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Mr. Alejandro Izquierdo, Ward Brown, Mr. Brian Ames, and Shatayanan Devarajan

Abstract

Poverty is a multidimensional problem that goes beyond economics to include, among other things, social, political, and cultural issues (see Box 1). Therefore, solutions to poverty cannot be based exclusively on economic policies, but require a comprehensive set of well-coordinated measures. Indeed, this is the foundation for the rationale underlying comprehensive poverty reduction strategies.1 So why focus on macroeconomic issues? Because economic growth is the single most important factor influencing poverty, and macroeconomic stability is essential for high and sustainable rates of growth.2 Hence, macroeconomic stability should be a key component of any poverty reduction strategy.

Mr. Alejandro Izquierdo, Ward Brown, Mr. Brian Ames, and Shatayanan Devarajan

Abstract

Economic growth is the single most important factor influencing poverty. Numerous statistical studies have found a strong association between national per capita income and national poverty indicators, using both income and nonincome measures of poverty.5 One recent study consisting of 80 countries covering four decades found that, on average, the income of the bottom one-fifth of the population rose one-for-one with the overall growth of the economy as defined by per capita GDP (Dollar and Kraay, 2000). Moreover, the study found that the effect of growth on the income of the poor was on average no different in poor countries than in rich countries, that the poverty–growth relationship had not changed in recent years, and that policy-induced growth was as good for the poor as it was for the overall population. Another study that looked at 143 growth episodes also found that the “growth effect” dominated, with the “distribution effect” being important in only a minority of cases (White and Anderson, forthcoming). These studies, however, establish association, but not causation. In fact, the causality could well go the other way. In such cases, poverty reduction could in fact be necessary to implement stable macroeconomic policies or to achieve higher growth.

Mr. Alejandro Izquierdo, Ward Brown, Mr. Brian Ames, and Shatayanan Devarajan

Abstract

Broadly speaking, two considerations underlie macroeconomic policy recommendations. First, there needs to be an assessment of the appropriate policy stance to adopt in a given set of circumstances (i.e., should fiscal and/or monetary policy be tightened or loosened?). Second, there is the choice of specific macroeconomic policy instruments that would be beneficial for a country to adopt (e.g., the use of a nominal anchor, a value-added tax (VAT), etc.). In practice, these two considerations are closely linked. Adjusting a policy stance is often done via the adoption of a new instrument (or the modification of an existing one). More important, both considerations are essential to efforts to enhance an economy’s stability.

Mr. Alejandro Izquierdo, Ward Brown, Mr. Brian Ames, and Shatayanan Devarajan

Abstract

Since the emphasis of this pamphlet is on the role of macroeconomic policy in supporting a country’s poverty reduction strategy, the discussion of macroeconomic policies in this section focuses on countries that have broadly achieved macroeconomic stability. Recent data indicate that many developing countries are presently in a state of macroeconomic stability (see Tables 1–3 at the end of this pamphlet). When formulating a country’s poverty reduction strategy, policymakers will need to assess and determine what is the most appropriate combination of key macroeconomic targets that would preserve macroeconomic stability in their particular circumstance. Three key issues are discussed in this section: (1) how to finance poverty-reducing spending in a way that doesn’t endanger macroeconomic stability; (2) what specific policies can be adopted to improve macroeconomic performance; and (3) policies to protect the poor from domestic and external shocks.

David A. Wise, Graham Bird, Jeffrey D. Sachs, Dahlan Sutalaksana, Marie Lavigne, Bernhard Fischer,, Juan-Carlos Herken-Krauer,, Matthias Lucke,, Peter Nunnenkamp, and Pierre Grou

For the latest thinking about the international financial system, monetary policy, economic development, poverty reduction, and other critical issues, subscribe to Finance & Development (F&D). This lively quarterly magazine brings you in-depth analyses of these and other subjects by the IMF’s own staff as well as by prominent international experts. Articles are written for lay readers who want to enrich their understanding of the workings of the global economy and the policies and activities of the IMF.

International Monetary Fund. External Relations Dept.
We need to understand more deeply a number of critical issues that confront the World Bank and its member countries before we can transform knowledge into effective actions
Pierre Landell-Mills and Ismail Serageldin

We need to understand more deeply a number of critical issues that confront the World Bank and its member countries before we can transform knowledge into effective actions

International Monetary Fund. Independent Evaluation Office

Abstract

This independent evaluation of the IMF’s role and performance in the determination and use of aid to low-income countries in sub-Saharan Africa is presented at a ground-level view. Country performance has improved in many sub-Saharan Africa countries over the period, and the report details the role of the IMF’s programs, as well as perceptions of that role. The report is an important contribution to following through on the IMF’s commitment to its Poverty Reduction Strategy and makes three main recommendations for improving the coherence—actual and perceived—of the IMF’s policies and actions relating to aid to sub-Saharan Africa going forward.

Mr. Mark W Lewis, Ms. Aurelie Martin, and Gabriel Di Bella
Assessing a country's competitiveness routinely starts with an analysis of the real exchange rate. However, in low-income countries, empirical analysis of the real exchange rate is often subject to important limitations that seriously weaken the results. This paper summarizes the methodologies used to assess real exchange rate misalignments and discusses the range of obstacles common to low-income countries. Recognizing the importance of using a wide range of indicators for assessing competitiveness in low-income countries, the paper discusses alternative competitive measures and then proposes a template of indicators to allow for a systematic assessment of competitiveness in low-income countries. The template is then used to rank countries according to their competitiveness performance in 2006.
Mr. Montfort Mlachila, Rene Tapsoba, and Mr. Sampawende J Tapsoba
This paper proposes a new quality of growth index (QGI) for developing countries. The index encompasses both the intrinsic nature and social dimensions of growth, and is computed for over 90 countries for the period 1990-2011. The approach is premised on the fact that not all growth is created equal in terms of social outcomes, and that it does matter how one reaches from one level of income to another for various theoretical and empirical reasons. The paper finds that the quality of growth has been improving in the vast majority of developing countries over the past two decades, although the rate of convergence is relatively slow. At the same time, there are considerable cross-country variations across income levels and regions. Finally, emprirical investigations point to the fact that main factors of the quality of growth are political stability, public pro-poor spending, macroeconomic stability, financial development, institutional quality and external factors such as FDI.