1 The Monterrey Consensus: Progress, Challenges and Way Forward Patrick N. Osakwe Trade, Finance and Economic Development Division

2 I. Background  The most important challenge facing Africa is how to achieve sustained economic growth and eradicate poverty  The 2007 MDG Report indicates that Africa is the only region at risk of not meeting any of the MDGs.  Mobilization of finance is crucial to reversing the current trend and increasing the likelihood of African countries meeting the MDGs by the target date.  World leaders recognized the importance of finance in meeting the MDGs when they adopted the Monterrey Consensus in 2002

3  The Monterrey Consensus has now emerged as the key framework for development finance. It has six core areas:  Mobilizing domestic financial resources for development  Mobilizing international resources for development  Promoting international trade as an engine of development  Increasing international financial and technical cooperation for development  External debt  Systemic issues

4 II. Tracking Performance and Progress  A key question that the international community has to answer is “to what extent have the objectives of the Monterrey Consensus been achieved in the six core areas?”  This presentation provides answers to this question using two methods Published macroeconomic data Published macroeconomic data ECA survey of African policymakers ECA survey of African policymakers

5 Evidence from Macroeconomic Data (annual average) IndicatorPre-MonterreyPost-Monterrey Growth rate (%) Savings ratio (%) 1922 FDI-GDP ratio Export-GDP ratio 2933 ODA (billion $) 1628 Debt-GDP ratio 6247

6 ECA Survey of Policymakers: Key Messages  Overall, very limited progress has been made in realizing the objectives of the Monterrey Consensus in the Africa region  Significant progress has been made in the area of external debt relief.  But performance in the areas of international trade as well as external and domestic resource mobilization has been either fair or disappointing

7 Area of least progress in the Monterrey Consensus (% of respondents)

8  FDI inflows have increased in recent years, but they are still insufficient and too concentrated in the natural resources sector  African governments have made efforts to mobilize domestic savings, but savings ratio remain low relative to investment requirements 41 percent of respondents rated as good the performance of domestic governments in mobilizing savings 41 percent of respondents rated as good the performance of domestic governments in mobilizing savings 28 percent rated it as fair 28 percent rated it as fair 25 percent rated it as poor. 25 percent rated it as poor.

9 Obstacles to the mobilization of domestic resources

10  ODA flows to Africa have increased since the adoption of the Monterrey Consensus.  But donors are still not on track to meet their commitments and recent aid flows tend to be concentrated in a few countries and social sectors  Although exports have increased in recent years, respondents believe that donors have not made much progress in supporting African countries in the area of trade  The main barriers to export promotion in the region are market access and supply constraints

11 Barriers to export promotion and development

12  On systemic issues, the international community has not done enough to increase Africa’s voice in the governance of international monetary, financial and trading systems.  56 percent of respondents disagreed with the notion that the current governance structures allow for effective participation of African countries in the global economy.  In the area of external debt, majority of the respondents (over 70 percent) agree that there has been significant progress in reducing the external debt of African countries.  However, 65 percent of the respondents do not believe that recent debt relief initiatives will lead to a resolution of the debt problem in Africa.

13 Source of external debt problem in African countries

14 III. The Way Forward  Evidence from both macroeconomic data and ECA survey of African policymakers suggest that very limited progress has been made in achieving the goals of the Monterrey Consensus  Considerable efforts are required by both African governments and development partners to mobilize the resources needed for development in the region

15 Domestic and International Resource Mobilization  African countries need to take concrete actions to boost savings by exploiting the potential of micro-finance institutions, promoting regional integration of capital markets, and aligning trade reforms with fiscal policy responses.  They also need to improve the investment environment, develop financial infrastructure, and reduce transaction costs of remitting money from abroad.  They should be selective in their choice of FDI flows with preference for sectors with high-value added.

16 International Trade  African countries have to move into the export of new and dynamic products in world trade if they are to increase the region’s share in global exports.  Diversification of the production and export structure is necessary to achieve this objective.  Development partners should create a trading environment that allows the region to unlock its export potential.

17 Official Development Assistance  Africa’s development partners must scale up efforts to meet their pledges on aid quantity and quality.  They should also live up to their promise to untie aid flows and make them more predictable.  There is also the need for better allocation of aid across countries and sectors to maximize impact

18 External Debt and Systemic Issues  Despite progress in debt relief, there is the need to extend eligibility for current debt relief programmes to non-HIPC African countries.  African countries should also put in place a mechanism to ensure that loans from new creditors do not lead to a new cycle of indebtedness.  The international community should begin to take more seriously the issue of increasing the voice of African countries in decision making bodies of international institutions.

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