Front Matter

Front Matter

International Monetary Fund
Published Date:
May 2006
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© 2006 The International Bank for Reconstruction and Development / The World Bank

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Cover design: Chris Lester, Rock Creek Creative, Bethesda, Maryland. Cover map: Map design unit of the World Bank, based on data provided by the staff of the Development Data Group of the World Bank’s Development Economics Vice Presidency. Cover photo credits (left to right, from back cover to the front): Chilean woman, Curt Carnemark; Brazilian man, Scott Wallace; Latvian girl, Curt Carnemark; Uzbekistani man, Anatoliy Rakhimbayev; Turkish woman, Scott Wallace; Rwandan boy, Arne Hoel; Yemeni woman and Senegalese girl, Scott Wallace; Ethiopian boy, Arne Hoel; Moroccan woman and Yemeni man, Scott Wallace; Indian youth, John Isaac; Bangladeshi girl, Scott Wallace; Sri Lankan woman, Dominic Sansoni; Vietnamese woman and child, Tran Thi Hoa; Indonesian man, Curt Carnemark. Photos courtesy of World Bank Photo Library, Typesetter: Precision Graphics, Champaign, Illinois.

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ISBN-10: 0-8213-6477-4

ISBN-13: 9780821364772

eISBN: 0-8213-6483-9

DOI: 10.1596/978-0-8213-6477-2



This third annual Global Monitoring Report (GMR) on progress toward the Millennium Development Goals (MDGs) comes with only 10 years remaining to achieve them. It reports good and bad news.

Growth continues to be favorable and has helped cut global poverty, in some cases dramatically. Many countries have stayed the course with sound economic policies, which are delivering results, including some countries in Sub-Saharan Africa. The volume of trade has grown worldwide, and private capital flows to developing countries continue to rise. Evidence is also emerging from some countries of rapid and tangible progress in improving primary education completion, raising immunization coverage, and lowering child mortality.

The bad news is that many countries are off track to meet the human development MDGs. The gains, impressive on a global scale, are unevenly distributed. For every success story of rapid growth and job creation in emerging East and South Asian cities, there are disturbing examples of increased poverty in much of Sub-Saharan Africa, and among large groups of people in many other parts of the world. In too many countries, infrastructure is crumbling. Urgently needed investment to modernize water, sanitation, and transportation facilities has proven unavailable, and families struggle without access to clean water, or roads that would open access to schools, health care, and markets. In many cases, the governance of countries does not inspire the confidence of investors including, most importantly, citizens of those same countries.

This must change if we are to achieve the MDGs. The principle of mutual accountability—of donors, the international financial institutions, and recipient governments for the quality of external support and for improved performance—is central to accelerating performance.

This GMR persuasively argues that governance is one of the central challenges facing developing countries and the global development community. Governance has gained widespread currency, but its often vague definition has limited its utility as an organizing concept for development, which is what it needs to be. This report offers a framework that defines the parameters of what governance is, and gives us tools—drawn from various indexes—to assess its quality, across different countries, sectors, and actors.

The GMR recognizes that there is no single, unique way to effectively improve governance to reduce poverty, and acknowledges that each country’s path must be of its own choosing. But national customs cannot be a smokescreen to defend practices that rob the poor of better opportunities, and undermine a society’s chance to develop. With this in mind, the GMR provides a governance framework for monitoring and draws lessons from diverse international experience. It presents performance benchmarks on, among others, sound financial management, public procurement, settlement of legal disputes, and openness and transparency so as to ensure governments’ accountability to taxpayers and citizens and to check corruption.

The GMR’s framework for governance is the first step in establishing a more comprehensive system for monitoring governance. More investment is needed in actionable indicators that can help to track progress, generate greater accountability, and build demand for good governance. They can also help underpin long-term dialogue between countries and development partners, which should develop realistic goals and sequencing of governance reforms.

