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Study Guide
For




International Monetary Fund
(IMF)













International Monetary Fund
Bangladesh Model United Nations
Dhaka, Bangladesh.


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Foreword

We would like to take the opportunity to welcome all the honorable Delegates of the IMF to
Bangladesh Model United Nations, Dhaka, Bangladesh. We're glad that you are able to join us
and hope that this conference is both rejuvenating and educational.

We have full agenda during the next few days, so please take a few minutes to read through this
Delegate Guide. It includes our topics of dialogue, itinerary and other important information. We
tried to provide you with much information about the topics as possible.

We look forward for each and every Delegate to take part in the discussions and make it livelier.
If we can do anything to make the conference more amusing, please let us know. Thank you for
joining.


Lubzana Afrin
Co-Chair

Zunayeed Noor Alam
Chair.















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Contents
International Monetary Fund ............................ 4
i. History ................................................. 5
ii. Mandate ............................................... 5
iii. Functions ............................................. 6
Surveillance over Members Economic Policies 6
Financing Temporary Balance of Payments Needs 7
Combating Poverty in Low-Income Countries7
Strengthening the International Monetary System 7
Increasing the Global Supply of International
Reserves ........................................................ 7
Building Capacity through Technical Assistance and
Training ........................................................ 7
Dissemination of Information & Research ..... 7
iv. Collaboration with the WB & WTO ..... 8
Collaboration with the World Bank .................. 8
Collaboration with the World Trade Organization 8
v. Governance & Decision-making .................. 8

Agenda 1: Fiscal Challenges & Climate Change9
i. Overview ........................................... 10
Climate, Environment, & the IMF ............... 10
Fiscal implications ...................................... 10
Designing a response ................................... 10
Financing responses to climate change ........ 10
Macroeconomic Challenges ......................... 11
Other environmental work in IMF ............... 11
ii. Climate Change as a Public Finance Issue
11
Climate change is an externality problem . 11
but a particularly complex one ................. 12
iii. Fiscal Instruments for Mitigation ........ 12
iv. Innovation .......................................... 12
Distortions in fossil fuel extraction .............. 13
The limits of carbon pricing......................... 13
v. Instrument ChoiceTaxes, Cap-and-Trade,
Hybrids .......................................................... 14
vi. Current Carbon Pricing Policies .......... 14
Incoherencies .............................................. 14
The Importance of Auctioning Permits ........ 15
Addressing deforestation ............................. 15

International Coordination ........................... 16
vii. Fiscal Implications of Adaptation ....... 16
Balancing adaptation and mitigation ............ 16
Public goods and adaptation ........................ 16
Dealing with fiscal risks .............................. 17
viii. Assessing the Fiscal Costs of Adaptation17
ix. Climate Finance ................................. 18
x. Closing Notes ..................................... 18
About the Chair.............................................. 19

Agenda 2: South Asia Economy and Future . 20
Overview ....................................................... 21
Asias growing influence ............................. 21
i. The current demographic scene ........... 21
ii. Historical and current economic situation22
iii. Changing age structure ....................... 23
Change ........................................................ 24
Is there a connection? .................................. 24
Savings. ...................................................... 25
iv. Caveat lector: Demography is not destiny26
Productive employment is the key ............... 26
Human Capital ............................................ 26
Government Policies ................................... 26
v. Two potential impediments to realizing the
demographic dividend .................................... 26
vi. Population aging ................................. 27
vii. Key aspects of the Funds engagement 28
Economic monitoring and advice ................. 28
Technical assistance and training ................. 28
Strengthening safety nets ............................. 28
Sharing of knowledge .................................. 28
Lessons from the Asian crisis ...................... 28
viii. The future for South Asia and the IMF 29
South Asias contribution to the Fund .......... 29
IMFs presence in the region ....................... 29
ix. Conclusion ......................................... 29
References .................................................. 30
About the Co-Chair ........................................ 31

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International
Monetary Fund







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i. History
During the Great Depression of the 1930s,
countries attempted to shore up their failing
economies by sharply raising barriers to foreign
trade, devaluing their currencies to compete
against each other for export markets, and
curtailing their citizens' freedom to hold foreign
exchange. These attempts proved to be self-
defeating. World trade declined sharply (see
chart below), and employment and living
standards plummeted in many countries.
This breakdown in international monetary
cooperation led the IMF's founders to plan an
institution charged with overseeing the
international monetary systemthe system of
exchange rates and international payments that
enables countries and their citizens to buy goods
and services from each other. The new global
entity would ensure exchange rate stability and
encourage its member countries to eliminate
exchange restrictions that hindered trade.
The IMF was conceived in July 1944, when
representatives of 45 countries meeting in the
town of Bretton Woods, New Hampshire, in the
northeastern United States, agreed on a
framework for international economic
cooperation, to be established after the Second
World War. They believed that such a
framework was necessary to avoid a repetition
of the disastrous economic policies that had
contributed to the Great Depression.
The IMF came into formal existence in
December 1945, when its first 29 member
countries signed its Articles of Agreement. It
began operations on March 1, 1947. Later that
year, France became the first country to borrow
from the IMF.
The IMF's membership began to expand in the
late 1950s and during the 1960s as many African
countries became independent and applied for
membership. But the Cold War limited the
Fund's membership, with most countries in the
Soviet sphere of influence not joining.
The countries that joined the IMF between 1945
and 1971 agreed to keep their exchange rates
(the value of their currencies in terms of the U.S.
dollar and, in the case of the United States, the
value of the dollar in terms of gold) pegged at
rates that could be adjusted only to correct a
"fundamental disequilibrium" in the balance of
payments, and only with the IMF's agreement.
This par value systemalso known as the
Bretton Woods systemprevailed until 1971,
when the U.S. government suspended the
convertibility of the dollar (and dollar reserves
held by other governments) into gold.
ii. Mandate
The IMF is an independent international
organization. It is a cooperative of 185 member
countries, whose objective is to promote world
economic stability and growth.

The member countries are the shareholders
of the cooperative, providing the capital of the
IMF through quota subscriptions. In return, the
IMF provides its members with macroeconomic
policy advice, financing in times of balance of
payments need, and technical assistance and
training to improve national economic
management.

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The IMF is one of several autonomous
organizations designated by the United Nations
(UN) as Specialized Agencies, with which the
UN has established working relationships.2

The IMF is a permanent observer at the UN.
The Articles of Agreement that created the IMF
and govern its operations were adopted at the
United Nations Monetary and Financial
Conference in Bretton Woods, New Hampshire,
on July 22, 1944, and entered into force on
December 27, 1945.

Article I sets out the mandate of the IMF as
follows:
To promote international monetary
cooperation through a permanent
institution which provides the
machinery for consultation and
collaboration on international monetary
problems;

To facilitate the expansion and
balanced growth of international trade,
and to contribute thereby to the
promotion and maintenance of high
levels of employment and real income
and to the development of the
productive resources of all members as
primary objectives of economic policy;

To promote exchange stability, to
maintain orderly exchange arrangements
among members, and to avoid
competitive exchange depreciation;

To assist in the establishment of a
multilateral system of payments in
respect of current transactions between
members and in the elimination of
foreign exchange restrictions which
hamper the growth of world trade;

To give confidence to members by
making the general resources of the IMF
temporarily available to them under
adequate safeguards, thus providing
them with opportunity to correct
maladjustments in their balance of
payments without resorting to measures
destructive of national or international
prosperity; and

To shorten the duration and lessen the
degree of disequilibrium in the
international balances of payments of
members.

This mandate gives the IMF its unique character
as an international monetary institution, with
broad oversight responsibilities for the orderly
functioning and development of the international
monetary and financial system.

iii. Functions
The IMF pursues the various facets of its
mandate in a number of ways. These are
summarized below.

Surveillance over Members Economic Policies
In becoming members of the IMF, countries
agree to pursue economic policies that are
consistent with the objectives of the IMF. The
Articles of Agreement confer on the IMF the
legal authority to oversee compliance by
members with this obligation, making the IMF
the only organization that has a mandate to
examine on a regular basis the economic
circumstances of virtually every country in the
world.



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Financing Temporary Balance of Payments
Needs
The Articles of Agreement enable the IMF to lend to
member countries that have a balance of payments need
to provide temporary respite and enable countries to put
in place orderlycorrective measures and avoid a
disorderly adjustment of the external imbalance. Such
lending is usually undertaken in the context of an
economic adjustment program implemented by the
borrowing country to correct the balance of payments
difficulties, which also safeguards IMF resources. In
addition to providing
direct financing to its member countries, the IMF plays
an important catalytic role in helping member countries
to mobilize external financing for their balance of
payments needs.

