The central questions are: How much will it cost to achieve the Goals? And what share of total costs can be borne through increased domestic resources, and what must be provided by donors? Since there is no “one-size fits-all” in meeting the Goals, the questions can be properly answered only through detailed needs assessments that must be carried out at the country level. In a first attempt, the UN Millennium Project collaborated with local research organizations to prepare MDG needs assessments for five countries to quantify infrastructure, human resource, and financial needs. For Ghana the required annual public investments for reaching the Goals add up to $80 per capita in 2006, scaling up to $124 in 2015 ( table 6 ). Needs assessments for other low-income countries show similar levels of required investment. Note that this figure does not include technical cooperation for capacity building and other purposes, emergency assistance, or other ODA that does not directly finance the capital or operating costs of MDG interventions.
To finance these investments, we assume a major increase in domestic resource mobilization by increasing government expenditures on the Goals by up to four percentage points of GDP through 2015. These added resources will likely need to be raised through a broad-based revenue source such as a value-added tax, as well as by rechanneling current low-priority spending into higher priority MDG investments. This increase in domestic resources, even though very large as a percentage of domestic income, is not enough to achieve the Goals in poor countries. For that, increased official development assistance is needed.
Our results suggest that in a typical low-income country with an average per capita income of $300 in 2005, external financing of public interventions will be required on the order of 10–20 percent of GNP. For these countries, the costs of achieving the Goals will need to be split roughly evenly between domestic finance and ODA. Meanwhile, middle-income countries will be able to finance essentially all investments in the Goals without resorting to external finance—unless excessive debt burdens constrain them. In some cases, primary surplus requirements for government budgets may need to be adjusted to allow countries to increase public investments for the Goals. Modest levels of ODA may be needed to help middle-income countries redress especially difficult “pockets of poverty.”
According to our estimates, the total cost of supporting the MDG financing gap for every low-income country would be $73 billion in 2006, rising to $135 billion in 2015 ( table 7 ). Middle-income countries are projected to require $10 billion in direct support for MDG investments. In addition to these direct costs of investments in the Goals, there are added costs at the national and international level—in capacity-building expenditures of bilateral and multilateral agencies, outlays for science and technology, enhanced debt relief, and other areas. In total, we find that costs of meeting the MDGs in all countries are on the order of $121 billion in 2006, rising to $189 billion in 2015, taking into account co-financed increases at the country level. Our results show that several countries will “graduate” from the need for aid to finance investments in the MDGs before 2015 ( map 8 ).
In table 8 we estimate a plausible level of overall ODA flows implied by the Goals, by making three adjustments to table 7 . First, we recognize that in addition to MDG-based ODA, other forms of ODA will continue to be warranted. Second, we recognize that some of the MDG needs will be satisfied by reprogramming existing aid rather than by increasing aid. Third, we recognize that some countries will not qualify for increased aid because of their poor governance. Making these three corrections, we suggest that a plausible level of overall ODA required for the MDGs during the coming decade will be $135 billion in 2006, rising to $195 billion in 2015. These figures are respectively equivalent to 0.44 and 0.54 percent of donor GNP.
Table 6: Financing the Millennium Development Goals in Ghana
Table 7: Estimated cost of meeting the Millennium Development Goals in all countries
Table 8: Plausible official development assistance needs to meet the Millennium Development Goals
Map 8: Millennium Development Goals financing gap, 2015
These ODA estimates suggest that donors should prepare to double their ODA-to-GNP ratios during 2006–15 compared with today. That is, the ratio of ODA to donor GNP should be 0.5 percent of GNP or above, approximately twice the current level. Since our calculations leave out certain major categories of aid that are likely required in the future—major infrastructure projects, increased spending on adjustments to climate change, postconflict reconstruction, and other high-profile geopolitical priorities—we believe that donors should commit to reaching the long-standing target of 0.7 percent of GNP by 2015. Roughly three-quarters of that will be directed to the Goals, and the rest to other ODA needs.
While clearly not sufficient in themselves, substantial increases in aid are necessary for countries to achieve the Goals. Just as developing countries need to honor their commitments in terms of improved governance, rich countries must meet the commitment made in Monterrey by making “concrete efforts towards the target of 0.7 percent of gross national product as ODA to developing countries.” To achieve the Goals, donors need to make credible and long-term commitments to substantially higher ODA, with access to the increased funding contingent on the quality of MDG-based poverty reduction strategies and the credible commitments of countries to undertaking the necessary reforms.
Five high-income countries have already reached the 0.7 percent international target, while six others have committed themselves to specific timelines to reach this level of ODA (box 11). But even if all existing commitments were met over the next five years, the world would still experience a significant financing shortfall. Several initiatives have explored innovative financing mechanisms to overcome fiscal constraints to a rapid scaling-up of aid volumes. Among them we consider the International Finance Facility (IFF), proposed by the British government, as the most advanced proposal for achieving a rapid increase in development assistance.
Box 11: The 0.7 percent official development assistance target and the Millennium Development Goals
Although the UN Millennium Project focuses its estimate of needed official development assistance on country-level MDG needs assessments, we do so within the context of developed countries' long-established international target of providing 0.7 percent of their national income as ODA. 2005 marks 35 years since this target was first affirmed by UN member states in a 1970 General Assembly Resolution:
“In recognition of the special importance of the role which can be fulfilled only by official development assistance, a major part of financial resource transfers to the developing countries should be provided in the form of official development assistance. Each economically advanced country will progressively increase its official development assistance to the developing countries and will exert its best efforts to reach a minimum net amount of 0.7 percent of its gross national product at market prices by the middle of the decade.”
This first deadline passed. Having fallen from 0.51 percent as a share of donor GNP in 1960 to 0.33 percent in 1970, official development assistance reached 0.35 percent in 1980. By 1990 it was at 0.34 percent and then fell to 0.23 percent by 2002, the same year the 0.7 target was reconfirmed by all countries in the Monterrey Consensus.
So far, only five countries have met or surpassed the 0.7 target: Denmark, Luxembourg, Netherlands, Norway, and Sweden. In the past two years, however, six other countries have committed themselves to specific timetables to achieving the target before 2015: Belgium, Finland, France, Ireland, Spain, and the United Kingdom. Thus nearly half the membership of the OECD's Development Assistance Committee has now set a firm timetable for reaching 0.7. The UN Millennium Project urges all developed countries to follow through on the Monterrey commitment “to make concrete efforts towards the target of 0.7.” We urge that “concrete efforts” require a specific timetable for reaching 0.7, and specifically a timetable before 2015, the target date for the Goals.
The confluence of the 0.7 target and the Goals is an important one. As this report outlines, ours is the first generation in which the world can halve extreme poverty within the 0.7 envelope. In 1975, when the donor world economy was around half its current size, the Goals would have required much more than 1 percent of GNP from the donors. Today, after two and a half decades of sustained economic growth, the Goals are utterly affordable. No new promises are needed—only following through on commitments already made.
The IFF would be a time-limited financing mechanism designed to at least double development assistance between now and 2015. It would leverage additional money from the international capital markets by issuing bonds, based on legally binding long-term donor commitments. It responds to the need for rapid scaling-up, or “frontloading,” development assistance without placing undue constraints on rich countries' budgets, while permitting donor countries to achieve the target of 0.7 percent of GNI by 2015.