Parliament, Governance and Poverty Reduction Istanbul, Turkey March 23-25, 2004 Macroeconomic Policy and Poverty Reduction

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Parliament, Governance and Poverty
ReductionIstanbul, TurkeyMarch 23-25,
2004Macroeconomic Policy and Poverty Reduction

• Presentation by
• Sanjaya Panth, Deputy Division Chief,
• Policy Development and Review Department, IMF

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Overview

• Objectives of macroeconomic policy
• Macroeconomic policies and poverty reduction
• How does the IMF fit in ?
• Parliaments, Civil Society and the IMF.

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I. Objectives Of Macroeconomic Policy

• Macroeconomic stability and sustainability
• full employment and maximum output at home
  balanced financial and economic relationship
  with rest of the world.
• domestic price stability and appropriate exchange
  rate

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I. Objectives Of Macroeconomic Policy (contd.)

• Macroeconomic Challenges
• Need to take into account where the economy is
  recession or boom
• Need to overcome permanent shocks e.g. loss of
  key export market
• Ability to weather temporary shocks such as
  temporary fall in price of main export

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I. Objectives Of Macroeconomic Policy (contd.)

• The Policy Response
• fiscal and monetary policies that work together
  rather than against each other
• Avoidance of excessive deficits (fiscal and
  external)
• Manageable debt

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II. Macroeconomic Policies And Poverty Reduction

• Sustained economic growth requires macroeconomic
  stability
• Growth is a necessary condition for broad and
  sustained poverty reduction but is not always
  sufficient.
• Sometimes, the potential tensions between
  macroeconomic stability and social/poverty
  reducing policies have to be addressed.

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II. Macroeconomic Policies and Poverty Reduction
(contd.)

• Macroeconomic policies also affect poverty
  directly
• Level of incomes and their volatility
• Distribution of incomes
• Examples
• Inflation hurts the poor on fixed incomes
• Tax and expenditure policies can affect income
  distribution and work to the benefit or detriment
  of the poor

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II. Macroeconomic Policies and Poverty Reduction
(contd.)

• A Framework For Policies
• Low and steady inflation and minimize economic
  boom-bust cycles
• Reduce unfinanceable fiscal deficits that
  ultimately hurt the poor
• Maintain balanced trade finance with rest of
  the world and appropriate exchange rate

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II. Macroeconomic Policies and Poverty Reduction
(contd.)

• A Framework For Policies
• Expenditures focused on key social services and
  basic infrastructure
• Monetary and financial sector policies to foster
  access of the poor to credit
• Structural policies to correct distortions in
  critical sectors

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III. The IMFs role

• Advice on macroeconomic policies for stability
  through
• Annual consultations
• Financial support to countries during adjustment
• Technical assistance
• Poverty Reduction and Growth Facility (PRGF) for
  low-income members

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III. The IMFs role (contd.)

• Fund financial arrangements
• Macroeconmic problems are self-correcting but
  very slowly and very painfully.
• Instead of following this course, Fund programs
  aim to help ease the pain of adjustment
• Financial assistance helps buy time while
  conditionality helps ensure that policies are put
  in place to permanently address the problem

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III. The IMFs role (contd.)

• PRGF Architecture
• Reserved for 77 low-income members
• Three year arrangements
• Interest rate of 0.5 percent
• Repayment over ten years with 5-1/2 year grace
  period

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III. The IMFs role (contd.)

• Goals of PRGF
• Integrate goals of poverty reduction and growth
  more fully into lending to LICs
• Enhance government and national ownership by
  deriving program from the countrys PRSP
• Better integrate social and sectoral objectives
  with macroeconomic policy
• Increase emphasis on good governance policies -
  transparent fiscal management

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III. The IMFs role (contd.)

• Features of PRGF Programs
• Embedded in the overall strategy for growth and
  poverty reduction the PRSP
• Budgets that include more expenditures directed
  at helping the poor
• Appropriate flexibility in targets
• More selective conditionality
• Improved public resource management
• Social impact analysis

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IV. Parliaments, Civil Society and the IMF

• The Role of Parliaments
• Importance of budget process and of prioritizing
  among competing objectives
• Parliaments should be instrumental in
• ensuring that the concerns and priorities of
  their constituents are reflected in the national
  PRS and in the budget

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IV. Parliaments, Civil Society and the IMF
(contd.)

• The Role of Parliaments (contd)
• Parliaments should be instrumental in
• helping government make hard choices among
  competing demands
• assisting in identifying the impact of measures
• comparing actual spending to the planned budget
  and holding governments accountable for the
  execution of the budget .

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IV. Parliaments, Civil Society and the IMF
(contd.)

• The main counterparts of the IMF are governments
• But the IMF has long interacted with legislators
  and has recently broadened its outreach and
  dialogue
• A recent Working Group of Executive Directors
  discussed the IMFs outreach to parliamentarians.
  Legislators are invited to send comments on the
  report, which is being made available here

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IV. Parliaments, Civil Society and the IMF
(contd.)

• Key venues for IMF parliamentary outreach
  initiatives include
• Country level
• Training
• International Fora
• Other

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IV. Parliaments, Civil Society and the IMF
(contd.)

• The IMF has also increased its outreach to CSOs.
  The policy is to respond positively to all
  requests to engage in a constructive dialogue
• Groups we regularly see include national and
  international NGOs, labor unions, faith-based
  organizations, business associations, economic
  research institutes, and other think tanks.
• A quarterly newsletter to civil society is widely
  distributed and posted on our website. It is
  translated into French, Spanish, and Russian.