Combating Poverty in Low-Income
Countries
The IMF provides concessional loans to low-income
member countries to help support these countries efforts
to eradicate poverty. In this venture, the IMF works
closely with the World Bank and other development
partners. In this area the IMF also plays a critical
catalytic role to mobilize external financing and donor
support for the countries balance of payments and
development needs. The IMF also participates in two
international initiatives to provide debt relief: the
Heavily Indebted Poor Countries (HIPC) Initiative and
the Multilateral Debt Relief Initiative (MDRI).

Strengthening the International Monetary
System
The IMF is the central institution in the international
monetary system. It serves as a forum for consultation
and collaboration by members on international monetary
and financial matters, and works with other multilateral
institutions to devise international rules that would
facilitate the prevention and orderly resolution of
international economic problems.



Increasing the Global Supply of International
Reserves
The IMF is authorized to issue an international
reserve asset called the Special Drawing Right (SDR) if
there is a global need to supplement existing reserve
assets. These allocated SDRs are part of the net
international reserves of members and can be exchanged
for convertible currencies. They are not a claim on the
IMF. The SDR is also the IMFs unit of account for all
financial transactions with members.

Building Capacity through Technical
Assistance and Training
Technical assistance and training are provided in the
core areas of IMF expertise to help member countries
design economic policies and improve economic
management capabilities, which in turn can help reduce
the risk of policy failures and the countries resilience to
shocks, and facilitating program design and
implementation. These activities are particularly
important in developing countries, where resources are
scarce and institutions often weak.

Dissemination of Information & Research
The IMF is a premier source for economic analysis of its
member countries economic policies and statistical
information. Information is disseminated through its
numerous economic reports and research studies on
member countries, as well as specialized statistical
publications. The IMF also conducts
research in areas relevant to its mandate and
operations, mainly to improve its economic analysis and
its advice to member countries.








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iv. Collaboration with the WB & WTO
The original Bretton Woods conference called for the
creation of three international organizations. While the
IMF and the World Bank were created shortly after the
conference, an international organization devoted to the
facilitation of international trade was only created in
1996, when the World Trade Organization (WTO) was
established incorporating the General Agreement on
Tariffs and Trade (GATT). While the IMF cooperates
with a large number of international organizations,
including all the regional development banks, the
common origin and complementary mandates of the
IMF, World Bank, and WTO.

Collaboration with the World Bank
The IMF and the World Bank were given different, but
complementary, mandates. The World Bank was
established to promote post-war reconstruction and the
flow of capital to developing countries. Its core objective
today is to promote economic growth and conditions
conducive to efficient resource allocation and poverty
reduction, which it pursues through project financing
and through sectoral and structural adjustment lending.
Though their core mandates are different, there has
always been some overlap of activities and policy
concerns.

Collaboration with the World Trade
Organization
The IMF and the WTO work together on many levels,
with the aim of ensuring greater coherence in global
economic policymaking and reflecting the underlying
common policy goal of limiting the use of restrictions on
the international flow of goods and services, which can
be affected through exchange or trade restrictions. On an
operational level, the IMF established the Trade
Integration Mechanism (TIM) in April 2004 to support
progress under the WTOs Doha round of trade talks.
The collaboration of the IMF and the WTO was
formalized in an agreement shortly after the creation of
the WTO in 1996. 129 Article X of the IMFs Articles of
Agreement calls for the IMF to cooperate with any
general international organization and with public



international organizations having specialized
responsibility in related fields, while Article III.5 of the
Marrakesh Agreement Establishing the World Trade
Organization specifically calls for the WTO to cooperate
with the International Monetary Fund such as reciprocal
attendance at meeting sharing documents and IMF
participation in the Balance of Payments Committee of
the WTO.

The IMF has observer status at the WTO, and
participates actively in many meetings of WTO
committees, working groups, and bodies. For this
purpose, the IMF maintains an office in Geneva to
facilitate the regular interaction with the WTO. Trade
policy issues feature prominently in IMF program and
surveillance work wherever macro-relevant. Equally,
IMF surveillance reports, including assessments of
exchange rate policies, are important inputs to the
WTOs Trade Policy Review Mechanism (TPRM) and
the periodic reports on member countries trade policies
(Trade Policy Reviews).

v. Governance & Decision-making
The IMF is governed by a Board of Governors, an
Executive Board, and a Managing Director supported by
three Deputy Managing Directors. Two advisory bodies,
the International Monetary and Financial Committee and
the Development Committee, provide a bridge between
the Board of Governors and the Executive Board.

The Board of Governors is the highest decision-making
body of the IMF.131 The Board of Governors consists of
one Governor for each of the 185 member countries of
the IMF and one Alternate. They are usually ministers
of finance or governors of central banks. They do not
serve fixed terms, but hold their positions until
successors are appointed. The Board selects one of the
Governors as Chair






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Agenda 1: Fiscal Challenges &
Climate Change






























































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i. Overview
Climate, Environment, & the IMF
Stabilizing atmospheric concentrations of greenhouse
gases will require a radical transformation of the global
energy system over coming decades. Fiscal instruments
(carbon taxes or similar) are the most effective policies
for reflecting environmental costs in energy prices and
promoting development of cleaner technologies, while
also providing a valuable source of revenue (e.g., for
lowering other tax burdens). Fiscal policies also have a
key role to play in addressing other environmental
challenges, like poor air quality and urban congestion.

Responding to climate change has become one of the
worlds foremost policy challenges. In line with its
mandate and expertise, the IMF focuses on the fiscal,
financial, and macroeconomic challenges of climate
change. The IMF also provides advice on the appropriate
design of fiscal reforms to promote greener growth more
broadly, particularly with regard to the practicalities of
getting prices right in energy and transportation systems.
Fiscal implications
Broad-based charges on greenhouse gas emissions, such
as a carbon tax, are the most effective instruments for
reducing emissions throughout the economy. They
promote widespread changes in behavior, encouraging
businesses and individuals to reduce energy use and
switch to cleaner fuels.

Carbon taxes can also raise substantial amounts of
government revenue. Fiscal challenges created by
current economic difficulties provide an opportune time
to consider these types of innovative environmental
charges. Cap-and-trade systems are another option, but
generally they should be designed to look like taxes
through revenue-raising and price stability provisions.
Designing a response
There are many issues to consider in designing fiscal
policies to mitigate climate change:
he appropriate tax level and base, and the treatment
of traded goods;




such as clean
technology research, development, and deployment
policies;

financing the governments budget and how to use the
additional revenues;

The treatment of forestry and other non-energy
emissions; and

How to address impacts on vulnerable households and
firms.

These and other issues are discussed at length in a recent
IMF book, Fiscal Policy to Mitigate Climate Change: A
Guide for Policymakers. In 2014 the IMF (with the
Brookings Institution and Resources for the Future) will
publish an edited volume focused specifically on the
design of a U.S. carbon tax in the context of broader
fiscal reform.
Financing responses to climate change
There is broad agreement that substantial financial
assistance is needed for climate adaptation and
mitigation projects in developing countries. In 2011, the
IMF, in collaboration with the World Bank and others,
undertook a study for the G-20 on the effectiveness,
revenue potential, and administration, of a wide range of
fiscal options for climate finance.

This included analysis of potential charges for
international aviation and maritime emissions
and domestic (carbon-related and other) fiscal
instruments.

An IMF staff proposal for a Green Fund would facilitate
financial flows to developing countries to assist in their
efforts on climate change adaptation and mitigation. The
Green Fund would be neither created nor managed by
the IMF itself. It would play an important role as a
framework to mobilize resources, and could be the first

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step toward a binding global agreement on reducing
greenhouse gas emissions.
Macroeconomic Challenges
Climate change mitigation policies affect countries
economic growth, saving and investment levels, capital
flows, and exchange rates. But IMF analysis suggests
these costs are manageable if policies are well designed.
In particular, policies should be credible and provide
long-term price stability, flexible enough to be able to
adjust to emerging information and changing economic
conditions, and implemented as broadly and equitably as
possible.
Other environmental work in IMF
There is also ample scope for reforming tax systems to
deal much more effectively with broader environmental
and related problems that can be a significant drag on
economic growth, such as the health and productivity
impacts of poor air quality, and severe congestion of
major urban centers. The key challenges are to
restructure existing energy tax systems to directly target
the source of environmental harm (e.g., by taxing
emissions or driving on busy roads rather than electricity
consumption or vehicle sales), to better align tax
levels with the scale of environmental harm, and to
overcome practical challenges of higher energy and
transportation costs.