As developing countries tackle the challenge of governance, the GMR also reminds us that the rich countries must meet their commitments on aid, debt relief, and trade. To enhance aid effectiveness, aid transfers need to be more predictable, less fragmented, more closely aligned with needs, and targeted to where the aid can be productively used. This includes better targeting to countries that are tackling the MDGs, and bringing greater flexibility to aid, so that it can cover recurrent costs, such as teachers’ or health workers’ salaries, as well as governance reforms to improve service delivery. The promise of increased aid will be realized only if it is used with sufficient rigor and imagination to deliver improved results.

The GMR reports progress in shifting the emphasis of international financial institutions, including the World Bank and the International Monetary Fund, toward results management—managing for outcomes rather than managing inputs to the production process. But more work must be done by all development partners to establish a longer-term vision, deliver more resources, and increase support for capacity strengthening in developing countries. With a decade left to achieve the MDGs, there is no time to lose.

Paul Wolfowitz


World Bank

Rodrigo de Rato

Managing Director

International Monetary Fund


This report has been prepared jointly by the staff of the World Bank and the International Monetary Fund. In preparing the report, staff collaborated closely with partner institutions—the Organisation for Economic Co-operation and its Development Assistance Committee, the United Nations, the African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, and the Inter-American Development Bank. The cooperation and support of staff of these institutions are gratefully acknowledged.

Mark Sundberg was the lead author and manager of the report. The work was carried out under the general guidance of François Bourguignon, Senior Vice-President, and the overall supervision of Alan Gelb, Director, World Bank. The thematic work on governance was led by Brian Levy, with supervision from Sanjay Pradhan, Sector Director, World Bank. Paul Gertler provided supervisory support on the human development chapter. The core team from the World Bank included Halsey Rogers (chapter 1), Barbara Bruns (chapter 2), Punam Chuhan (chapter 3), Ariel Fiszbein (chapter 4), and Brian Levy (chapters 5 and 6). The Bank core team also included Manuel Félix, Brendan Fitzpatrick, Ceren Özer, and Sachin Shahria, who provided significant contributions to the overall report through research and coordination. The core team from the International Monetary Fund was led by Andy Berg and included Anton Op de Beke (chapter 7), Peter Fallon, and Carlos Leite.

Many others have made valuable contributions, including the following from the World Bank: Olusoji O. Adeyi, Jim Anderson, Amie E. Batson, Gilles Bauche, Robert Beschel, Amar Bhattacharya, Christina Biebesheimer, Rene Bonnel, Eduard R. Bos, Jeanine Braithwaite, Logan Brenzel, Cecilia Briceño-Garmendia, Lorelei Buntua, Andrew Burns, Flavia Bustreo, William Butterfield, Sarah Cliffe, Rui Coutinho, Stefano Curto, Angelique de Plaa, Adrian Di Giovanni, Simeon Djankeov, Bill Dorotinsky, Rob Chase, Shaohua Chen, Graham Eele, Safinaz El Hag El Tahir Ahmed, Janet Entwhistle, Christine Fallert Kessides, Shahrokh Fardoust, Lucia Fort, Luc-Charles Gacougnolle, Alison Gillies, Jonathan Goldberg, Bee Ean Gooi, Engilbert Gudmundsson, Poonam Gupta, Christopher Hall, Mary Hallward-Driemeier, Jonathan D. Halpern, Kirk Hamilton, Santiago Herrera, Bernard Hoekman, Tim Irwin, Christianna Johnnides, Melissa Johns, Erica Jorgensen, Ellis Juan, Dani Kaufmann, Phil Keefer, Barbry Keller, Steve Knack, Michael Koch, Peter Kolsky, Sahr Kpundeh, Aart Kraay, Jeffrey D. Lewis, Soe Lin, Saida Mamedova, Julio Mariscal-Pelaez, Susan McAdams, Rick Messick, Célestin Monga, Julia Nelson, Alessandro Nicita, Christine Zhen-Wei Qiang, Shilpa Phadke, Sonia Plaza, Gauresh Shailesh Rajadhyaksha, Anand Rajaram, Martin Ravallion, Francesca Recanatini, Randi Ryterman, Gary Reid, Prem Sangraula, Shunalini Sarkar, Miriam Schneidman, Susan Sebastián, Meera Shekhar, Rick Stapenhurst, Susan Stout, Mikael Sundberg, Emi Suzuki, Joel Turkewitz, Caroline Van Den Berg, Dominique van der Mensbrugghe, Sona Varma, Luisa Sigrid Vivo Guzman, Kavita Watsa, Jerome Wolgin, and Roula Yazigi.

