Success and challenges in the implementation of the 2030 Agenda for Middle Income Countries
High level meeting on middle income countries
Remarks delivered by Abdoulaye Mar Dieye, United Nations Assistant Secretary-General and Director of the UNDP Bureau for Policy and Programme Support
As we have now just concluded the G20 Buenos Aires Summit, and as we will be deep diving, the next 10 days, in Katowice, to map forward the implementation of the Paris Climate Agreement, the moment is quite auspicious to reflect on how the Middle Income Countries (MICs), a group which represents one third of global GDP, could continue to be leading forces in shaping and moving forward the international development agenda.
Our meeting today is then very timely.
But we must be mindful that the MICs concept presents a definitional challenge by itself. As a mono-dimensional (revenue factor) categorization of a complex reality; and bracketing in a single entity a huge variety of countries (103 countries), with a wide variance in contexts, such a definitional challenge can be a limiting factor by itself; as it may lead to too generic policy prescriptions. A more adequate taxonomy would have been using relatively more complex and comprehensive indicators such as HDIs. We must one day get out of that “simplistic arithmetic trap” which the MIC definition is! The real question is how countries can keep transitioning up and forward on the sustainable development ladder.
It is true though that the journey from lower income to higher Income country is long and tedious Historically, those economies that graduated from lower-middle income to upper-middle income did it in about 55 years. Likewise, it took 15 years, on average, for an economy to graduate from upper-middle income to high income. This is a very steep climb. The world must move to a more accelerated tempo.
I would like to commend Panama who joined the high income category, for the first time, this year!
Stagnation in middle-income often happens when countries are too rich to compete with low-cost producers elsewhere, but too poor to invest in activities with higher value-added. While this is a concern for many countries making the transition to middle-income, they can get trapped also for three other reasons, which will also guide our policy response.
First, the dependency syndrome: Countries can get stuck if they rely too much on the comparative advantages that brought them to middle-income status in the first place. Many MICs continue to have undiversified economies and they remain excessively dependent on one or two commodity exports, which can lead to high levels of volatility in investment. It is critical to diversify into new, sustainable, job-rich, productive sectors to transform economies.
Second, the middle income blues syndrome: This is particularly the case where vertical (across people) and horizontal (across groups) inequalities are high or increasing. People should be given opportunities for stronger economic, political, cultural and social inclusiveness. Not doing so can strain the social contract and affect social cohesion; this is a recipe for political instabilities, civil unrests and economic disruptions.
Third, the Jekyll and Hyde syndrome: Some middle-income countries present two very different faces. Low levels of human development, including high level of poverty, often persist with high economic growth . It is therefore critical to build an economy that is driven by educated and healthy people, with the skills needed to make the transition to high income. Productivity and skills need to be improved to enhance international competitiveness, create jobs, and the ability to access, use and develop new technologies is increasingly important in today’s world. Systematic and systemic innovation will be critical in constantly improving productivity.
Countries can avoid the middle-income trap and accelerate their growth and development path. They can do it through deliberate and determined policies, steered and backed by policy strong institutions; and producing policies aiming at tackling these three syndromes; they can do it by diversifying their economies to create more and better jobs, by creating conditions for broadly shared development gains and by opening up space for political debate and civic engagement.
While we are here to discuss the sustainable development challenges of middle-income countries, and how we can strengthen our support to them as the United Nations system and development partners, it is also important to celebrate the incredible human development progress realized by many over recent years. For example, since 1990 average global HDI levels have increased by 22 percent reflecting that on average people in MIC are living longer, are more educated and have greater income.
On financing for development, there is also much to commend. Many have access to international capital markets and can attract Foreign Direct Investment. It is also predominantly middle-income countries that have been able to access and make use of new innovations in finance, such as blended finance or Green Bonds to support key investment priorities. For example, supported by UNDP and the World Bank, Indonesia recently issued a Green Sukuk, and Fiji also issued a Green Bond in 2017, the first for a small island developing state. Mexico City has issued a municipal Green Bond to support investments in clean urban transportation.
On domestic resource mobilization – which is the largest and most important source of financing for sustainable development – progress remains slow for middle-income countries (though there are important differences between countries); tax revenues as a percent of GDP have remained largely stagnant at about 12 percent on average over the last decade. And empirical studies show that we need to go beyond 13% tax over GDP ratios to have significant impact on growth (IMF) and beyond 24% to trigger accelerated growth (UNCTAD).
How can we as development partners support middle-income countries to address some of these challenges? Our support also needs to be responsive to the diverse realities which middle-income countries face.
Middle-income countries are in the lead and have a clear role to play to, for example, boost efforts to mobilize more domestic resources for development, and ensure resources are used effectively and target vulnerable and marginalized populations. Some of our work at UNDP supports countries to improve the quality of public expenditure and ensure budgets are SDG-aligned. Through initiatives such as Tax Inspectors Without Borders, which UNDP implements jointly with the OECD, we are supporting many middle-income countries to build the capacities of their tax administrations in to expand their fiscal space. This includes countries such as Botswana, Egypt, Jamaica and Costa Rica.
Because domestic resources and aid can’t do it all, strengthening private finance will be key. Yet financing costs can still be prohibitively high for some middle-income countries; investors still perceive higher risk in newer markets and investment sectors. Middle-income countries still need support to develop a high-quality investment pipeline. For this reason, UNDP launched, in September, this year an Initiative called SDG Impact. SDG Impact will provide investors and businesses with much-needed country-level data and develop SDG investment roadmaps. We aim to connect investors with business opportunities that will deliver a real SDG impact, provide market intelligence, and provide a UNDP managed certification for investors and enterprises to authenticate alignment with the SDG Impact standards.
Let me conclude by reaffirming that accelerated development is possible. It requires sustained focus in systematically and simultaneously addressing challenges related to Inequalities, Innovation and Inclusion. That virtuous triangle is the recipe to overcome Sisyphus climbs in moving development forward.