Earlier IMF papers lay out core principles of green tax
design and focus on case studies for Chile and Mauritius.
And an IMF report (to be published in summer 2014 and
covering over 150 countries) provides estimates for
taxes on fossil fuel products to reflect pollution and
other environmental impacts associated with energy use
and underscores the large environmental, health, and
fiscal benefits from tax reform.

A recent IMF paper and book published in September
2013 put the magnitude of subsidies for fossil fuel
energy sources at about $2 trillion worldwide in 2011,
including both direct fiscal costs and implicit subsidies
from the failure to charge for environmental damages or
tax energy at the same rate as other consumption
products. The paper and book draw on case studies to



provide practical guidance (e.g., on better targeted
instruments commonly available to protect the poor) for
implementing energy price reform. In the case of
petroleum products for example, reducing subsidies
could significantly reduce greenhouse gas emissions in
many countries, while at the same time reducing fiscal
deficits. The IMF is also involved in regular monitoring
of fuel pricing policies in response to volatile
international fuel prices. Another recent study defines
and measures the concept of green investment and
explains recent trends.

ii. Climate Change as a Public Finance
Issue
Climate change will have indirect effects on the public
finances that may amplify the wider challenges it poses.
Countries heavily dependent on tourism or on selling
fishing rights, for example, or experiencing reduced
agricultural productivity, may face significant reductions
in tax revenues. More fundamentally, however, taxes
and spending instruments have a purposive role to play
in mitigating and adapting to climate change, and it is
these that are the focus of the paper. This section starts
by setting out key structural features of climate change
viewed from a public finance perspective.

Climate change is an externality
problem
Emitters of greenhouse gases (GHGs) fail to recognize
the aggregate damage they cause, so emit more than is
collectively desirable. Attaining a long-run atmospheric
CO2 target of 550 parts per million, by many scientists
considered necessary, requires slowing and then (starting
in 202040) cutting global emissions (by 6080
percent). But each country would prefer others to
shoulder the costs of doing soa classic free-rider
problem. Indeed a unilateral reduction in emissions by
one country reduces the marginal benefit of abatement to

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others, and so is likely to be to some degree offset by
increased emissions elsewhere
1
.
but a particularly complex one
The collective action problem is made more challenging
by asymmetries in physical impact and past emissions.
Emissions have the same effects wherever they arise, but
those effects differ greatly across countries: they are
most adverse in lower-income countries (and perhaps
even beneficial in some wealthier ones), and often for
the most vulnerable groups within them. Responsibility
for current concentration levels also varies greatly: high-
income economies generated about 80 percent of past
fossil fuel-based emissions, and in that sense account for
much of the prospective damage. But limiting that
damage requires that others also cut emissions: China
now emits more than the U.S., for example, and within a
decade, most emissions will come from outside the
OECD. Asymmetric interests and views on historical
responsibility, with a clear tendency for those standing
to lose most having lower past emissions, severely
complicate identifying generally acceptable policy
responses, and make it likely that some form of side
payments between countries will be needed.

Dealing with climate change is also made difficult by its
slow-moving, stock nature. Global temperature depends
not on the current flow of emissions but on the
cumulative stock, with emissions taking decades to have
their full effect and then a century or so to decay. Thus
little can be done to avoid temperature rise in the next
three decades or so, and current economic difficulties
make little difference to the case for future mitigation:
these caused global emissions to fall temporarily
in2009,
2
but the impact on the accumulated stock
given its sheer scale relative to emissions, and very slow

1
Auerswald, Konrad, and Thum (2011) show that where a unilateral
cut in emissions reduces the uncertainty associated with emission-
related damages, the net impact may actually be an increase in global
emissions.




rate of decayis limited: even a 10 percent fall in global
emissions lasting two years, for example, might reduce
the stock of greenhouse gases by only around 0.1
percentand by only around 2 percent in 2040 were the
economic impacts to be permanent.
3


A still more profound implication is the strong inter-
temporal mismatch between the (early, and certain) costs
and (late, and highly uncertain) benefits of reducing
emissions.
iii. Fiscal Instruments for Mitigation
Fiscal instruments are not the only way to reduce GHG
emissions, but can be particularly well-targeted.
Performance standards for cars, for example, limit fuel
used per mile traveled but do not charge drivers for the
emissions from the marginal mile traveled. And there are
a wide range of fiscal instruments that could be used: a
tradable performance standard, for example, would
require firms to purchase permits to the extent that the
average emissions intensity of their output exceeds some
threshold.

But the best-targeted policy is to charge an
appropriate price for GHG emissions, since this
efficiently exploits all opportunities for emission
reduction. A tradable performance standard, for instance,
provides the same incentive to reduce emissions per unit
of output as would a carbon prices; but, in effectively
rebating the part of that charge corresponding to baseline
emissions combines this with an output subsidy that
counteracts the impact on emissions.
iv. Innovation
Proper carbon pricing is a critical anchor for efficient
innovation. Technical progressfor instance, in
developing carbon sequestration technologieswill be
pivotal in dealing with climate change. Such innovation
needs to be guided by carbon prices that reflect the
social gains from developing less carbon intensive
technologies.

2
The International Energy Agency (IEA, 2009) estimated that global
emissions fell by around 3 percent in
2009; but increased again in2010 to slightly surpass the 2008 level.
3
Jones and Keen (2010).

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More fundamentally, however, where innovation is
subject to its own market failures an efficient response
will require instruments beyond carbon pricing. Such
failures potentially arise from standard problems of
knowledge spillover in relation to R&D and learning by
doing, potentially amplified in the present context by a
time inconsistency problem: once innovations have
proved their worth, governments may have an incentive
to renege on the high carbon prices promised in order to
induce that innovation.

What does seem clear, however, is that while it may be
politically tempting to set a low carbon price and instead
provide strong public support for innovation, this risks
wasting resources by substituting, at the margin,
relatively expensive R&D for relatively inexpensive
mitigation. Fischer and Newell (2007), for instance, find
that while there are likely to be considerable gains from
an efficient combination of carbon pricing, R&D support
and renewable subsidization, it is the carbon pricing
component that is most critical.
Distortions in fossil fuel extraction
Some argue that fossil fuels are extracted too rapidly,
which may call for a carbon price increasing at less than
the market interest rate. This over-extraction may be
because resourceowners may use too high an interest
rate (so preferring to extract the resource now and
invest the proceeds, rather than leave it in the ground),
either because their rate of discounting of future costs
and benefits is higher than that chosen by a global social
planner (due perhaps, to imperfections in credit and
capital markets); or because they feel insecure intheir
property rights (Sinn, 2008).

This could be countered directly by taxing the sectoral
return to capital or alternatively by having the carbon
price rise at less than the interest rate. But the direction
of effect is not entirely clear-cut. Insecurity of property
rights might also lead to too little extraction, by
discouraging any accompanying sunk investments it
requires (including potentially in exploration): there is
evidence that such insecurity reduces oil



production, but increases deforestation (Bohn and
Deacon, 2000).
4

The limits of carbon pricing
There may come a pointindeed this is increasingly
likely as mitigation efforts are delayedat which it
becomes clear that feasible mitigation strategies are
unlikely to avert abrupt or catastrophic climatic shifts:
these events may well be preceded by clues that a
trigger point is approaching (Weitzman 2011) and
generally involve transitions of decades or more, Fast-
acting last resort technologiesdirect carbon capture
from the air or geoengineering to deflect solar
radiationare then the only way to avoid these large
effects (or at least buy time).

Much is already known about the science of these
options. Experience from volcanic eruptions shows that
deflection can work, and the physics and engineering of
geoengineering are well understood. Moreover,
operationalizing this could be cheap: Carlin (2006) puts
the cost at only a few cents per tonne of CO
2
. Barrett
(2007) argues that at such low cost the freerider problem
becomes very much less marked.

The concerns are in this case rather different. Beyond
political incorrectness is a natural concern with
unintended side effects.
5
Still more fundamental,
perhaps, are the governance issues stressed by Barrett
(2006): Who gets to control the global climate? It seems
increasingly prudent, nonetheless, to take these options
seriously.





4
Strand (2009) shows that either the -insecure property rights effect,
or the -sunk cost effect, may dominate, depending on parameter
values.

5
Carlin (2006) points out, however, that geoengineering has some
advantages over mitigation: it preserves, for instance, the beneficial
effects of higher CO
2
concentrations on some plant growth.