Contributors from the International Monetary Fund included Emmanuel Hife, George Mubanga Kabwe, Jennifer Lester, Taryn Rounds Parry, Eric Robert, Deborah Siegel, Tanya Smith, Janet Stotsky, Harry Trines, and Delia Velculescu.

Contributors from other institutions included Christopher Maccormac and Manju Senapaty (Asian Development Bank); Ferdinand Bakoup, Douglas Barnett, and Boubacar Traore (African Development Bank); Ernesto Castagnino, Marco Ferroni, and Max Puglar-Vidal (Inter-American Development Bank); Sam Fankhauser (European Bank for Reconstruction and Development); and Brian Hammond (OECD-DAC).

Guidance received from the Executive Directors of the World Bank and the International Monetary Fund during discussions of the draft report is gratefully acknowledged. The report has also benefited from many useful comments and suggestions received from the World Bank and International Monetary Fund management and staff in the course of the preparation and review of the report.

The World Bank’s Office of the Publisher managed the editorial services, design, production, and printing of the book—in particular, Aziz Gökdemir, Susan Graham, Nancy Lammers, Stephen McGroarty, Brenda Mejia, Randi Park, Santiago Pombo-Bejarano, and Stuart Tucker, along with Jacquie Ciardi of Grammarians, Kirsten Dennison and associates at Precision Graphics, Melissa Edeburn, and Chris Lester of Rock Creek Creative provided excellent help with publishing this book on a very tight schedule.

Abbreviations and Acronyms


Analytical and Advisory Activities


Asian Development Bank


African Development Bank


African Development Fund


advance market commitment




African Peer Review Mechanism


Asian Development Fund


Business Environment and Enterprise Performance Surveys


Baseline Indicator Set


Country Assistance Evaluation


Central American Free Trade Agreement


country assistance strategy


community-driven development


Commitment to Development Index


Combating Financing of Terrorism


consultative group and roundtable


Common Performance Assessment System


Country Policy and Institutional Assessment


Comprehensive Poverty Reduction and Growth Strategy


civil service


civil society organization


civil service reform


Development Assistance Committee (OECD)


Doing Business (surveys)


