Mr. Eliott Harris Assistant Secretary-General for Economic Development and Chief Economist

The Changing Global Context for SDG Implementation – Challenges and Opportunities
Strategic Retreat of the United Nations Country Team in Malaysia

Your Excellencies,
Honourable Ministers,
Distinguished Delegates,

Dear Colleagues,

It is great honour for me to be able to address you this evening at the outset of this very important retreat, and I would like to take this opportunity to thank Stefan Priesner for the kind and very welcome invitation to join you.

Unfortunately, I do not bring very heartening news.

Our latest assessment of global progress toward implementing the 2030 Agenda for Sustainable Development paints a sobering picture. With a few exceptions, we are not on track to realize all the SDGs.

The spirit of multilateralism and the sense of optimism with which we embarked on this journey almost five years ago have flagged; the financing mobilized is well short of requirements; and the political will to take decisive climate action seems to have dissipated.

And yet there are positive signs, the most encouraging of which is the rising commitment of the private business and financial sector, worldwide, to the principles of sustainability. With this rising commitment, the potential for rapid progress toward the SDGs is, in fact, greater than ever, provided the hesitancy and, in some cases, outright misdirection of public policy can be overcome.

The Secretary-General in January launched the Decade of Action for the achievement of the SDGs. The Decade challenges us all to build on these positive elements of progress, to overcome the hesitancy in policymaking, and to step up our respective contributions to the achievement of the Agenda.

It is still possible to fully achieve the 2030 Agenda. But we operate now in an environment that is significantly less favourable than when we began five years ago. Warnings about the risks to the global economy have been ignored for too long, and those risks are larger than ever. Our room to manoeuvre is much more constrained. Unless we can work towards the SDGs in a true spirit of partnership, where each partner lives up to expectations, the Decade of Action will end as a Decade of Disappointment.

In what follows, I will set out our analysis of the present macroeconomic and structural policy environment, the constraints it imposes, and some key policy conclusions. I will then discuss some of the megatrends that are both driving our progress and impeding it. Finally, I will consider some of the implications of these developments and trends for Malaysia.

I. A changed global context for SDG Implementation

A difficult macroeconomic outlook

The global economy expanded last year by just 2.3 per cent, the slowest pace in the last decade. The flaring up of ongoing trade tensions into outright confrontation slowed the growth of global trade to 0.3 per cent in 2019, this too, the lowest mark in a decade, and deeply disrupted global value chains.

The resulting weakening of business confidence and policy uncertainties have slowed investment, despite the accommodative stance of monetary policy in many economies and historically low interest rates. This does not augur well for the growth of productivity in the foreseeable future.

The loose monetary conditions have led to an under-pricing of risks and encouraged the accumulation of unprecedented levels of public and private debt, much of which has been channelled into financial assets rather than into productive capacity. Several developing countries are already in or very close to debt distress, making them particularly vulnerable to any further deterioration in economic activity, or shocks in the financial sector.

The risks to the macroeconomic outlook are considerable, and clearly tilted to the downside. This situation is further complicated by the deepening political polarization and rising geopolitical tensions. Our projections of a modest recovery in growth in 2020 depend on the assumption that these risks do not materialize – that trade disputes do not flare up again; that Brexit leads to an orderly and transparent framework for the new relationship between the United Kingdom and Europe; that geopolitical tensions do not escalate into open conflict; that the risks to financial stability remain contained; and that there are no catastrophic climate shocks.

Deepening structural challenges

To these macroeconomic hurdles come structural and political challenges, some of them self-inflicted. Inward-looking populist political rhetoric in several countries, and limited policy space have fuelled increasing scepticism over the benefits of multilateralism, in direct contrast to the spirit of multilateral cooperation that was so evident in 2015.

This phenomenon is most evident in trade and climate change. Some countries evidently prefer to resolve their differences bilaterally, including through outright confrontation, rather than within the dispute resolution system designed to that purpose. This is part of a deeper trend of major trading partners independently negotiating bilateral or plurilateral trade and investment agreements, thus undermining the spirit and the effectiveness of the rules-based multilateral trading system.

The waning spirit of cooperation is also evident in the climate negotiations.  Despite the consensus reached in 2015, it has proved very difficult to reach agreement on nationally determined contributions that match the ambition of the overall Paris Agreement. Instead, much energy and attention has been spent arguing about financing.

Financing itself is another area where progress since 2015 has been disappointing. The global community has not succeeded in mobilizing the finance needed for the SDGs at the necessary speed and scale. In particular, we are still far from agreement on combatting illicit financial flows, tax evasion and tax avoidance, particularly from developing countries, and on how the digital economy should most effectively be taxed.

But a major problem is the lack of congruency in government policy. While paying lip service to the objective of achieving the energy transition, generating green, inclusive and sustainable growth and creating decent jobs, few governments have actually made the significant changes in policies that this would require. The clearest example of this is the persistence of fossil fuel subsidies around the world, which is not consistent with the commitment to the energy transition.

