Mr. Wu Hongbo Under-Secretary-General for Economic and Social Affairs, Secretary-General for the International Conference on Small Island Developing States
Ministerial Meeting of the Group of 24
10 April 2014, Washington D.C
Global economic outlook
The global economic outlook, as projected in the United Nations World Economic Situation and Prospects 2014, remains broadly positive. World gross product is expected to grow by 3.0 per cent in 2014, a measurable improvement from the subdued growth of 2.1 per cent preliminarily estimated for 2013.
The improved global prospects for 2014 are primarily predicated on two considerations: a strengthened recovery in major developed economies and stabilization of growth in large emerging economies. With the euro area finally extricating itself from a protracted recession, all major developed economies are aligned on the same upward trajectory for the first time since 2011. This will not only reinforce the recovery among developed economies, but will also produce an impetus to the growth of developing and emerging economies. Meanwhile, a few large emerging economies, such as China and India, have managed to backstop the growth deceleration they experienced over the past few years.
Nonetheless, the projected growth is still insufficient to narrow the output gap in the world economy in the aftermath of the global financial crisis. The global employment situation remains weak, as long-lasting effects from the financial crisis continue to weigh on labour markets in many countries and regions. Among developed economies, the euro area is facing the most challenging situation, with the unemployment rates reaching 27 per cent in Greece and Spain, and youth unemployment rates over 50 per cent. The unemployment rate has declined in the United States, but remains elevated.
In developing countries and economies in transition, the unemployment situation is mixed, with extremely high structural unemployment in North Africa and Western Asia, particularly among youth. By contrast, unemployment rates in Latin America and the Caribbean are at record lows. Still, high rates of informal employment as well as pronounced gender gaps in employment continue to characterize labour markets in numerous developing countries.
Private capital inflows to a number of developing countries and economies in transition declined in 2013 and early 2014, along with significantly increased volatility in the financial markets of emerging economies, resulting in equity market sell-offs and sharp depreciations of local currencies.
The unwinding of unconventional monetary policies adopted in major developed countries poses major risks for global economic growth and financial stability in the coming years. Other risks include geopolitical risks, as well as further slowdown in some emerging market countries. Yet, sustained and equitable growth will be a precondition for mobilizing additional resources for sustainable development.
Macroeconomic policies worldwide should continue to focus on supporting a strong, balanced and sustainable recovery, particularly the recovery of jobs. A number of countries are already taking steps to address both cyclical and structural unemployment challenges, aligning macroeconomic policies with domestic constraints, and taking steps to induce productivity growth and innovation, but more needs to be done.
Policymakers in major developed countries in particular should work to harness a smooth process for the changes in quantitative easing coming over the next few years. A premature unwinding may risk choking off the economic recovery, but a delayed unwinding could risk creating financial bubbles. Efforts are needed to enhance the supervision, regulation and surveillance of financial markets in order to identify and mitigate financial risks and vulnerabilities.
Accelerating progress towards the MDGs
With the deadline for the Millennium Development Goals (MDGs) on the horizon, progress can be reported in many areas. Despite the impact of the global economic and financial crisis, several key targets have been met or will be met with continued commitment from all relevant stakeholders. Nonetheless, progress is far from sufficient, and has been uneven across goals, regions, and population groups. Rising inequalities within many countries have exacerbated the challenge, and have left many of the poorest behind. To accelerate progress in the remaining time, attention should focus on such disparities and inequalities.
The world has reached the poverty reduction target five years ahead of schedule. The proportion of people living on less than $1.25 a day in developing regions fell from 47 per cent in 1990 to 22 per cent in 2010. Over 2 billion people gained access to improved drinking water sources. There have also been remarkable gains in the fight against malaria and tuberculosis. Mortality rates from malaria fell by more than 25 per cent globally between 2000 and 2010. Death rates from tuberculosis are likely to be halved by 2015 compared to 1990 levels.
In addition, the proportion of slum dwellers in cities of the developing world is declining. Over 200 million slum dwellers benefitted from improved water sources, sanitation facilities, durable housing or sufficient living space. The hunger reduction target is also within reach. The proportion of undernourished people in developing regions decreased from 23.2 per cent in 1990-1992 to 14.9 per cent in 2010-2012.
Despite these successes, accelerated action is needed in many areas. Environmental sustainability is under severe threat. Global emissions of carbon dioxide are more than 46 per cent higher than their 1990 level, and emission growth is accelerating. Forests continue to be lost at an alarming rate and species extinction rates accelerate as well.
While significant gains have been made in child survival, overall progress in child and maternal health is falling short. Too many children are also still denied their right to primary education. There is also increasing awareness for the need to focus on learning outcomes and the quality of education. In the health sector, access to antiretroviral therapy for all who need it has yet to be achieved. The gains in sanitation – access to a latrine, a flush toilet or another improved sanitation facility – are impressive, but the current rate of progress would not suffice to meet the MDG target.