U.K. Department for International Development


Development Impact Evaluation


Debt Reduction Facility


East African Community


East Asia and Pacific


European Bank for Reconstruction and Development


Europe and Central Asia


Education for All Fast-Track Initiative


European Free Trade Association


Extractive Industries Transparency Initiative


Exogenous Shocks Facility


European Union


Financial Action Task Force


foreign direct investment


financial management information systems


Group of Eight


Greater Arab Free Trade Area


Global Alliance for Vaccines and Immunization


Global Monitoring Report


gross national income


Global Integrity Index


Group of States Against Corruption


heavily indebted poor country/countries


Inter-American Development Bank


International Bank for Reconstruction and Development


Investment Climate Surveys


International Development Association

IDA 14

14th replenishment of IDA resources


Independent Evaluation Group


Independent Evaluation Office


International Finance Corporation


International Finance Facility for Immunization


international financial institution


International Monetary Fund


Implementation Status and Results


insecticide-treated bed net


International Telecommunications Union


WHO/UNICEF Joint Monitoring Programme for Water Supply and Sanitation


Kecamatan Development Program




Kaufmann, Kraay, and Zoido-Lobaton


Latin America and the Caribbean


least developed country


low-income country


Marrakech Action Plan for Statistics


multilateral development bank


Millennium Development Goal


Multilateral Debt Relief Initiative


Middle East and North Africa


Managing for Development Results


middle-income country


Movement for the Rights of Peasants and Workers


medium-term expenditure framework


New Partnership for Africa’s Development


nongovernmental organization


net present value


nontariff measure


National Unity and Reconciliation Commission


Organization of American States


official development assistance


Organisation for Economic Co-operation and Development


Operations Evaluation Department


Office of Institutional Integrity


overall trade restrictiveness index


Office of Evaluation and Oversight


performance-based allocation


Public Expenditure and Financial Accountability


public financial management


Poverty Reduction and Growth Facility


Poverty Reduction Strategy


Poverty Reduction Strategy Paper


Policy Support Instrument


Publish What You Pay


Quality Assurance Group


Report on Observance of Standards and Codes


regional trade agreement


South Asia


special drawing right


Strategic Partnership with Africa


small-scale private service provider


Sub-Saharan Africa


sectorwide program


technical cooperation


total firm productivity


Transparency International


IMF Trade Policy Information Database


United Nations Development Programme


National Union for Total Independence of Angola


World Development Report


World Health Organization


Working Party on Aid Effectiveness


World Trade Organization

Executive Summary

One decade remains to meet the Millennium Development Goals (MDGs) that the international community set out in 2000. In 2005 the international community reaffirmed its commitment to mutual accountability for achieving results and focused on scaling up resources. In the Paris Declaration, donors furthered commitments to raising aid effectiveness through better harmonization and alignment, and the G-8 Gleneagles Summit brought new aid and debt relief commitments. Developing countries, in turn, reaffirmed their commitment to strengthening governance and pursuing strong development strategies.

Yet the world is still far from achieving the MDGs. Many countries—particularly in Africa and South Asia—are off track. Examples abound of slow or failing efforts: inadequate resources and weak governance contribute to over 10 million children dying annually of readily preventable diseases; only three-fifths of urban and one-quarter of rural low-income households in low-income countries have access to improved sanitation facilities; aid is too often poorly directed; and international financial institutions still emphasize loans and reports rather than development outcomes. In sum, much greater effort is needed to implement the vision of global action and mutual accountability for results that was forged at the Monterrey Summit in 2002.

This Global Monitoring Report (GMR) reviews the efforts under way to strengthen mutual accountability. Greater resource flows to developing countries must go hand in hand with measures to make aid work more effectively. One key element is improving governance, both in developing countries and globally, to strengthen accountability for resource use and for development outcomes. Measuring and monitoring governance, in support of greater accountability and better MDG outcomes, is the primary focus of this report. Monitoring governance can help to clarify options for scaling up assistance and can support broader efforts to strengthen transparency and accountability, both nationally and globally.

Key Actions to Strengthen Mutual Accountability

The report highlights six key actions to accelerate progress toward the MDGs and strengthen mutual accountability.

Favorable growth has helped reduce poverty, but more even and accelerated progress requires strengthening of infrastructure and national investment climates.

Growth of both middle- and lower-income developing countries has accelerated since 2000, helping to secure further progress in reducing poverty. Aggregate income growth between 2000 and 2005 suggests a significant drop in poverty, by perhaps as much as 10 percent. But progress has been uneven, most of it taking place in East and South Asia. A few countries in Africa have had some success in poverty reduction, but most countries in that continent, and some in Latin America, have seen poverty stagnate or worsen.

Accelerating poverty reduction will require greater emphasis on improving the domestic growth environment. Aid-recipient countries, with the help of development partners, need to improve the investment climate and channel more resources to increasing household and business access to basic infrastructure. These are closely related, since access to infrastructure is a critical element of the investment climate, and both contribute to growth, employment, and productivity. Investment climate surveys show that poor countries place the greatest burden on entrepreneurs and have reformed business regulations the least—Africa had the lowest reform intensity in 2004. Moreover, for both the rural and urban poor in many low-income countries, the gap in access to basic infrastructure is widening.

Recent progress in human development outcomes points to the need for more flexible aid, better coordination, and improved governance.

Many countries, particularly in Africa and South Asia, are off track to reach the human development MDGs. Over 10 million children under the age of five die each year from treatable causes. Most of these deaths could be prevented by simple, known, and low-cost treatments. Only 34 of 143 developing countries are believed to be on track toward halving the number of underweight children.