Page 14 of 31


v. Instrument ChoiceTaxes, Cap-
and-Trade, Hybrids
Carbon pricing can be implemented through carbon
taxation, cap-and-trade, or hybrids of the two. A carbon
tax is simply one levied at the same specific rate on all
emissions, whatever their source. Since carbon
emissions are proportional to fossil fuel use (for a given
fossil-fuel type, and in the absence of carbon capture and
storage technologies), this could be charged not directly
on emissions but on the use of fossil fuelsoil, gas, and
coalthemselves.

Under cap-and-trade, some fixed total of emission rights
is issued, and firms trade to hold thepermits they need.
The price paid for the permit is then, in effect, a carbon
price. Hybrids let the carbon price vary (like cap-and-
trade) but also allow some flexibility in aggregate
emissions (like a tax): this might involve, for instance,
cap-and-trade with a maximum price (at which unlimited
permits would be issued).

More generally, since no tax or emissions limit would
remain unchanged forever, any scheme will in practice
be some form of hybrid. Variants include a cap-and-
trade scheme in which countries are allocated emission
rights corresponding to business-as-usual and a central
authority, financed by direct country contributions,
controls emissions by purchasing and retiring them
(Bradford, 2002). Investigating the relative merits of
these instruments is a central challenge for the public
finance of climate change and has received considerable
attention.

Tax and cap-and-trade schemes can be
6

equivalentin terms of aggregate emissions and
government revenueif emission rights are auctioned,
the structure of abatement costs is known; and there is
perfect competition in the markets for fossil fuels. Any
outcome under some carbon tax can then also be
achieved by cap-and-trade: auctioning permits in an


6
Can be rather than are because equivalence also requires, for
instance, effective competition in both product and permit markets.


amount equal to the level of emissions under the carbon
tax will result in an equilibrium permit price
equal to that initial carbon tax; so each firm will emit the
same amount and the government
will collect the same revenue. In practice, of course,
these conditions rarely hold, and
instrument choice becomes a real issue.
vi. Current Carbon Pricing Policies
Incoherencies
Fully comprehensive carbon tax regimes, uniform across
emission and sectors, are very few. The cleanest
examples are Australia, which plans such a tax (in
transition to a trading scheme) from 2012, Mauritius and
British Columbia. Denmark, Norway and Sweden were
early actors in the area, though in each case there are
significant exemptions. Cap-and-trade schemes are
somewhat more common: in New Zealand, the Regional
Greenhouse Gas Initiative covering ten U.S. states, and,
most extensive, the greenhouse gas Emissions Trading
Scheme of the EU (EU-ETS). The last covers only about
45 percent of GHG emissions in the EU region, although
its expansion to new sectors including international
aviation and gases such as Nitrous Oxides is planned for
the next phase.

More widely, however, a wide variety of taxes, generally
designed with other considerations more paramount,
affect emissions. The most obvious are the excisesor
subsidieson petroleum products (differing from
systematic carbon taxation in that they are not calibrated
to the varying carbon contents of the various fossil
fuels), but there are typically many others. Emissions
from transportation, for example, may be affected by the
tax treatment of company cars, or by the import duties
on cars, progressive in vehicle weight and motor size,
common in some European countries (including
Denmark and Norway). And regulatory provisions have
effects in some respects akin to carbon charging. In
fossil fuel producing countries, fiscal arrangements also
impact extraction and hence emissions.




Page 15 of 31


Not least, fuel used in international aviation and
shippingwhich collectively account for 6 or 7 percent
of global carbon emissionsis essentially uncharged.
While carbon pricing is, as ever, the preferred
instrument, particular obstacles arise in each case. For
international aviation, treaty commitments and bilateral
air service agreements may impede effective carbon
pricing; ticket; less well targeted ticket taxes may then
have a role, also helping address distortions arising from
the typical exclusion of international air travel from sales
taxation. In international shipping, the extraordinary
mobility of the tax baselarge ships can travel the
world on a single bunker of a fuelmake widespread
international cooperation essential for an effective
charging scheme, with many developing countries
fearing the impact that this would have on them
absence explicit compensation. Keen and Strand
(2007) and IMF and World Bank (2011) review these
issues and possible solutions.

The Importance of Auctioning Permits
Realizing the fiscal benefits of cap-and-trade requires
that rights be purchased by emitters, not allocated to
them for free. In the first stage of the EU-ETS, for
instance, at least 90 percent of permits were allocated
free of charge.Looking forward, while future allocation
rules remain subject to some uncertainty, the share of
emissions rights to be auctioned under the EU ETS is
expected to increase after 2012, to perhaps around 50
percent of the total allocation by 2020 or so (although
the industrial sector is expected to continue to receive
virtually all permits free at least until 2015).

However, overall revenue losses due to incomplete
auctioning for EU governments may not diminish
substantially, given expected increases in permit values
(under a tighter cap) and broader coverage of the
scheme. Similar trends appear to be emerging in the
United States, where recent draft legislation implied that
government effectively would forego $670 billion of the
$850 billion in emissions quota value projected for
201119.
7



7
CBO (2009).

Addressing deforestation
Establishing incentives for reduced deforestation--
accounting for about 20 percent of emissions, and often
presumed to be a particularly cheap form of abatement
remains a priority. This market was outside the scope of
the Kyoto Protocol, due to both the conceptual
challenges posed and problems in forestry governance.
Some progress is now beginning to be made: the World
Banks Forest Carbon Partnership Facility, for example,
is providing capacity building support and piloting
incentive schemes. The Copenhagen Accord of 2009
highlights reduced emissions from deforestation and
degradation as central to future international
cooperation; Norway, for instance, has pledged $1
billion each in support for reduced deforestation in
Indonesia and Brazil.

However, significant carbon market reform is likely to
be needed in order to deliver on these objectives.
Extending formal emissions trading to forestry markets,
for example, or allowing firms to meet their caps
through purchase of international deforestation
offsets could helpsubject to the necessary
monitoring and verification assurances on the supply
sideto mobilize finance for forest preservation in
developing countries on a larger scale than could be
achieved from public funds. However, restrictions on the
importation of forestry credits are currently anticipated
on deforestation offsets on firms regulated under the
next phase of the EU ETS. Accelerated efforts to reduce
relevant administrative concerns in host countries,
and limit any residual risks for example through some
(albeit not complete) import restrictions, and/or market
segmentation, seem needed.








Page 16 of 31


International Coordination
A fully coordinated approach would involve a uniform
carbon price in all countries, with cross-country transfers
addressing any fairness concernsbut a range of
national fiscal concerns impede such a cooperative
outcome.
8


Perhaps most fundamentally, a dominant concern in fuel
pricingat the heart of the free-rider problem in relation
to implementing climate policyis each countrys fear
that unilateral action would disadvantage producers of
energy-intensive products (such as aluminum, paper,
steel, and international transport) in world markets; a
concern exacerbated by the perception that much of the
burden of this would fall on developing countries not
responsible for the buildup of greenhouse gases.

Exporters of fossil fuels have an incentive to resist
carbon prices to the extent that these may
impact their rents
9
(and, by the same token, an incentive
to impose and collect such charges themselves, if they
are to be imposed at all). Energy security concerns could
point in the same direction, but may relate more to the
diversity of supply than to the level of demand.











8
In the absence of international transfers, it is worth noting, uniform
carbon pricing across countries may be not only inequitable (Sandmo,
2005) but Pareto inefficient. This follows from the results of Keen
and Wildasin (2004).

9
Conversely, importers of fossil fuels have a collective incentive to
use carbon taxes or tariffs to extract rent from exporters; and
exporters have a corresponding incentive to manipulate supply. The
net outcome could, in principle, be carbon taxes that, from a global
climate perspective, are too high rather than too low (Strand, 2008).
Of course, given the likely damage projected under BAU, this is not
the dominant effect at work.


vii. Fiscal Implications of Adaptation
Balancing Adaptation & Mitigation
Adaptation and mitigation are, by and large,
substitutes:
10
the more mitigation is done, the less
climate change there is to adapt to. Since each is costly,
there is thus a trade-off to be made between them. And,
also by and large, mitigation is (or should be) primarily a
potential source of government revenue while the most
prominent fiscal responses to adaptationas will be
seeninvolve additional public spending. How best to
make that trade-off thus depends on wider fiscal
circumstances: broadly speaking, the greater is
governments need for revenue for its wider purposes the
more attractive will be using carbon pricing
to limit climate damage rather than public spending to
adapt to it.

