More than a year after the creation of the New Partnership for Africa’s Development (NEPAD), ministers, governors, and other senior officials from some 20 African countries met in Dakar, Senegal, in mid-December to discuss the challenges confronting the initiative. Participants at the high-level seminar, hosted by the IMF Institute and the Joint Africa Institute, included donor representatives, academics, and staff of regional and international institutions.
Hilary Devine, Adrian Peralta-Alva, Hoda Selim, Preya Sharma, Ludger Wocken, and Luc Eyraud
The Covid-19 pandemic has aggravated the tension between large development needs in infrastructure and scarce public resources. To alleviate this tension and promote a strong and job-rich recovery from the crisis, Africa needs to mobilize more financing from and to the private sector.
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Fiscal policy affects sustainable development through its effects on growth, the environment, and resource development. What are the relationships between fiscal policy and sustainable development, and how does the IMF seek to promote sustainable development in its policy advice? What lessons have been learned so far, and how can governments, the international community, and international financial institutions more fully support sustainable development?
Economic growth is essential for sustainable development and improving social outcomes.4 Growth usually—but not always—benefits the poor; in about 90 percent of the cases in which countries have experienced per capita GDP growth of at least 2 percent per year over a five-year period, the poor also experienced rising real incomes. While, in general, there is no pro-rich bias in growth,5 appropriate development of the poor’s income-earning potential can help ensure that they also share in the fruits of an expanding economy (see the section on “Fiscal Policy, Human Development, and the MDGs”). Not surprisingly, there is also a strong link between economic growth and improvements in non-income dimensions of poverty. For example, a 10 percent increase in GDP per capita typically results in a 3–5 percent decrease in infant and child mortality rates.6 Similarly, disparities between male and female literacy rates fall markedly as GDP increases.7 In this light, fiscal policy can play a pivotal role in achieving the MDGs by fostering robust economic growth.
In both developed and developing countries, fiscal policy has an important role to play in assuring sustainable use of natural resources and safeguarding the environment. This applies to both the tax and spending sides of the government’s budget. On the former,
Government expenditure policy will have a key role in determining whether countries meet the MDGs. In many countries, the government will have a central role in ensuring that its citizens, especially the poor, have access to education and health services by either providing these services itself or financing private sector provision. As such, it is critical to understand the link between government spending on these programs and performance on indicators that measure the health and education status of the population. Of special interest is how government spending affects the achievement of the 48 social and human development indicators that have been selected to monitor progress toward the achievement of the MDGs.
Poor governance poses a number of obstacles to human development.52 Corruption results in the allocation of budgetary resources for unproductive programs and inefficiencies in public spending, which reduces the effectiveness of outlays on social and poverty-reducing programs in fostering social development. Poor governance results in budgetary allocations tilted in favor of less-productive investment projects and defense-related spending and against nonwage operations and maintenance expenditures, which reduces the quality and productivity of existing infrastructure. Corruption also reduces revenue and therefore the ability of the government to mobilize the resources needed to finance critical poverty-reducing programs. Corruption results in the poor capturing a smaller share of the benefits from public spending and, more generally, in higher poverty and income inequality.