Yet tangible evidence is emerging in some countries of significant progress in human development outcomes since the late 1990s. Surveys reveal that in many countries the poor are more than proportionately sharing in this progress. The factors behind these successes need to be better understood, but evidence points to improving policies and to the importance of higher quality, more predictable, and better coordinated aid to help finance teacher and health care worker salaries and other recurrent costs. Sustaining these trends will require continued support for the aid harmonization and alignment agenda embodied in the Paris Declaration of 2005, and governance reforms to strengthen the quality of services and accountability of service providers.

Major aid and debt relief commitments were made in 2005, but better aid and vigilant monitoring are needed to guard against risks to their effective implementation. Trade reform needs new life.

The year 2005 has been a watershed for scaling up aid commitments and deepening debt relief to low-income countries. Over US$50 billion was pledged in new commitments by 2010, including a doubling of aid to Africa. The new multilateral debt relief initiative will eliminate about $50 billion of debt, reducing debt service by around $1 billion annually.

But these commitments risk remaining unfulfilled. Aid commitments may fall victim to donor-country efforts to cut deficits. Debt relief is intended to be additional but may be counted toward fulfilling aid targets. Moreover, even if aid commitments are met, donors may not fulfill pledges to lift the quality of aid. Recent history suggests this will be an uphill struggle—aid remains poorly coordinated, unpredictable, largely locked into “special purpose grants,” and often targeted to countries and purposes that are not priorities for the MDGs. Finally, debt relief raises the risk of future unsustainable borrowing from commercial banks. Donors, the World Bank and the International Monetary Fund, and most important, recipient countries need to monitor carefully aid flows and application of the enhanced debt sustainability framework to reduce these risks.

Following the modest progress with multilateral trade liberalization at the sixth ministerial meeting in Hong Kong (China), all countries must provide new impetus to rescue the Doha “development round.” Hope is pinned on new negotiating modalities for agriculture and industrial products, and comprehensive draft schedules for liberalization to be negotiated by end-July 2006. Developing countries’ own liberalization also matters, and could account for half their potential gains from trade reform. Many poor countries are unlikely to gain from liberalization in the short run, particularly in Africa, and new aid-for-trade pledges have been made to assist those that will be hurt. While crucial, aid for trade should not be viewed as a substitute for trade liberalization.

The focus of the international financial institutions (IFIs) must shift from managing inputs to achieving real results on the ground, but this poses major challenges to both the IFIs and developing countries.

International financial institutions have, in the past, largely focused on inputs and processes rather than on development outcomes. Moving to a results management agenda will require a shift in institutional practices—which has only just begun with the new efforts to develop a common performance measurement system (COMPAS) and integrating Management for Development Results into multilateral development banks’ practices. Moving the agenda forward requires making a long-term management commitment to shifting institutional culture, deepening efforts to systematically and transparently monitor performance indicators and to define the set of instruments (rules, incentives, practices) to link behavior to performance outcomes. Developing countries need to build statistical capacity to measure performance and put in place the elements of results management systems; IFIs and donors must scale up their support for these efforts.

Governance should be regularly monitored to help track progress, generate greater accountability, and build demand for further progress.

Governance is an important factor underpinning development effectiveness and progress toward the MDGs. Corruption is a symptom of governance systems failure. The multidimensionality of governance makes precise monitoring difficult. The GMR lays out a framework that identifies governance indicators for tracking progress, improving transparency and accountability, and generating greater demand for good governance outcomes. It proposes a core list of 14 monitoring indicators, including both broad measures of governance, as well as more specific, actionable indicators. While both have their uses, the GMR argues for greater investment in specific, actionable indicators. These include the PEFA (public expenditure and financial accountability) indicators used to track public financial management, procurement indicators, and business climate indicators.