Public goods and adaptation
Uncertainties and irreversibilities require balancing
precautionary spending on adaptation against the risk of
undertaking costly expenditures that may prove
unnecessary. The considerations discussed in Section
II.B point to gradualism and flexibility in incurring sunk
costs to deal with inherently uncertain climate
challenges. This is essentially a matter of
project design: for example, in identifying efficient
adaptation options for coastal zones (IPCC, 2007). As an
example of this real options approach, World Bank
(2010) cites dealing with the possibility that aircraft will
need longer take-offs in hotter climates not by building
now a long enough runway to provide for possible needs
but a shorter one combined with an option to purchase
additional land as needed. Much of this is essentially
common sensewhich of course is not so common in
practice. The analytical point is simply that where public
investments involve heavy sunk costs, the option value
of waiting can be high; a point already referred to in
Section II above and studied e g by Pindyck (2000).


10
See, in particular, Tol (2005). This is however not always the
caseplanting mangrove in coastal areas both protects against
storms and sequesters carbon, for instancebut is the general
tendency.

Page 17 of 31


Dealing with fiscal risks
Intervention may be appropriate to facilitate private
insurance. Insurance does not reduce the physical
damage from climate change (and through moral hazard
effects could worsen it). But it can reduce the
consequent welfare losses, including by reducing
implicit fiscal risks. One response to the Samaritans
dilemma, for instance, is to make purchasing insurance
mandatory. In many developing countries, however,
market insurance may be unavailable or unaffordable for
large groups at actuarially fair rates. There may then be
scope for public intervention to provide or facilitate
access to risk markets: in Malawi, for instance, the
World Bank and donors provide drought insurance.
11


Recent financial innovations point to new ways of
coping with some climate-related fiscal
risks.
12
The Caribbean Catastrophe Risk Insurance
Facility (CCRIF), for examplebringing together
CARICOM countries and launched with donor support
in 2007pays out in the event of parametric trigger
points (such as hurricane wind speeds) beingexceeded.
13


It is estimated to offer premia about 40 percent below
market rates, and provides rapid payment if disaster
strikes. The scheme is limited in several respects:
verification has proved more contentious than expected,
for instance, and pooling among countries subject to
correlated shocks limits the benefits from risk-spreading.







11
See Syroka and Musifora (2010).

12
IMF (2008b) provides a more general discussion of the role of
financial markets in dealing with climate change.

13
See http://www.ccrif.org/

viii. Assessing the Fiscal Costs of
Adaptation
Evidence on the likely aggregate direct public costs of
appropriate adaptation measures in generaland fiscal
costs in particularremains scant and patchy, and
marked by important uncertainties. But some broad
impressions are beginning to emerge. For advanced
economies, two points stand out from the review of
estimates for the EU in Osberghaus and Reif (2010).

The first is that some elements of warming will ease
rather than burden the public finances: through reduced
heating bulls for public buildings, for instance, and
lower health care costs. The other is that the aggregate
costs seem modest: focusing on the upper limits, the
implied aggregate cost in mid-century appears to be
around 16 billion (in 2005 prices),
14
the main items
being flood protection and strengthening transport
infrastructures. Uncertainty on some items remains
large, however: the cost of flood protection for Western
Europe is put at between 137 million and 4 billion.

Assessing the fiscal challenges from adaptation in
developing countries requires a far better understanding
of their likely country-specific magnitude. It is currently
hard to judge where and when these costs rise to levels
of macroeconomic significance relative to the wide
variety of other fiscal risks that countries face. A step
ahead is recently made through a series of, admittedly
preliminary and incomplete, country studies of
adaptation costs by the World Bank in conjunction with
respective authorities, for Bangladesh, Bolivia, Ethiopia,
Ghana, Mozambique, Samoa, and Vietnam, using
avariety of tools including both partial and computable
general equilibrium analyses.






14
Figure 1 of Obsterghaus and Reif (2010).

Page 18 of 31

ix. Climate Finance
A strong case can be made, on grounds of both historical
responsibility
15
and developmental needsStern (2007)
and UNDP (2007) stress, for instance, that climate
change potentially jeopardizes achievement of the
Millennium Development Goalsfor developed
economies to shoulder a substantial part of the real
income loss that mitigation and adaptation are likely to
impose on developing countries. On the latter,
signatories to the UNFCCC are explicitly committed to
helping developing countries that are particularly
vulnerable to the adverse effects of climate change in
meeting costs of adaptation to those adverse effects.

More generally, developed countries committed
themselves in the Copenhagen Accord and Cancun
agreements to mobilize new and additional resources for
climate change activities in developing countries of $30
billion for the period 2010-12 and $100 billion per year
by 2020, through a Green Climate Fund set up for this
purpose, conditional on particular mitigation
and adaptation actions by developing countries.
16


Achieving this raises a host of practical issues: precisely
how, for example, to define (and monitor)
climatefinance, and ensure additionality, given the
synergies between climate-related and other type of
development spending. But the central climate finance
questionincreasingly prominent in climate
negotiationsissue is simply: Where is this money to
come from?

x. Closing Notes
Climate change is, very largely, a fiscal problemand to
some also a fiscal opportunity. The literature has indeed
produced powerful insights, crisp on mitigation and
technology policies, helpfulif inevitably fuzzieron
adaptation. It stresses, above all, the importance of

15
The argument is made, for instance, in UNDP (2007).

16
This compares with current bilateral development assistance for
mitigation of around $9.4 billion per year in 2008-9, and multi-donor
funds with cumulative pledges of around $10 billion (World Bank
and others, 2011). Conditions are that developing countries undertake
so-called Nationally Appropriate Mitigation Actions (NAMAs), in
addition to the adaptation actions to be supported by the Green
Climate Fund.

comprehensive carbon pricing, at least by the main
emitters, as the cornerstone of coherent climate policies.
With some exceptions, the impact on practical policy,
however, has surely been disappointing.

The current agreement, following the Durban meeting of
December 2010, to begin in 2015 negotiating a
coordinated approach to mitigation, for implementation
in 2020, hardly shows the urgency that many have hoped
for. It has proved easier to explain the difficulty of
effective action in this area than to facilitate it. Perhaps
the urgent need for fiscal consolidation in many
countries will change things. If not, continued delay will
make addressing more radical approachesdeveloping
last-resort technologies or, suggested by Barrett (2006),
a focus in designing climate treaties not on mitigation
but instead on common efforts to develop new and
radical energy technologies, whose development will in
case make fossil fuels obsoleteincreasingly important.
























Page 19 of 31

About the Chair
Zunayeed Noor Alam one of the pioneers in Bangladesh
MUN fraternity, is spending his North South University
career pursuing Bachelors in Business Administration
with Majors in Marketing and Human Resources
Management. Having been brought up in five different
countries and fluent in four languages, model United
Nations was undoubtedly his calling. Zunayeed likes to
travel a lot and try new foods.
By day, he is an aspiring Statesman; by night, he is a
bow-tie-wearing, MUN-obsessed superhero who knows
his way around a barbell.

MUN Attended:
I. Asia-Pacific MUNC 2012 in Melbourne,
Australia as Justice in the International Criminal
Court.
II. Asia Pacific MUN 2012 in Bangkok, Thailand,
as Chair of Commission on Crime Prevention &
Criminal Justice.
III. Bangladesh International MUN 2012 as Co-
Chair of the General Assembly 3rd Committee,
IV. Dhaka University National MUN 2012 as
President of the World Bank Group.
V. McMUN 2013 in Montreal, Canada Head of the
Bangladesh Delegation.
VI. New York Global Young Leaders Summit Int.
MUN 2013 in New York City, USA Under
Secretary General for Delegate Relations.
VII. Dhaka University National MUN 2013 as Chair
of General Assembly 2nd Committee.
VIII. Delegate in the Brainwiz MUN'13 (Dhaka
Council).
IX. Observer at the BUGMUN 2014 in Dhaka.
X. Delegate at the Singapore MUN Conference
2014.



Zunayeed was also appointed as the
i. Delegate of Morocco in the Security Council of
Canadian International MUN 2013 Ottawa,
Canada;
ii. Special Representative of the Sec. Gen. in Asia-
Pacific MUNC 2013 Wellington, New Zealand;
iii. Chair of ASEAN in Indian International MUN
2013 Mumbai, India;
iv. Vice President of the General Assembly in
MUN of the Russian Far East 2013 Vladivostok,
Russia;
in which he could not attend due to time
constriction. He is the Founder of North South
University Model UN Club and Bangladesh Model
UN Scoiety. Apart from MUN he also served in
Ministry of Foreign Affairs of the Government of
Bangladesh from 2012 to 2014 as aSenior
Conference Aide in the. He is also an US State
Alumni.