It is still very possible to make a decent profit doing unsustainable things. That is clearly a failure of policy.

Moreover, economic, social and environmental developments are increasingly influenced by several megatrends that, singly and collectively, can deepen inequalities and complicate the achievement of sustainable development.

The most evident of these is climate change. The impact of climate change on infrastructure, livelihoods, resources and health is not even across countries or population groups—climate change is, in fact, driving a deepening of inequality.

Technology is essential to achieving sustainable development. But it also changes the structure of labour markets and the very nature of work in fundamental ways. Unless framed by careful policy and regulation, technological innovation can deepen the inequality of income and wealth by creating new “digital divides”, leaving whole groups of people or countries behind.

Rapid urbanization is expanding opportunities but also widens the gaps between rural and urban areas, and between the urban haves and the have nots. It poses tremendous challenges to city authorities trying to plan and design the cities of the future and to build sustainable and climate resilient infrastructure under often tight resource constraints.

Another megatrend is international migration. It can benefit the migrants and their countries of origin and destination, but again, the costs and the benefits are not evenly distributed, and the overall impact of migration on inequalities depends largely on the conditions under which it takes place.

A further megatrend are the varying demographic dynamics affecting all countries. The ageing of the population in some countries is ushering in substantial changes in the structure of the economy, with the growing importance of the care economy and of health-related costs, and the increasing strain on social protection and pension systems. Other countries, particularly in sub-Sharan Africa, face the challenge of creating hundreds of millions of new jobs to absorb their “youth bulge”. Both trends have a great potential for disruption, if not properly managed.

These structural challenges and megatrends can all contribute to rising inequality if not shaped by pro-active policies. Already, the widely held perception of unfairness is being reinforced by the more visible signs of the deepening inequalities, resulting in a loss of trust in institutions and government. Not surprisingly, the support for the multilateral approach has weakened, and with it our capacity to respond collectively to common challenges for which there is no individual solution—climate change, trade, the effective taxation of the digital economy; the diffusion and dissemination of technologies; cybercrime and cybersecurity, migration.

II. Implications for Policy

In the present conjuncture, continued reliance on an already overstretched monetary policy is unlikely to spur a robust recovery. Fiscal policy has clearly been underutilized as a countercyclical tool, largely because of the pressing constraints that high debt levels and fiscal deficits impose on fiscal space.

Countries that do have some remaining fiscal space, however, should use it. Those that are not already highly indebted might consider taking advantage of very low interest rates to meet public investment needs and thus provide some added stimulus.

But even where there is little fiscal space, there may still be room for fiscal management that is more effectively aligned with the sustainable development agenda. This requires shifting the focus of policy away from achieving short-term targets to longer-term planning for inclusive and sustainable development.

Fiscal policy should be formulated to frame and support the structural shifts in labour markets, to enhance the effectiveness of social protection, and to set incentives that will accelerate the shift of financial flows away from the brown and towards the green and sustainable.

Conducive business and financial regulations that complement and reinforce these fiscal incentives can help reduce the policy uncertainty that has hampered investment demand. Nowhere is this more important that in the area of the energy transition, where the incentives are still not fully aligned.

Critical public infrastructure investments that enable inclusive and sustainable patterns of growth should be prioritized. At the same time, however, governments should not lose sight of the imperative of shaping the impact of the megatrends, minimizing their impact on inequalities by ensuring that their benefits are broadly shared and their adverse effects do not fall disproportionately on those least able to cope and recover.

In essence, this is advocating for applying an equality lens to public policy making, with an explicit focus on ensuring equal access to opportunities—universal access to quality education and health care; redistributive fiscal and monetary policies; universal and effective social protection; explicit interventions to end group-based discrimination in all its forms; and strengthening labour market institutions and policies to create and protect decent jobs in the face of technology-induced changes in the nature and structure of work.

It also requires that governments and other stakeholders work together at the global level to address collectively the sources of inequalities that no one country can solve on its own:  the differential impact of climate change; the rising importance of international migration; ensuring an equitable access to relevant technologies: and mitigating the technological divides.

International cooperation is key also to dealing with other challenges that can affect the ability of countries to mobilize resources for their sustainable development and thus generate inequalities among and within countries: tax evasion and illicit financial flows that deprive governments of much needed domestic revenues; transnational crime; intellectual property rights; and international trade.

I would like to end this part of my talk by coming back to something I said at the very outset.  Sustainable Development cannot be achieved by governments alone. It requires partnerships.

Happily, we see the private business and financial communities, globally, stepping up and committing to the principles of sustainability. The General Assembly in September 2019 witnessed the launch of several major private commitments that represent key markers of the change in the mindset of private business and finance – the launch of the Principles of Responsible Banking, the Net Zero Assets Owners Alliance; the Business Ambition for 1.5o Initiative; and the Global Investors for Sustainable Development Alliance.