Progress on MDG 8 on the global partnership for development is mixed. Debt burdens are lower and market access has improved for developing countries, but challenges remain. In addition, net official development assistance (ODA) has been falling for two consecutive years, to $126 billion in 2012, representing 0.29 per cent of the combined gross national income of members of the OECD Development Assistance Committee. With several noteworthy exceptions, most donors do not meet their ODA commitments.
Since the adoption of the Millennium Declaration, inequalities have increased in many countries, both developed and developing. These inequalities are detracting from the overall gains that have been made over the last two decades, and make achievement of the MDGs more challenging. Economic and social inequalities are strongly intertwined with and often exacerbated by horizontal inequalities, such as inequalities based on gender, ethnicity, caste or other hereditary characteristics. Large disparities exist between rural and urban areas. The poorest children are also most likely to be out of school, with the risk of perpetuating inequality over generations.
In more equal societies, better social outcomes can be expected. More equal societies are also associated with more sustained periods of growth and higher political stability. Tackling inequalities and addressing existing disparities will thus be critical both to accelerate progress toward achieving the MDGs by 2015 and to lay the ground for an ambitious and successful post-2015 development agenda.
The post-2015 development agenda
Building on the momentum of progress in achieving the MDGs, discussions are advancing on a post-2015 development agenda. They are taking place in different forums, in New York and around the world, engaging a wide range of stakeholders. There is a broad consensus on the central imperative of poverty eradication, which will remain at the core of the global development agenda. At the same time, the intrinsic link between poverty eradication and the promotion of sustainable development in all its dimensions – economic, social and environmental – is widely recognized.
Member States at the United Nations have thus agreed that the post-2015 development agenda will require a coherent approach which integrates the three dimensions of sustainable development in a balanced manner. The global agenda will provide a single framework and set of goals – which will be applicable to all, while taking account of differing national circumstances and respecting national policies and priorities.
Intergovernmental negotiations on the post-2015 agenda will begin in the 69th session of the General Assembly, in September 2014. They will be informed by the reports of the Open Working Group on Sustainable Development Goals and the Intergovernmental Committee of Experts on Sustainable Development Financing, which will both conclude their work by September 2014. The 2014 Development Cooperation Forum (DCF) of the Economic and Social Council will also make a concrete contribution to the global dialogue on the future of development cooperation in the post-2015 era.
The Open Working Group on Sustainable Development Goals was established in follow-up to the Rio+20 Summit. It has completed an initial stock-taking and information-gathering phase of its work, identifying 19 focus areas: poverty eradication; promote equality; gender equality and women’s empowerment; education; employment and decent work for all; health and population dynamics; water and sanitation; sustainable agriculture, food security, and nutrition; economic growth; industrialization; infrastructure; energy; sustainable cities and human settlements; promote sustainable consumption and production; climate; conservation and sustainable use of marine resources, oceans and seas; ecosystems and biodiversity; means of implementation / global partnership for sustainable development; and peaceful and non-violent societies, rule of law and capable institutions. The systemic issues in trade, finance and technology are included in the focus areas, but their treatment could be strengthened in line with their need to build in a more supportive external environment that is critical to integrating developing countries into the global economy.
Based on these focus areas, the Open Working Group is now considering these areas in depth, with a view to consolidating and clustering them. This exercise will lead to a proposal for a set of sustainable development goals for the consideration of the General Assembly.
Financing for sustainable development
A broad and comprehensive post-2015 development agenda, with poverty eradication and sustainable development at its core, will require a comprehensive financing framework. To this end, the General Assembly established the Intergovernmental Committee of Experts on Sustainable Development Financing in follow-up to Rio+20, to develop options for a sustainable development financing strategy.
The report of the Committee will inform both the intergovernmental negotiations on a new sustainable development agenda and the preparatory process for the third international conference on financing for development, to be held in 2015 or 2016. Although the Committee has not yet finished its work, several key themes have emerged in its deliberations and ongoing discussions.
These are complemented by the messages emanating from the broad-based consultations with development cooperation practitioners during the last two years, under the aegis of the DCF, on the design and implementation of the post-2015 development agenda. Key messages from the DCF high-level preparatory symposiums in Ethiopia, Switzerland and Germany focus on how a renewed global partnership for development can work in practice; how development cooperation will need to change, in order to effectively support the implementation of a post-2105 development agenda; and how a global monitoring and accountability mechanism for development cooperation commitments could look like in a post-2015 era.