Page 20 of 31


















































Agenda 2: South Asia
Economy and Future


Page 21 of 31

Overview
What do we foresee for South Asia in 2060, in light of
the significant changes it has undergone in the past few
decades? India has experienced rapid economic growth,
but continues to suffer widespread, extreme poverty as
well.

Afghanistan, Nepal, and Sri Lanka have seen major
conflicts, with Pakistan always seeming on the verge of
a major eruption. Nepal and Sri Lanka finally seem to
have moved toward peace. As elsewhere, the regions
many developments and crosscurrents make reliable
predictions difficult, but one relatively neglected set of
factors demographic change may shed some light on
the regions future.

Throughout the world, falling mortality rates and
declining birth rates have been predictive of growing
per-capita incomes, and theoretical reasoning and related
evidence are sufficiently compelling to think that the
links may indeed be causal. In this vein, this essay
explores South Asias economic prospects through a
demographic lens. In addition, as we will see, there are
some similar demographic trends across the countries of
South Asia, but there are also a number of extreme
differences. Regional heterogeneity bears on the
question, to what extent is South Asia a coherent
region?
Asias growing influence
Asia emerged from the global financial crisis with its
standing strengthened, and is expected to become the
largest economic region within the next two decades.
This reflects its high degree of integration into global
trading and financial systems, and a growing internal
momentum.

Given its rise, it is natural that Asia should increase its
influence in global economic and financial discourse.
This trend is already well underway. Six of the Group of
Twenty (G-20) economies are from the Asia-Pacific
region. Once the 2010 IMF quota and voice reforms are
implemented, Asia will hold well over 20 percent of the
Funds voting shares.



This will bring Asias representation at the Fund more
closely into line with its position in the world economy.
Asias increasing influence is also being reflected in the
composition of the IMF management team. Two of its
four Deputy Managing Directors are from Asia: Naoyuki
Shinohara from Japan, and Min Zhu from China. In
addition, the 2012 Annual Meetings of the IMF/World
Bank Group were held in Tokyo, in recognition of the
economic importance of Asia, and on the 60th
anniversary of Japans membership of the IMF and
World Bank.
i. The current demographic scene
Demographically, South Asia is a diverse region of 1.64
billion people (24 percent of the worlds population).
The infant mortality rate (IMR the number of children
under age 1 who die in a given year out of 1,000
children born in that year) varies by an order of
magnitude, from 152 in Afghanistan to 15 in Sri Lanka.

The total fertility rate (TFR the average number of
children a woman of childbearing age will have
assuming no change in current age-specific rates) ranges
from a high of about 6.5 in Afghanistan to a low of 2.0
in Maldives.

Life expectancy at birth (the average age at death of
those born in a given year, assuming no change in age-
specific mortality rates) is three decades higher in Sri
Lanka (74.5) than in Afghanistan (44.5). The population
growth rate also shows dramatic differences across
countries: from 3.3 percent per year in Afghanistan (a
doubling time of about 21 years) to 0.8 percent per year
in Sri Lanka (a doubling time of nearly 90 years).

And most obviously, the countries of South Asia vary by
size from India (1.2 billion) to the Maldives (300,000),
which is one four-thousandth as large.The demographic
circumstances prevailing in South Asia today reflect the
changes that have occurred as part of South Asias
demographic transition: the shift from high rates of
mortality and fertility to low ones.

These changes have been dramatic. For example, the
regional average IMR fell from 168 per 1,000 in the

Page 22 of 31

early 1950s to 53 today. TFR began to decline soon after
the onset of IMR decline, with the regional average
going from 5.9 children per woman in the late 1960s to
2.8 today. Life expectancy, which averaged 39 years in
the early 1950s, has risen to nearly 65 years today. The
regions total population has more than tripled since
1950, when it stood at 481 million.

Many countries exhibit a similar pattern to that of South
Asia, in which improvements in child survival (due for
example to increased access to safe water, sanitation,
and healthcare), subsequently lead to lower fertility, as
families begin to see that fewer children are needed to
achieve target family size. (In addition, numerous other
factors influence family size.

For example, womens increased educational attainment
has a powerful effect, as do womens increased
opportunities in the labor market. Increased urbanization
which takes place as people move from rural to urban
areas, as rural areas grow to become urban, and as urban
areas expand to encompass formerly rural areas brings
greater economic opportunities for both men and
women, and the consequent increased economic value of
peoples time leads to lower fertility.)






The key point here, however, is that the initial mortality
decline leads to a baby boom, since fewer babies die and
because fertility has not yet fallen.

ii. Historical and current economic
situation
Consistent with widespread poverty in South Asia, gross
domestic product (GDP)/capita in the region is low. At
$2,484 in 2008 (in purchasing power parity (PPP) terms
and constant 2005 international dollars), the region lies
at almost exactly half the income per person of the
World Banks low- and middle-income countries.

The economically best-off countries in the region are
Maldives ($5,169), Bhutan ($4,395), and Sri Lanka
($4,215). In the second tier lie India ($2,721) and
Pakistan ($2,344). Bangladesh ($1,233), Nepal ($1,020),
and Afghanistan ($1,019) are by far the poorest. Beyond
this diversity of incomes, there are also wide ranges of
economic well-being within the various countries. Per
capita income growth rates have varied dramatically
across countries and over time. Figure 1 shows these
growth rates for South Asia and individual countries.

The region as a whole has been growing faster
economically since the 1980s, a fact that is heavily
affected by Indias high share (74 percent in 2010) of
South Asias population,
coupled with Indias
economic growth
trajectory. South Asias
GDP per capita growth
was low in the 1970s,
higher in the 1980s and
1990s, and higher still in
the 2000s.









Page 23 of 31


iii. Changing age structure
One consequence of the demographic transition is
population growth, which (setting immigration aside)
occurs when births exceed deaths. The region was
growing at 1.8 percent annually in the early 1950s but
sped up to a peak of 2.4 percent annually in the late
1970s. Since then, its annual growth rate has declined to
its current level of 1.5 percent.

But population growth is not the only consequence of
South Asias demographic transition. Another significant
consequence is the change in the age structure of its
population. This begins with the creation of the
aforementioned baby boom, which quickly leads to a
relatively large number of young people in the
population. As fertility subsequently falls, the relative
size of the baby boom generation is accentuated.


With the passage of time, this cohort becomes a
correspondingly large cohort of working-age adults. For
reasons that will become clear below, an especially
salient change in demographic indicators is the increase
in the ratio of working-age to non-working-age
population.

For South Asia as a whole, this ratio stood at 1.43 in
1950 and fell to 1.22 by 1965 as infant and child
mortality rates fell. Since then, it has risen steadily to
1.74, as the baby boom generation has moved into
working ages and as fertility rates continue to fall. The
ratio is expected to reach a peak of 2.2 working-age
individuals for every non-working-age person in 2040,
before beginning to decline. Table 1 shows the historical
and expected evolution of this ratio over time.







Table 1
Ratio of working-age to non-working-age
population
1970 2010 2050
SOUTH ASIA 1.24 1.74 2.08
Afghanistan 1.16 1.08 1.73
Bangladesh 1.10 1.87 2.02
Bhutan 1.24 1.88 1.98
India 1.26 1.80 2.13
Maldives 1.16 2.17 1.91
Nepal 1.23 1.50 2.13
Pakistan 1.16 1.46 2.02
Sri Lanka 1.31 2.12 1.57
Source: United Nations 2009


The countries of South Asia have, and will continue to
experience, changes in age structure. Some countries in
the region are very far along in their demographic
transition: in Sri Lanka, for example, the working-age-
to-non-working-age ratio reached its peak (2.2) in 2005.
By contrast, Bangladesh is expected to peak at 2.3 in
2035, India at 2.3 in 2040, and Pakistan at 2.0 in 2045
(see Figure 2).



Page 24 of 31


At the opposite end of the spectrum, Afghanistan can
expect its ratio to still be climbing in 2050, when it will
be 1.7. Of course, all of these estimates depend on the
actual path of fertility rates, mortality rates, and life
expectancy patterns that are often subject to a range of
factors, including government policies.


Based on the demographic changes cited in the United
Nations (UN) data, it is clear that the region will be very
different demographically in 2050. With respect to age
structure, our central measure of progress through the
demographic transition, South Asia was quite
homogeneous in 1970, with the ratio shown in Figure 2
ranging only from 1.10 to 1.31. Today this ratio ranges
from 1.08 to 2.17. UN projections for 2050 show ratios
ranging from 1.57 to 2.13. That is, there will be some
convergence across the countries of the region, but this
will occur slowly.




