The MDGs and the Costs of Attaining Them

The MDGs represent a major development program, with agreement across the international community to achieve a certain set of targets. There are eight of them and they are defined as follows (Table 1 [ PDF 22.4KB | 1 page ]). More details of the associated targets and indicators are given in Appendix 1 [ PDF 20.4KB | 1 page ].

1. Eradicate extreme poverty and hunger
2. Aim for universal primary education
3. Eliminate gender disparity
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, malaria and other diseases
7. Aim for environmental sustainability
8. Develop a global partnership for development

Having signed up for the MDGs, the question arose of how they would be funded. It was clear that additional resources would be needed if these goals were to be met by 2015, the date fixed in the agreement. Estimates made by the World Bank and others indicated an additional cost of around US$40–70 billion a year from 2000 to 2015 (Devarajan, Miller, and Swanson 2002). The estimates were derived in two ways: the first is based on the additional investment needed to achieve the growth level necessary to reduce poverty and thereby meet MDG1 (the poverty reduction target). The calculation is based on a two-gap growth model in which growth depends upon the level of investment and the efficiency with which investment is turned into output. For a given rate of growth of per capita GDP, the rate of poverty reduction depends upon the shape of the income distribution and the level of average income relative to the poverty line. Working backward from the existing poverty level and distribution of income, the average rate of growth required to reach the poverty reduction goal in 2015 determines the amount of additional investment needed. This yields estimates of US$54–62 billion a year. The second method is based on detailed estimates of the costs of meeting the education, health, and water and sanitation targets, which in the Devarajan, Miller, and Swanson study amounts to US$35–76 billion annually. A more accurate estimate of the costs for the water and sanitation targets, however, is available from Markandya (2006: 316). If we take those figures, the second method gives a cost range of US$84–109 million a year.

The authors warn that these two approaches do not provide numbers that can be added up to get the total cost of meeting the MDGs. As stated above, the costs of meeting the income poverty goal are calculated by estimating the additional investments needed to increase the growth rate, and thereby increase incomes. This means of achieving the income poverty goals, however, will also result in the other non-income MDG goals being achieved. Conversely, if specific programs are implemented to meet these non-income MDG goals, they will also result in overall poverty being reduced substantially. While it is correct to say that the numbers cannot be added up, it is difficult to know the extent to which they overlap. Hence an overall cost estimate for all MDGs is not available.

Based on these estimates, we report in Table 1 the costs per person who benefits from the attainment of each specific MDG. The poverty income goal generates a cost per person taken out of income poverty between US$550 and US$880¹. The costs of attaining the education target come out to between US$486 and US$1,459 per person. This measures the increase in the number of children that complete primary schooling. For each unit reduction in annual infant mortality the cost is between US$760 and US$1,064; for water and sanitation, the additional costs range from US$5 to US$11.²

Note these are additional costs to meeting these goals, and there are already considerable aid funds that indirectly support them. Roughly speaking, donor-aided existing programs provided in 2000 roughly similar amounts of money (i.e., US$60 billion) to developing countries. Hence the addition of aid needed to meet the MDGs is of the order of 100 percent.

In terms of value for money, a more complex exercise is required in comparing the benefits of the improvement against the costs. While this is almost impossible to do for poverty, it can be done for the other non-income MDGs. The only assessment we are aware of that makes this calculation is for water and sanitation (Markandya 2006), which shows that while the health benefits of the safe water goal easily exceeds the costs, the case is less clear for the improved sanitation target.

According to the World Health Organization (WHO), the lack of access to safe water and sanitation is responsible for more than half the Disability Adjusted Life Years (DALYs) lost due to all environmental factors.³ In order to see whether the targets under the MDGs are justified in economic terms, it is necessary to compare the costs of meeting those targets with the benefits, which requires a value to be placed on the DALY. Based on recent ranges of values for this impact, the study found that the costs of achieving the targets by 2015 exceed the mid value of the range of benefits for most of Africa and Asia. For the high mortality countries of the Americas, the costs are less than the lower bound of the benefits; for similar countries in the Eastern Mediterranean, the costs lie between the lower and the upper bounds. The above calculations apply in the cases of both the safe water and the sanitation goals taken together. However, when the cost of each of the goals is separated, the study finds that the water supply targets are justified for all regions, but the sanitation targets are only unambiguously justified for the Americas. This is the result of two factors: the costs of sanitation connections are about three times those of water supply and the benefits per connection are somewhat lower.

As far as the OA program is concerned, the costs per person obtained above provide markers against which we can compare the costs of the programs relative to the benefits. As noted earlier, a full comparison will not be possible because the impacts of OA on the non-poverty MDGs are not quantified in enough detail for this purpose. Nevertheless, a partial comparison of the costs of the OA program against the global costs does yield some insights. Before discussing the costs of the OA programs in detail, we note the progress of the following with respect to progress on the MDGs (World Bank 2008):

• Although the poverty goal was on track to be met at the global level, thanks to the remarkable surge in global economic growth in the late 1990s and first half of the first decade of this century, it may be derailed for two reasons: the increase in food prices in late 2007 and early 2008, and the global economic downturn we are witnessing currently.
• There are likely to be serious shortfalls in MDG2—fighting hunger and malnutrition.
• Prospects are gravest for the goals of reducing child and maternal mortality, but shortfalls are also likely in the primary school completion, empowerment of women, and sanitation MDGs.
• Within this overall picture, there is considerable variation across regions and countries. At the regional level, Sub-Saharan Africa lags on all MDGs, including the goal for poverty reduction, though many countries in the region are now experiencing improved growth performance. South Asia lags on most human development MDGs, though it will likely meet the poverty reduction MDG. At the country level, on current trends most countries are off track to meet most of the MDGs, with those in fragile situations falling behind most seriously.

Thus any contributions that can be made by programs such as OA are to be welcomed, as long as they do not entail excessive costs relative to their benefits. It is this issue that we explore in the remaining sections.

Download this Paper [ PDF 195.5KB| 25 pages ].

Comment(s)

There are [1] comment(s) for this entry. Post a comment.

1. Prof. J. George
   (posted 19 February 2010 / 07:17:28 PM)
   
   The authors needs to be complimented for this study that is first of its kind particularly in so much as relating it to MDG. It is unfortunate that the UNESCAP-ADB-UNDP trio did not take cognisance of it while reviewing MDGs recession during the recent global financial crisis. The study is timely as it indicates the way out for rationalizing inclusive growth strategy in a region that is characterised by not only a larger proportion but also growing numbers of hungry and poor people in the world.
   Secondly, the paper completely compliments the UNEP-UNCTAD's path breaking longitudinal study in African and the Central American continents as well as trade and environment review of 2006 and and 2009.
   Thirdly, The study is also contemporary as it is a one shot answer to the the vexing question of climate change related mitigation and adaptation strategies.
   
   Fourthly, the study does reinforce that food security as enshrined in MDGs 1C is fully attainable at a cost effective manner. ADB need to take conscious decisions to explicitly reinforce it as its thrust area given that the strategy 2020 sounds hallo in the absence of a credible alternative. The paper provides a good indication to that pathway. The strategic economic management initiative as defined necessarily must be based on inclusiveness and organic agriculture restores that power in the hands of the producers for a number of opportunities for autonomous income enhancement amongst the poorer segments of the population, among other associated reform measures.