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DEVELOPMENT: Oil Prices May Impact MDGs – UN Report

Marwaan Macan-Markar

BANGKOK, Oct 25 2007 (IPS) - A new mechanism to measure the impact of rising oil prices on Asia’s poor offers a sobering forecast. There is a clear threat to the region’s gains in reducing the numbers living poverty.

Using 18 different indicators, the recently conceived Oil Price Vulnerability Index (OPVI) suggests that countries surveyed have been hit by varying degrees as the price of oil rose from around 22 US dollars per barrel in 2003 to over 80 dollars per barrel in the years since. Last week, oil fetched a record high of 90.07 dollars per barrel, leading to speculation that the 100 dollar mark was a growing possibility.

The most vulnerable countries are those that have ‘’low economic strength, low economic performance and high oil dependency,’’ states a report released Thursday by the United Nations Development Programme (UNDP), which used the OPVI to confirm its region-wide assessment of how the continent’s poor are coping with the rise in fuel prices.

In South Asia, the worst off countries are Afghanistan, Bangladesh, the Maldives, Nepal, Pakistan and Sri Lanka. In South-east Asia, the list includes Cambodia, Laos and the Philippines. In the Pacific, they range from the island nations of Fiji, Samoa, Solomon Islands to Vanuatu.

The moderately vulnerable countries, on the other hand, stretch from Bhutan and India on one end to Burma, Thailand, Vietnam, Indonesia, Papua New Guinea and Mongolia. What has saved these countries from being at the bottom of the barrel are the capacities of their respective economies to ‘’absorb oil price shocks, performing better with high or medium gross domestic product and economic growth rates,’’ states the UNDP report, ‘Overcoming Vulnerability to Rising Oil Prices’. ‘’(They also have) a low reliance on oil or being a net exporter of oil.’’

But such a distinction would pale if oil prices continue to remain high, consequently posing an unforeseen challenge to the region’s Millenium Development Goals (MDGS) described by the report as ‘’the overarching goal to eradicate extreme poverty and hunger’’.

‘’The threat to the MDGs depends on the length of oil prices continuing to rise,’’ Nandita Mongia, the lead author of the report, told IPS. ‘’If the prices continue to rise over the next three to five years, then we are in big trouble.’’

The MDGs were eight development targets that were set by the world’s leaders at a U.N. summit at the world body’s headquarters in New York in 2000. The first of them was to halve by 2015 the number of people whose income was less than one U.S. dollar a day. The Asia-Pacific region has come in for praise due to the drop in poverty rates from 32 percent of the region’s population to 17 percent. In 2004, some 641 million people were still living in extreme poverty in this region.

There is equal concern that another MDG target – to ensure that by 2015 children everywhere, both boys and girls, will be able to complete a full course of primary education – will take a hit. Rising transport costs can come in the way of children in rural communities gaining access to good schools, states the 149-page UNDP study.

At the time the MDG’s were conceived, however, the prospect of high oil prices posing a major hurdle appeared remote. ‘’The issue of an oil price hike was never discussed seven years ago as a possible hindrance to the MDGs,’’ says Mongia. ‘’We were living in a happy world when the price was around 25 dollars a barrel.’’

Yet the new reality that the spike in oil prices has posed to the region’s development plans is stark. ‘’The Asia-Pacific region has had to pay 400 billion dollars as an additional oil bill to what was spent in 2003,’’ Hafiz Pasha, U.N. assistant secretary-general, said during the launch of the report. ‘’This is 20 times the annual aid flow to the region.’’

This has forced a change among rural and urban communities, with many shifting to ‘’more traditional, dirtier, and more difficult to access fuels,’’ he added. ‘’It has also made their attempts to climb out of poverty more difficult.’’

Interviews conducted by the UNDP’s researchers among poor households in rural and urban China, India, Indonesia and Laos conveyed the emerging reality. ‘’Between 2002 and 2005, the households interviewed suffered some dramatic price increases, paying as a whole 74 percent more for their energy needs,’’ states the report. That included 171 percent more for cooking fuels, 120 percent more for transportation, 67 percent more for electricity and 55 percent more for lighting fuels.

The millions who have been forced ‘’to climb down the energy ladder,’’ as the UN agency describes it, have been left with limited choices, prompting many households to be forced to stay in the dark. While the urban poor ‘’tend to be worse off since they do not have the alternative of collecting fuel wood or biomass,’’ the rural poor are no better off, since they are ‘’more vulnerable to higher prices for lighting fuels, especially in unelectrified villages.’’

For least developed countries like Nepal, the pressure has had a bearing on the quality of life. ‘’There has been an increase in the disparity between the rich and the poor,’’ said Posh Raj Pandey, member of the South Asian nation’s national planning commission. ‘’This poses a critical threat to achieving our MDGs.’’