Change
Linking demographic change
and economic growth: the
demographic dividend
Understanding the
significance of these
demographic changes
requires an examination of
the economic history of the
region.

In particular, the data shown
above on the growth rate of
GDP/capita are obviously
relevant to a discussion of a
possible interaction between
demographic change and
economic growth.



Two facts stand out from the previous discussion:
The ratio of the working-age to non-working age
population in South Asia has been rising since 1965.
The regions GDP per capita has been rising during the
last 30 years of this period.
Is there a connection?
For many years, rapid population growth was thought to
be detrimental to economic growth. Thomas Malthus
hypothesized that a rapidly growing population would
inevitably outstrip any societys capacity to produce
enough food, resulting in mass starvation and human
misery.

In the 1980s, a new idea, population neutralism, came
to the fore. Adherents of this view marshaled evidence to
show that population growth was neither helpful nor
detrimental to economic growth.




Page 25 of 31

More recent studies (Bloom and Canning 2008; Bloom,
Canning, and Sevilla 2002) have focused on the possible
effects on economic growth of the age structure of a
population. This body of research has found that, ceteris
paribus, cross-country differences in age structure tend
to translate into cross-country differences in
macroeconomic performance.

Specifically, a rise in the ratio of working-age to non-
working-age population corresponds, in general, to
increases in the rate of per-capita economic growth.
Roughly one-third of East Asias economic miracle
may have come about because of the rapid demographic
changes that the region has undergone (Bloom and
Williamson 1998). Propelled by similar demographic
changes, Ireland also benefited economically, becoming
the Celtic tiger (Bloom and Canning 2003).

This phenomenon has come to be known as the
demographic dividend. First, a baby boom cohort
arises because of a decline in mortality rates that is
followed, with a delay, by a decline in fertility rates.
This relatively large cohort gradually enters the typical
working ages beginning when the leading edge of the
baby boom enters its teens. A few decades later, the
baby boom results in there being a disproportionately
and historically large share of working-age individuals
in a population the pattern discussed above for South
Asia.

A rising, and relatively large, share of working-age
people can be economically consequential because of the
following factors:
Labor force size. A rise in the share of working-
age people means that a countrys productive
capacity is larger than it was in the past.
A higher share of people working, and a
correspondingly lower share of children, allows
a country to increase its per-capita economic
output.
The fact that there are fewer children per family
allows more women to enter the workforce.
Although women still bear a disproportionate
burden of child-raising, they are nevertheless
more likely to enter the workforce when there
are fewer children to take care of. Womens

increased participation in the commercial
economy can be highly significant in raising
output per capita. Such participation is typically
more possible and more remunerative than in
the past because an increasing share of the
population lives in urban areas, where earnings
are higher than in rural areas.
Savings.
Savings may rise for two reasons, and increased savings
are channeled into increased investment via the financial
system. A preponderance of working-age people can
lead to increased savings rates, because this age group
saves more than the young or the old.

Because the demographic transition is accompanied by
longer lifespan, workers also have an incentive to save
more, in anticipation of longer periods of retirement.
Changed use of capital. At both the family and the
national level, resources can be redirected to spur
economic growth.

Families with fewer children can spend more on the
health and education of each child without increasing
their total expenses. Healthier children attend school
more regularly, learn more while there, and are poised to
become more productive workers.
At the national level, there are relatively fewer children
to feed, clothe, and educate. Even with continued
construction of schools, a higher share of financial
resources can be directed toward investments that yield
returns in the short run via the creation of greater
physical capital factories, roads, and other types of
infrastructure.












Page 26 of 31


iv. Caveat lector: Demography is not
destiny
Realization of a demographic dividend, via the
mechanisms listed above, is far from automatic. A
countrys ability to capture the dividend depends on
many factors and policies:
Productive employment is the key
An economy can grow even if employment is stagnant,
but inclusive economic growth, i.e., growth that benefits
all sectors of society, requires the implementation of
policies and practices that draw a large portion of the
working-age population into the labor force. If large
numbers of working-age people are unemployed, they
will constitute an economic burden on those who do
have jobs. Moreover, high unemployment or
underemployment can become a major source of
discontent.
Human Capital
Particularly important is a countrys ability to nurture its
human capital. An educated labor force is much more
likely to be able to work productively and to be able to
adapt to the rapidly changing demands of an ever more
global economy. Similarly, a healthy workforce will be
more productive, and it may be better able to attract
foreign direct investment.
Government Policies
Carefully chosen and well-implemented policies and
practices in other areas, such as governance,
macroeconomic management, trade, and social
protection, are essential.

Good relations with neighboring countries, trading
partners, and international institutions are important.
Tense relations often lead to high military expenditures
and even wars that detract from investments in
physical or human capital that can more directly benefit
the population at large. Internal peace is usually
important for economic growth. Without it, a country
will have a more difficult time ensuring a high level of
employment.


To date, South Asias economies have been improving,
in response to many factors, quite possibly including the
regions rising share of working-age people. Based on
the East Asian experience, the fact that South Asia is
soon to see a further rise in the share of working-age
people augurs well for increased per-capita incomes in
the coming decades. To be clear, this prediction is an
all-things-equal statement. Demographic change may
well operate as a significant factor in strengthening the
regions economies, but (a) policies need to be in place
to ensure widespread productive employment, and (b)
factors completely apart from demographics may of
course play a decisive role.

v. Two potential impediments to
realizing the demographic
dividend
Considerations similar to those discussed above apply
within countries. The various states of India, for
example, lie at very different points along the
demographic transition (see Figure 3).

The demographic heterogeneity of these states suggests
that their future economic trajectories may differ
significantly from each other.

Thus, demographic heterogeneity may undermine the
inclusivity of economic growth. In Indian states, as in
the countries of the region, policies will need to be
focused on specific measures that can promote
productive employment.












Page 27 of 31




vi. Population aging
One further factor, population aging, is inherent to the
demographic transition and potentially complicates the
posited relationship between demographic change and
economic growth. As the baby boom cohort reaches the
upper end of the working ages, its leading edge begins to
swell the ranks of the elderly. In conjunction with
increased life expectancy, the end of this cohorts
working years leads to there being an increasing share of
the population that is elderly, not working, and
dependent on the working-age population. Continued
low fertility also contributes to the elderly representing a
rising share of the population.

The share of the regions population that is aged 60 or
older stood at around 6 percent from 1950 through 1995.
By 2010 it had reached 7 percent, and it is expected to
reach nearly 19 percent by 2050. The countries of the
region are aging at very different rates: Sri Lankas 60+
population share is expected to increase from 12 percent
to 28 percent over the next 40 years, Bangladeshs from
6 percent to 21 percent, Indias from 8 percent to 20
percent, and Pakistans from 6 percent to 15 percent. The
share of those aged 80 or older is expected to rise from
0.6 percent in 2010 to 2.4 percent in 2050.




This segment of the
population is very
unlikely to be working
and thus they are in
general not contributing
economically to the
family or to the national
economy.

In general, their needs
are much greater and
more acute than those of
the 60-79 group.

Population aging is a
concern for various
reasons.

In South Asia, as elsewhere, traditional patterns of
family care of the elderly are fraying because of
smaller families, more years between generations,
women working more, movement to urban areas leaving
the elderly behind, and changes in social expectations.

The elderly, who are often not able to support
themselves and who most often have limited or no
pensions, are financially dependent on others.
Their contribution to economic output is greatly
decreased.

Although retirement policies have mostly so far been
inapplicable to populations that are working primarily in
the informal sector, countries will need to rethink such
policies, with a view to expanding pension coverage to a
greater share of the population.

In addition, the elderly need greater access to healthcare,
just at the time when their financial security is typically
becoming worse. The strengthening of healthcare
institutions and delivery that most countries need to
accomplish is even more pressing in light of population
aging.


Page 28 of 31

In the last few decades, several newly prominent factors
have begun to affect population health, including the
health of the elderly. Diets in many countries have
become less healthy, as the availability of processed and
packaged foods expands. Urban living, because of a
combination of pollution, slums, and in some instances
an increase in sedentary jobs, is encouraging a
significant increase in obesity and related chronic
disease.

