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Development Account Projects

Strengthening Macroeconomic and Social Policy Coherence through Integrated Macro-Micro Modelling

Background:

Preliminary evidence from UN-DESA pilot studies suggest that progress towards the MDGs is expected to slow as a consequence of the global economic downturn – without considering recent hikes in food and energy prices. These studies apply an economy-wide framework to analyze the impact of the recent global economic crisis on the progress towards the MDGs in a sample of countries from Latin America and Asia . They find significant setbacks towards the goals and the cost of achieving these will rise commensurately as a result of the crisis, in some countries by about 1 to 1.5 per cent of GDP in required additional public spending per year between 2010 and 2015 as compared with a no-crisis scenario. The additional public spending towards the MDGs would contribute to economic growth though not sufficiently for full recovery to pre-crisis growth.

Thus, the strong base for analysis created through previous capacity development projects reinforces the work of this project initiative to provide targeted support for strengthening the ability of policymakers to understand and use integrated macro-micro modelling frameworks in decision-making designed to assess and mitigate the adverse effects of the global economic crisis on the MDGs. This project builds on the accumulated work of previous projects by taking advantage to the extent possible of existing analytical capacities in the use of similar modelling tools that some countries have helped to build through such previous projects and the lessons UN-DESA staff have drawn to implement more effective capacity building activities in support of policymaking (see section 2.4). Although, unlike previous projects, this project will focus primarily on training policymakers — as national consultants would only be recruited if really necessary to support the learning process of policymakers — and institutionalize the use of the integrated modelling framework to support policymaking on a daily basis.

The project will address the technical needs of beneficiary countries in the analysis of the effects of the global economic crisis and unfavourable external shocks on the achievement of the MDGs. It will also institutionalise in six of these countries the use of an integrated macro-micro modelling framework designed to better inform policy decision-making and enhance macroeconomic and social policy coherence in the face of the effects of crisis episodes on the MDGs. Intensive training will be necessary to ensure that the trainees understand the framework and will be able to use the results to guide policymakers during and after the duration of the project. This will include capacity to, on the one hand, design automatic countercyclical policies that enable mitigating the adverse impacts of the current crisis and put the country back on track to timely achieve the MDGs by 2015. On the other hand, to be better prepared to anticipate and respond to new external adversities, including those related to high food and energy prices, drops in export demand or declines in worker remittances, to avoid future setbacks in achieving the MDGs, including ensuring the sustainability of continued progress in human development beyond 2015. The project will also aim to enhance capabilities among policymakers to understand sector-level costing estimations, macroeconomic trade-offs and the financial feasibility of MDG achievement and further progress in human development beyond 2015. For countries that are likely to achieve the MDGs by 2015, the focus will be concentrated on analyzing the implications of setting more ambitious targets (such as achievements in secondary education) and assessing their fiscal and macroeconomic implications.

The main beneficiaries of this project will be national experts directly linked to the policy-making process in ministries of finance, economy, central banks, statistics bureaus and line ministries in the social and planning sectors of developing countries. These will acquire capacities to adapt and use macro-micro integrated analytical tools designed to better inform policy decision making and enhance macroeconomic and social policy coherence, particularly on issues related to the current global crisis and unfavourable world-price shocks and their effects on the achievement of the MDGs and need for possible new policies.

Objective:

The project will strengthen policymarkers' capacities to assess, anticipate and design coherent macroeconomic and social policies to offset the impact of global economic crises and other crisis episodes triggered by external shocks on attaining the MDGs through the use a macro-micro economic modelling framework.

Expected Accomplishments:

  • Adoption of the integrated macro-micro modelling framework in the concerned ministries as a tool that supports policy decision making.
  • Enhanced capacity of national experts and policymakers to make robust and informed policy assessments for their country and perform scenario analysis to anticipate adverse economic weather that would affect MDG achievement.
  • Enhanced capacity of national experts and policymakers to propose policies that would be effective to offset undesired effects of adverse economic events on the MDGs while maintaining macroeconomic stability and feasibility to achieve the goals.

Implementation Status:

The project, which came about as the result of requests received from Governments of a number of developing countries to institutionalize an integrated macro-micro analytical framework for assessing the negative effects of the external economic shocks on development goals, especially on the MDGs, was launched in 2011. The project document was submitted in April 2011 and the allotment advice for this was requested by CDO on 18 October 2011.  Nonetheless, to respond more swiftly to Governments’ requests, the Project’s activities started in January 2011 (or even December 2010 for Honduras, as explained below).