There is agreement that the Monterrey Consensus and the Doha Declaration on Financing for Development provide the basis for a comprehensive financing framework beyond 2015, keeping in perspective lessons learned and new and emerging challenges. The domestic and international policy environments, including a fair multilateral trading system, external debt sustainability and good governance at the national and international levels, all have a profound impact on the mobilization of finance for sustainable development. There is also a consensus that the financing framework should emphasize the complementarities and synergies across the economic, social and environmental dimensions of sustainability.
Estimating financing needs for sustainable development presents considerable conceptual and practical challenges. But without exception, estimates generate huge numbers. Yet, global savings, estimated to be about $18 trillion annually, are sufficient. The challenge thus lies in promoting a financial system that incentivises a small percentage of public and private savings towards sustainable development needs.
Given the large financing needs, there is a strong consensus that all types of flows will be necessary, including domestic, international, public and private. These different financing sources have to be seen as complements, not substitutes, as they have different mandates, characteristics, goals, and incentive structures. For example, private finance will be more efficient than public finance in many instances; however, the short-term nature of some private flows might add risks that make these flows inappropriate for certain investments. In addition, private financing is unlikely to be sufficient in areas of public goods and social needs.
For this reason, public financing and public policies will remain the lynchpin of a sustainable development financing framework. Official development assistance in particular will remain crucial, particularly for those countries with special needs, such as the least developed countries. They are largely bypassed by international financing flows, and lack the capacity to raise sufficient resources domestically. It is of utmost importance that donors reverse the recent decline in ODA and meet their commitments. It is against this backdrop that a global monitoring and accountability framework for the full range of development cooperation commitments needs to be more forcefully anchored in the post-2015 agenda. It is also critical that more ODA is targeted at the productive sector in these countries, so that they are better able to mobilize for their own development.
The primary responsibility for development lies with national governments. Taxation will be a critical element of public financing, even though it needs to be viewed in the context of differing capacities of countries. Sustainable and equitable growth is a precondition for raising domestic resources, and a global agenda can support countries by creating an enabling environment for growth. In addition, the global community must make greater efforts for international tax cooperation and combatting illicit financial flows.
At the same time, private financing is increasingly looked toward as a major source of sustainable development financing. Yet to date, private sector investments in sustainable development remain insufficient, in both developed and developing countries. In particular, the long-time frame necessary for many types of infrastructure investments is outside the investment parameters of many investors, even those considered to be ‘long-term investors’.
To increase the private sector’s contribution, the enabling environment has to be improved, both at the national and at the global level. In addition, the underlying incentives of private investors need to be better understood, as private investment has become increasingly short-term oriented, precluding sufficient long-term investments in sustainable development, even in advanced countries. The development of inclusive and stable domestic financial sectors is also critical, as they can provide a conduit for long-term investment. However there is a risk that such nascent markets will attract international speculative capital. It is therefore important for countries to design a strong macro-prudential regulatory framework, potentially in conjunction with capital-account management.
Making global economic governance more effective
An important priority on the global policy agenda concerns broadening and strengthening the voice and participation of developing countries in international economic decision-making and norm-setting. IMF and World Bank moves towards more representative, responsive and accountable governance structures are welcome. However, the challenge is now to implement the agreed reforms in a timely manner. The ratification process of the 2010 IMF quota reforms is considered to be sluggish and the reforms will not come into force until three fifths of IMF members with 85 per cent of voting rights ratify the change. As of 28 March 2014, 144 members having 76.40 per cent of total voting power had accepted the proposed amendment on reform of the executive board, falling short of the 85 percent threshold. Ultimately adoption would depend upon acceptance by the IMF’s largest shareholder, which has yet to be forthcoming. In view of the delay in implementing the 2010 IMF quota reforms, the deadline for the completion of the Fifteenth General Review of IMF quotas was moved from January 2014 to January 2015.
The development and adaptation of international financial regulation would also benefit from greater representation of and participation by developing countries in the regulatory reform process. Despite some progress, formal representation in international financial regulatory bodies, such as the Bank for International Settlements, the Basel Committee on Banking Supervision and the Financial Stability Board, is limited to advanced economies and a number of major emerging market economies.
More broadly, a more effective system of global economic governance is an essential condition for achieving the MDGs and pursuing sustainable development beyond 2015. Existing global economic governance arrangements need to be more legitimate, accountable and transparent. In particular, they need to take into account changes to the international economic landscape, including the increasing importance of developing countries. The essential need is for a more participatory system of governance and, in this regard, efforts to encourage the participation of relevant non-state actors, including civil society and the private sector, in dialogues and activities pertaining to development, should be further strengthened. Building on progress achieved, the Group of 20 should further strengthen its relationships with international institutions, such as the United Nations, non-members and other relevant stakeholders.