-$221 Billion
(-47%)
300
-$78 Billion
(-28%)
200
-$46 Billion
(-41 %)
100
a
fri
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A
S
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S
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an
or
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N
E
as
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S
ou
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A
fri
c
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-$19.5 Billion
(-35.3%)
M
id
dl
e
an
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A
m
er
La
tin
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E
ur
o
E
as
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A
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an
d
en
tra
P
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si
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ac
ifi
c
0
a
+2.5 Billion
(+11%)
2007
2008
Source:World Bank Global Development Finance Report(2009)
Note:2008 is an estimate by the World Bank
And this is true for all regions, except the Middle East and
North Africa (but now Dubai!)
7
30.0
32.4
35.4
-10
0
10
20
30
40
50
Global FDI Inflows (Annual Growth)
50.1
-14.2
2004
2005
2006
Year
2007
2008
Global FDI Inflows(Annual Growth)
Source: UNCTAD World Investment Report 2009
Global FDI inflows turned negative
8
30
Remittance Growth Rate in Developing Countries
20
25.2
0
10
World Bank Forecast
-10
-7.3
-10.10
2006
2007
Base Case Forecast
2008
year
2009
2010
Low Case Forecast
Source:World Bank Migration and Development Brief July 2009
Note:2008 is an estimate by the World Bank
And remittances to developing countries fell sharply
9
0
20
40
World Bank Forecast
60
80
Remmitance Flows to Main Regions 1999-2010($ Billion)
1999
2000
2001
2002
2003
2004 2005
year
2006
2007
2008
East Asia and Pacific
Latin America and Caribbean
SSA
South Asia
2009
2010
Source:World Bank Migration and Development Brief July 2009
Note: 2008 is an estimate by the World Bank.
And again: this is is so in all regions
10
The Response
• Unprecedented monetary and fiscal expansion (a
very heavy dose of Keynesian medicine)
• Will it work? Some optimism – but in reality much
too early to say ….
• Northern governments close to borrowing limits,
and reductions in fiscal deficits already being
discussed
• Implications potentially serious for the South
where social impact much bigger
• Will the North respond to the need for increased
development assistance?
11
The Impact on Aid
• The average banking crisis reduces output per
capita by 10% - and the loss is not restored
within 7 years of the crisis onset
• The target for raising aid is expressed as a
percentage of economic size (0.7% of GNI)
• To maintain the VOLUME of aid, aid will have
to rise faster as a % of total spending
• Is this likely under business as usual
scenarios? No
12
1
Net ODA as Percentage of Donor GNI in 2008
.98
.92
.88
.8
.82
.8
.6
UN Target (0.7)
.58
Average Country Effort (0.47)
.34
.32
.3
.3
.27
.2
.18 .18
Japan
United States
Portugal
New Zealand
TOTAL DAC
Canada
Australia
Germany
France
Switzerland
Austria
Finland
Spain
United Kingdom
Belgium
Ireland
Netherlands
Denmark
Norway
Luxembourg
Sweden
0
.2
Greece
.42 .41
.39 .38
Italy
.43 .43 .43
.2
.4
.47
ODA/GNI
Source: OECD-DAC Online Data Base
Many donors far from achieving the UN goal
13
100 150
Net ODA Disbursement and ODA/GNI (% Change Between 2005 and 2008 )
122
88
80
63
38
36
60
29
16
11
41
38
6
0
18
26
37
33
4
42
26
26
21
14
1
-6
-6
-7
-7
-9
-11
7
-7
-17
-19
-22
Net ODA Disbursement (% Change)
US
Austria
France
Belgium
UK
Finland
Switzerland
Canada
Norway
Netherlands
Denmark
Sweden
Germany
New Zealand
Luxembourg
Greece
Portugal
Australia
Ireland
Spain
-50
-2
9
6
-13
-31-29-36
Japan
50
59
Italy
84
ODA/GNI (% Change)
Note: ODA Disbursement is expressed in current prices(Millions of USD). Data for 2008 is preliminary.
Source: OECD-DAC Online Data Base
The ODA/GNI ratio fell for 12 out of 22 DAC donors before the
crisis
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90000
Net ODA Disbursement to Developing Countries Constant Prices (1980-2007)
Gleneagles G8 Summit
90,277
40000
50000
60000
70000
80000
64,227
1980
1985
1990
Net Disbursement, Total
1995
Year
2000
2005
2010
Net Disbursement, Excl. Debt Relief
Source: OECD-DAC Online Data Base
Net ODA disbursements ”inflated” by debt relief
15
35000
Net ODA Disbursement to Africa Constant Prices(1981-2007)
34,224
30000
Gleneagles G8 Summit
20000
25000
27,712
17,643
10000
15000
17,282
1980
1985
1990
Net Disbursement,Total
1995
Year
2000
2005
2010
Net Disbursement Excluding Debt Relief
Source: OECD-DAC Online Data Base
Netting out debt relief foreign assistance to Africa has not
risen in real terms since the late 1980s
16
Should We Worry?
• Aid’s critics would say NO (some would say
growth will rise if aid is eliminated, others say aid
has no effect)
• Weight of empirical evidence: Arndt, Jones and
Tarp (2009) – aid’s aggegate impact conforms to
priors from modern growth theory
• The present financial climate not a good time to
experiment with Dambisa Moyo’s proposal to kill
aid
17
Capital Flows to SSA and Selected Countries (% of GDP)
Average of 2003-2007
Mozambique
Rwanda
1.2
4.1
Zambia
Ethiopia
4.0
3.8
1.3
SSA
Nigeria
0
.02
14.5
3.2
3.3
.04
15.5
3.5
1.8
.02
15.4
3.6
.9
0
14.7
6.1
.7
Tanzania .1
Ghana
21.9
.8 .7
Uganda
0
21.7
0
11.2
2.7
1.2
5.0
2.9
3.2
0
.6
10
Remittance
20
FDI
30
ODA
Portfolio
Note: Portfolio refers to portfolio investment equity flows in current $. These flows are net and include non-debt-creating portfolio equity flows
(the sum of country funds, depository receipts, and direct purchases of shares by foreign investors.)