The project builds on the accumulated work of previous capacity development projects, thus taking advantage of the contacts established with the Governments and taking into consideration lessons learnt during the previous projects, in order to make the implementation of the current project activities more efficient.

Governments of thirteen countries initially expressed interest in the institutionalization of the methodology and sustainable use of previous outputs, and committed to provide support for the project’s implementation. Out of these countries, six were pre-selected on the basis of project budget constraints and a set of minimum requirements related to data availability, basic expertise at the country level and interest of the Government. As indicated in the Project Document, these countries were Kyrgyzstan, Uganda, Bolivia, Honduras, Nicaragua and the Philippines. Two other countries (Costa Rica and Ecuador) were included after they expressed interest and managed to mobilize funds from external sources (UNDP country office in Costa Rica and Ecuadorian Government funds, respectively). Given the expressed interest from other countries to participate, the Project Document was also submitted with a list of countries that would be included subject to availability of complementary funds.

As explained in detail in section 4, the project implementation was discontinued in Honduras in agreement with the UNDP Country Office, where despite of initial interest, the Government was very slow to engage in the project’s activities—likely reflecting that these were not among their high priorities or they could not allot time for its staff to participate as required. Released funds, or at least part of these, will be reallocated to one of the alternative countries that the Project Document lists, which participated in DPAD’s capacity development activities in the past. DPAD/DESA and UN-ESCWA are currently coordinating the inclusion of such country, which may likely be Jordan as this country’s Government has expressed genuine interest to participate.

The project activities in 2011, including formation of the country teams, coordination with different ministries and institutions of the Governments of the beneficiary countries and organization of inception workshops and working meetings were successfully implemented due to a well-coordinated institutional arrangement, which included DPAD/DESA, UNDP country Offices and UN regional economic commissions.

In 2011, six inception and basic training workshops were organized in Bolivia, Nicaragua, Costa Rica, Uganda, Honduras and Ecuador , in order to ensure the basic transfer of knowledge and to liaise with the relevant government institutions in order to introduce them to the objectives and activities of the Project. These workshops were followed by training workshops (Nicaragua and Costa Rica ), during which the DPAD Coordination team presented results of recently completed development account projects on the impact of the crisis on the achievement of the MDGs, as an introduction to the application of the methodology to prospective participants. The key policy questions to be addressed throughout the project implementation were also presented and discussed.

In addition, two technical missions to Nicaragua and Bolivia took place in 2011. The purpose of these missions was to provide technical backstopping to national expert teams in fine-tuning the construction of the Social Accounting Matrix and compiling data for constructing the model database. Meetings were also organized with both UNDP and Government counterparts to inform them about the progress of the Project’s activities and agree on aspects and dates of next steps.

As part of an effort to promote sustainability of the project and to ensure transfer of knowledge, a project web page was created in the Capacity Development and Advisory Services website of DPAD in 2011, which serves to share with the participants and the general public information on workshops, training materials and relevant literature, and at a later stage, policy notes and a comparative study:

http://www.un.org/en/development/desa/policy/capacity/index.shtml

Despite the delay in the initiation of the project in certain countries, no major deviations from the work plan are expected in 2012.  Inception and first training workshops will be organized in the three other countries (Philippines, Kyrgyzstan and likely Jordan).

 Project U “Realizing the Millennium Development Goals through socially inclusive macroeconomic policies” (2006–2011) and Project H “Implications of Macroeconomic Policy, External Shocks and Social Protection Systems for Poverty, Inequality, and Social Vulnerability in Latin America and the Caribbean” (2006-2010)

Bolivia – 25-29 April 2011, Nicaragua – 25-26 January 2011, Costa Rica – 20-24 June 2011, Uganda – 17-20 October 2011, Honduras – 20-21 December 2010, Ecuador – 10-12 May 2011. All these missions were covered with funds from the Project, except Honduras’ for which funding was provided by the country’s UNDP office. 

Nicaragua – 20-22 July 2011, Costa Rica – 5-9 December 2011.

Nicaragua – 20-22 December 2011, Bolivia – 13-15 December 2011.