These commitments, by some of the largest firms in global business and finance, show that the 2030 Agenda is increasingly seen as good business and good for business. Unfortunately, they are not yet being matched by similarly fundamental reorientation of public policy, with a few notable exceptions. It is imperative that governments demonstrate a similarly enlightened mindset and make the necessary changes to their business as usual approach. It would be sad indeed if we failed to reach the SDGs because governments fail to live up to their side of the bargain.

What does all this mean for Malaysia?

Malaysia has achieved remarkable social and economic progress over the past six decades, the result of sound national development policies that prioritize sustainable growth and the improved well-being of its people. These policies have guided the diversification from a commodity-based economy to one with a vibrant manufacturing sector and a growing services base, such that domestic demand has increasingly become the main driver of growth, anchored by a dynamic private sector.

Malaysia has made great strides in eradicating absolute poverty and raising living standards, with almost universal access to key services and amenities, including electricity supply, and treated water and sanitation facilities. Child and maternal mortality rates have fallen to levels close to those of developed countries, and enrolment rates for primary and secondary school education are above 90 per cent.

Indeed, Malaysia is poised to transition to high-income status, but you are not resting on your laurels. We note the various policy initiatives that aim to harness the benefits of global technological progress. The country is set to become one of the first Asian countries to launch 5G technology. The government has also introduced more incentives to attract investments into higher value-added manufacturing activity. The promotion of investment will be critical to ensuring that Malaysia avoids the stagnation of productivity that has so often trapped countries in middle -income status.

Equally important, the Government has demonstrated commendable vision in aligning the Strategic Plan (the 11th Malaysia Plan Mid-Term Review; the Shared Prosperity Vision 2030; and the 12th Malaysia Plan, which is now being drafted) to the SDGs. We see also your commitment to addressing climate change and environmental protection through the implementation of your green growth strategy set out in the 11th Malaysia Plan; as well as pursuing the energy transition in your target of 20 per cent renewable energy in the generation mix by 2025, and in the incentives introduced to promote investments in the renewable energy industry, particularly in solar power.

But for Malaysia, too, the megatrends that I discussed earlier pose risks and challenges, and you will need to keep a watchful eye on your policies to convert these risks into opportunities.

For example, technological change is essential to ensuring productivity growth and continued sustainable growth. But low-skilled, routine-based jobs are generally more at risk from automation. Education and training should be structured to provide workers with the skills they need to take advantage of the new jobs that will be generated through innovation and digitalization.

Malaysia is already one of the most urbanized countries in East Asia. The careful management of your continued urban growth will be essential for the sustainable development of the country. This is, of course, a multi-faceted challenge.  For example, exploiting new construction technology to provide decent and affordable housing to the growing urban population will raise living standards; and the expansion of the public transport infrastructure in the cities will alleviate congestion and reduce emissions.

According to the International Organization of Migration, Malaysia’s resources, successful development, and strategic location make it a major destination country for migrants (from the region and beyond) seeking economic opportunities, while its reputation for the rule of law attract a growing number of refugees from violence, persecution and violations in their home country. This underscores the need to work in close collaboration with your regional neighbours and on the global stage to ensure that migration is orderly, safe and regular, in keeping with the Global Compact on Migration.

And finally, Malaysia, like many of its neighbours, is exposed to the vagaries of climate change, with frequent hazes and flash floods posing threats to health, destroying crops and damaging infrastructure. You have taken steps to affect the energy transition—the move from a blanket to more targeted fuel subsidies is a step in the right direction, but such subsidies should be eventually replaced by other forms of social welfare measures. Of course, multilateral cooperation is key to resolving these issues–Malaysia can work within its effective regional organizations to advance climate action and bring developing Asia’s rapidly growing economic and political clout to bear in global negotiations to help drive the climate agenda forward.

Making the transition to high-income status, consistent with sustainability and inclusion, and preventing inequalities from hampering social progress, requires the type of longer-term vision that you have set out in the Shared Prosperity Vision 2030 and the 12th Malaysia plan under preparation. It also requires a consistent approach to integrated policy making that identifies and exploits the positive co-benefits from policies and addresses potential adverse spill overs before they occur.

The expertise of the individual UN agencies, and the coordinated support from the UN is an additional resource at your disposal. The new UN Sustainable Development Cooperation Framework will enable the Resident Coordinator and the entire country team to align the UN’s contribution directly with your priorities. And the reform of the UN Development System, now close to completion, will enable the system to draw on the skills and capacities not only of the UNCT, but also of your Regional Economic and Social Commission, and of the headquarters-based capacities of all the UN agencies— in providing to you the support you need, tailored to your priorities.

This is a challenging time, full of risk, but also of opportunities. I am sure that with your strategic vision, enlightened policymaking, consistent and determined leadership, and our effective international support, you will turn these opportunities to your advantage and achieve sustainable development for all Malaysians.

I thank you.

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