Furthermore, the need to respond to chronic diseases
comes while many developing countries are still dealing
with the unfinished agenda of conquering infectious
diseases.
vii. Key aspects of the Funds
engagement

The recent global financial crisis and reforms underway
at the IMF suggest that the Fund has much to offer in the
region. Benefits include:

Economic monitoring and advice
The Funds surveillance work is being enhanced to
strengthen its regional focus, including on Asia. This
includes an annual report on the regional economic
outlook for Asia. With its global perspective and
enhanced focus on vulnerabilities and potential
spillovers, Fund surveillance can deepen the analysis of
individual countries and regions. In addition, by working
in cooperation with Asia and other regional groupings,
the Fund can help inform peer group assessments such
as those undertaken by the APEC (Asia-Pacific
Economic Cooperation) and the ASEAN+3 (Association
of Southeast Asian Nations plus China, Japan, and
Korea). Asian countries also participate in the
Funds Financial Sector Assessment Program,
established in 1999, to provide a comprehensive analysis
of a country's financial sector.

Technical assistance and training
The Fund has increasingly adopted a regional approach
to the delivery of technical assistance (TA) and training.
As well as providing technical assistance to individual
countries, it operates eightregional technical assistance
centers, including one in the Pacificthe Pacific

Financial Technical Assistance Centerthat delivers
technical assistance and training to 16 Pacific Island
countries. In addition, the establishment, in 2012, of the
Thailand Technical Assistance Office for Lao P.D.R.
and Myanmar (TAOLAM), will help tailor the Funds
TA for these countries. The Fund also runs regional
training programs in China and Singapore.
Strengthening safety nets
As part of its efforts to support countries during the
global financial crisis, the Fund expanded its lending
capacity and is continuing to seek ways to further
enhance its lending facilities. Also, building on the
recent experience of lending in cooperation with partners
in Europe, the Fund is exploring the scope for greater
collaboration with other regional financing
arrangements, including the Chiang Mai Initiative in
Asia.
Sharing of knowledge
Asia will need to build on its robust structural
foundations and policy frameworks to address near and
long-term challenges. Leveraging the know-how
acquired from many countries and regions, the Fund can
assist Asia in the process of transformation and smooth
integration into the global economy. In return, the Fund
benefits from its dialogue with Asian member countries,
including on how best to work with regional institutions.

Lessons from the Asian crisis
Many people in the region experienced considerable
hardship during the 199798 Asian Financial Crisis. At
the time, the Fund and others extended large financing
arrangements to provide breathing room for
implementation of deep but necessary reforms.

Since then, many of the economies that suffered from
the crisis have performed remarkably well. Asias
resilience during the recent global financial crisis is
testament to the enduring benefits of the often-difficult
reforms undertaken during the past 15 years.



Page 29 of 31

The Fund learned important lessons from the Asian
crisis. In particular, the Fund recognized that while deep
economic problems require substantial measures,
theconditions accompanying its programs should be
more selective and focus more narrowly on the problems
at hand. Moreover, the Fund has become more attuned to
the social impact of its programs. It has sought to apply
these and other lessons to its more recent lending
programs around the world.

viii. The future for South Asia and the
IMF
South Asias contribution to the Fund
The commitment of major Asian countries to the Fund
was highlighted during the global financial crisis.
Several Asian countries agreed to bolster the Funds
lending capacity. Japan was the first, providing
US$100 billion in bilateral borrowing. China, India,
Korea, and Singapore also agreed to increase their
contributions to the New Arrangements to Borrow
(NAB), and the Central Banks of Malaysia, the
Philippines, and Thailand also agreed to join the NAB.
In the context of the 2009 Low-Income-Country
Financing Package to boost the Funds concessional
lending capacity, a number of Asian countries provided
loan resources and subsidy resources to the Poverty
Reduction and Growth Trust.
IMFs presence in the region
The Fund is committed to fostering a closer dialogue and
two-way engagement with Asia to develop a shared
vision that will promote sustained economic growth in
Asia and the world. As part of that commitment, the
Funds Asia and Pacific Department established a
regional advisory group comprising renowned economic
experts from Asia.

Another dimension of that engagement involves the
greater presence of the Fund in the region, through a
major regional office in Tokyo and local Resident
Representative offices (a new Resident Representative
office will be opened in Myanmar in 2013), as well as
through the co-hosting of conferences with regional
partners.

ix. Conclusion
Current demographic trends indicate that South
Asia will be very different in the coming decades
than it is today. Mortality and fertility rates will be
lower, and life expectancy will be higher.
Population growth will have slowed substantially.
Of greatest note, the regions ratio of working age
to non-working-age population will have risen,
peaked, and begun to fall.

Economic predictions are much more difficult to
make, as they depend on a much wider array of
factors. But the coming demographic changes offer
most of South Asia an opportunity to benefit from a
demographic dividend. Policies that successfully
promote productive employment are essential if this
dividend is to be realized.

Other factors are likely to play even larger roles in
determining the regions economic future, but
attempting to take advantage of the
demographically driven opportunity is a wise
moveespecially because expanding work
opportunities and enhancing the populations health
and education are beneficial in their own right and
would be good policy choices even in the absence
of a demographic spur.

As the regions economies improve, the
relationship between demographic change and
economic growth suggests that the various
countries economic ranking within South Asia may
change. Indeed, this has already happened. In 1980,
Indias GDP per capita, in PPP terms, was only 73
percent as large as Pakistans. It stayed at roughly
that level until the latter half of the 1990s, standing
at 89 percent of Pakistans level in 2000. By 2005,
India had surpassed Pakistan by 2 percent, and in
2008, it was leading by 16 percent.

The demographic comparison here is striking:
Indias TFR has fallen much faster than Pakistans,
and to a lower level (2.6 vs. 3.8). Its working-age to
non-working age ratio began to rise earlier than did
Pakistans (1970 vs. 1985),and it has reached a
higher level (1.8 vs. 1.5). More generally, the
countries of South Asia are somewhat out of phase

Page 30 of 31

with respect to their demographic trajectories,
which will create a tendency for their economic
trajectories to be out of phase. This raises the
possibility of other income crossovers and
corresponding reordering of economic power.

It is apparent from this examination that there is
considerable demographic and related economic
heterogeneity both across countries and within them
in South Asia. That heterogeneity has been and will
continue to be a powerful driver of economic
inequality. In addition, one might project that the
lack of common circumstances suggests that South
Asian leaders will continue to voice widely
disparate interests. This poses a challenge to South
Asias coherence as an economic and political
power.

References
Bloom, David E. (2011). Population Dynamics
in India and Implications for Economic
Growth, in Ghate, Chetan, ed.,The Handbook
of the Indian Economy. Oxford University
Press, forthcoming.
Bloom, David. E., and David Canning (2003).
Contraception and the Celtic Tiger, Economic
and Social Review, Winter, Vol. 34, No. 3, 229
247.
Bloom, David E., and David Canning (2008).
Global Demographic Change: Dimensions and
Economic Significance, Population and
Development Review,
Vol. 33, 17-51.
Bloom, David E., David Canning, and Jaypee
Sevilla (2002). The Demographic Dividend: A
New Perspective on the Economic
Consequences of Population Change, RAND,
MR-1274, Santa Monica, Calif.
Bloom, David E., and Jeffrey Williamson
(1998). Demographic Transitions and
Economic Miracles in Emerging Asia, World
Bank Economic Review, Vol. 12, No. 3, 419
455.






United Nations (2009). World Population
Prospects: The 2008 Revision. New York:
United Nations Population Division.
World Bank (2010). World Development
Indicators 2010. Washington: The World Bank.







































Page 31 of 31

About the Co-Chair

Lubzana Afrin a student of IBA Dhaka University who
plans to major in Human Resources Management and
Marketing is one of the young leaders who is with the
MUN fraternity from the very beginning in Bangladesh.

She always believed in the saying: Dont go where the
path may lead you, rather go where there is no path and
leave a trail. She believes in creating examples, believe
in making differences. She looks for challenges and
accepts them whole heartedly.
Lubzanas objective is therefore, to make a difference, to
create a new example, to leave a trail for others to
follow. And, of all, learn something new, everyday.

MUN attended:
I. Organized and participated in the first National
MUN in Bangladesh for high-school level
students, BANMUN 2013.
II. Organized and participated in DUNMUN 2013
as the Director of World Trade Organization.
III. Organized and participated in the first National
MUN of University of Dhaka, DUNMUN 2012
as the Director of Economic and Financial
committee.
IV. Participated in Harvard National Model United
Nations as the delegate of Belarus in HGA 1993.
V. The delegate of Israel under SOCHUM
Committee in Brainwiz MUN 2013, Dhaka
Council.
VI. Participated in first ever International Model
United Nations Conference, BiMUN 2012 at
University of Dhaka as the delegate of USA
under UN Security Council