There is no unique path to good governance. Some countries may be strong in one dimension (such as bureaucratic capability) but weak in others (such as checks and balances). Engagement by the development community should reinforce positive momentum where it exists, push systematically for improved transparency, and at the same time enter into dialogue on long-term support for lagging areas. Monitoring can help to track progress across different dimensions, as well as assess the long-term sustainability of governance systems overall. Where governance is weaker, engagement is much more difficult and incremental steps are appropriate, focusing initially on efforts to increase transparency and to strengthen local service delivery.

The international community must support efforts to strengthen governance systems through ratification and support for global checks and balances.

Good governance is not just the responsibility of developing countries. All countries must take responsibility for strengthening global checks and balances and implementing strong anticorruption standards. Since the early 1990s, a framework of global checks and balances has emerged, centered around programs for international law enforcement (anti-money laundering, antibribery conventions), anticorruption treaties (for example, the United Nations Convention Against Corruption), and international transparency initiatives (such as the Extractive Industries Transparency Initiative). These systems are still nascent but have made a promising start.

Donors and the IFIs should assist by providing technical assistance and funding to support countries’ participation. They can also encourage the participation of middleincome countries, which loom ever larger in commercial dealings with poor countries. More generally, donors need to strengthen their own anticorruption controls (including through the debarment and cross-debarment of suppliers engaging in bribery and corruption), increase transparency, and provide aid in ways that encourage good governance rather than fragmenting and depleting already weak country systems.

Millennium Development Goals (MDGs)

Goals and Targets from the Millennium Declaration

TARGET 1Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day
TARGET 2Halve, between 1990 and 2015, the proportion of people who suffer from hunger
TARGET 3Ensure that by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling
TARGET 4Eliminate gender disparity in primary and secondary education, preferably by 2005, and at all levels of education no later than 2015
TARGET 5Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate
TARGET 6Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio
TARGET 7Have halted by 2015 and begun to reverse the spread of HIV/AIDS
TARGET 8Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases
TARGET 9Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources
TARGET 10Halve by 2015 the proportion of people without sustainable access to safe drinking water and basic sanitation
TARGET 11Have achieved a significant improvement by 2020 in the lives of at least 100 million slum dwellers
TARGET 12Develop further an open, rule-based, predictable, nondiscriminatory trading and financial system (including a commitment to good governance, development, and poverty reduction, nationally and internationally)
TARGET 13Address the special needs of the least developed countries (including tariff- and quota-free access for exports of the least developed countries; enhanced debt relief for heavily indebted poor countries and cancellation of official bilateral debt; and more generous official development assistance for countries committed to reducing poverty)
TARGET 14Address the special needs of landlocked countries and small island developing states (through the Programme of Action for the Sustainable Development of Small Island Developing States and the outcome of the 22nd special session of the General Assembly)
TARGET 15Deal comprehensively with the debt problems of developing countries through national and international measures to make debt sustainable in the long term
TARGET 16In cooperation with developing countries, develop and implement strategies for decent and productive work for youth
TARGET 17In cooperation with pharmaceutical companies, provide access to affordable, essential drugs in developing countries
TARGET 18In cooperation with the private sector, make available the benefits of new technologies, especially information and communication
Note: The Millennium Development Goals and targets come from the Millennium Declaration signed by 189 countries, including 147 heads of state, in September 2000. The goals and targets are related and should be seen as a whole. They represent a partnership of countries determined, as the Declaration states, “to create an environment—at the national and global levels alike—which is conducive to development and the elimination of poverty.”Source: United Nations. 2000 (September 18). Millennium Declaration. A/RES/55/2. New York.United Nations. 2001 (September 6). Road Map towards the Implementation of the United Nations Millennium Declaration. Report of the Secretary General. New York.
Note: The Millennium Development Goals and targets come from the Millennium Declaration signed by 189 countries, including 147 heads of state, in September 2000. The goals and targets are related and should be seen as a whole. They represent a partnership of countries determined, as the Declaration states, “to create an environment—at the national and global levels alike—which is conducive to development and the elimination of poverty.”Source: United Nations. 2000 (September 18). Millennium Declaration. A/RES/55/2. New York.United Nations. 2001 (September 6). Road Map towards the Implementation of the United Nations Millennium Declaration. Report of the Secretary General. New York.

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