Source: World Development Indicators and Author's Computation
Despite some improvements in other flows ODA continues
to dominate total capital flows to SSA
18
25
SSA Government Revenue Excluding Grant 1997-2009 (% of GDP)
25.1
24
24.8
23
24.1
24.1
22.9
22
22.3
22.3
21
21.2
20
21.0
20.9
20.8
19.9
19
19.5
1996
1998
2000
2002
2004
2006
2008
2010
Year
SSA Government Revenue Excluding Grant (% of GDP)
Source:IMF African Regional Economic Outlook October (2009)
Tax revenues are down (especially trade taxes)
19
Changes in Private Capital Flows by Region Between 2007 and 2008 ($ Billion)
-$88 Billion
(-41%)
500
400
-$221 Billion
(-47%)
300
-$78 Billion
(-28%)
200
-$46 Billion
(-41 %)
100
a
Af
ric
ia
Ea
Su
b
Sa
ha
ra
n
As
So
ut
h
Af
or
th
N
st
an
d
-$19.5 Billion
(-35.3%)
M
id
dl
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La
t
ric
ar
rib
ea
n
C
an
d
Am
er
ic
a
an
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Eu
ro
Ea
st
As
ia
C
an
d
en
tra
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si
a
Pa
ci
fic
0
a
+2.5 Billion
(+11%)
2007
2008
Source:World Bank Global Development Finance Report(2009)
Note:2008 is an estimate by the World Bank
Private flows are sharply down in Africa after years of
growth
20
Prospects
• More difficult to sell government bonds +
poorer countries risk being crowded out by
financing requirements of advanced countries
• Aid at a critical juncture: Will be stretched by
the food and climate crises which will intensify
if growth resumes
21
CRISIS 2: FOOD
22
0
50
100
150
200
250
Cereal Prices in Indices of Market Prices (1957-2008)
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Year
Rice
Wheat
Maize
Soybeans
Source : IMF Primary Commodity Price Data Base
Note: Rice:Thailand(Bangkok); Wheat:US Gulf ; Maize:US ; Soybeans: US
Food prices soared in 2007-2008 and then fell back: prospects?23
Food Crisis (1)
• Food price developments reflect:
– Low priority to agriculture/food production
– Shifting demand patterns
– Biofuels (+ lack of research in alternative energy
sources)
• Underlying structural drivers behind 2007-2008
spike remain in place – if growth resumes food
prices likely to increase again
• Global food architecture not geared to deal with
supply shortages – governments may intensify
protection to try to satisfy domestic consumers
24
Food Crisis (2)
• National responses to food crisis have varied
• Africa: Macro-policies main tool to limit impact of
world price shocks
• Elsewhere: Greater focus on social protection
• But too much social protection ad hoc, stop-go, high
cost – needs to be systematic
• A double bind:
– If recovery stalls: new trade and financial shocks
– If recovery is sustained: food and energy prices will climb
and hit energy and food importers
• Need for public action – but fiscal space limited in the
smaller and poorer economies
25
CRISIS 3: CLIMATE
26
Climate Change (1)
• Present global growth model clearly unsustainable
– the challenges are unprecedented
• To respond, the world must transform existing
energy systems (mitigation) and simultaneously
adapt to the climate change that is already built
into global climate (adaptation)
• Failure in shifting from fossil-fuel dependence
evident in run-up in oil price prior to the financial
crisis (due to lack of investment in energy research)
27
0
20
40
60
80
100 120 140
Oil Prices ( January 1998 to October 2009)
01jan1998
01jan2000
01jan2002
01jan2004
Daily
01jan2006
01jan2008
01jan2010
Note:Oil prices refer to Brent; US dollars per barrel
Source:US Department of Energy
Huge run-up, then a fall as recession set in – but what next?
28
Climate Change (2)
• If growth resumes energy prices will move back up
• Places huge burdens on poor countries – a range of fiscal effects,
which make states more aid-dependent, not less
• Costs far exceed current level of aid:
– Per annum mitigation in developing countries by 2030: USD 140-175
billion
– Per annum adaptation costs by 2050: USD 30-109 billion
– Aid is presently around USD 100 billion in total
• COP15 demonstrated – climate change finance fragmented as
traditional aid, unclear funding will be additional, and who takes
control of supply (how much voice for the South?)
• Climate change financing seen as compensation – but aid processes
remain conditional
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Conclusion (1)
• A WIDER perspective needed:
– Not one – but three interrelated global crises: The Triple Crisis
• Unclear how financial crisis will evolve, but we do know
recovery should not be business as usual
• Whether growth resumes or not the world must address
the triple crisis – and break out of the ”policy silos”
• Global problems require global solutions, including for
example:
– Comprehensive action on climate change
– A new global food architecture
– And increased development assistance delivered in new ways
30
Conclusion (2)
• So far action has been chaotic:
• Economic recovery at best extremely fragile
• The coming reduction in in fiscal deficits will force unpleasant
spending choices – and aid may be the loser
• A pronounced risk of collapse in the confidence in international
food markets
• Aid falling – not increasing – and far from clear that climate
financing will be additional
• Carbon taxes (or the alternative of auctioning carbon-emission
licenses) need to be at the core of any serious attempt to come
to grips with climate change – but progress at best tentative
• Global institutions are needed for global action
• The world at a turning point: Will the future be unilateral or
multilateral?
31