Forward-looking Macroeconomic Policies For Inclusive and Sustainable Development Anis Chowdhury Director, Macroeconomic Policy and Development Division, UN-ESCAP EGM, UN-DESA 5-6 Dec. 2013
Forward ‐ looking Macroeconomic Policies for Inclusive and Sustainable Development Why forward-looking macro policies? “… forward-looking macroeconomic policies … promote sustainable development and lead to sustained, inclusive and equitable economic growth, increase productive employment opportunities and promote agricultural and industrial development” (Rio +20 Outcome document, para150) 2
Forward ‐ looking Macroeconomic Policies for Inclusive and Sustainable Development What are forward-looking macro policies? •Safeguard the sustainability of public investment strategies •Not focus narrowly on debt stabilization and curbing inflation •Relax unnecessarily stringent fiscal and monetary restrictions •Use countercyclical fiscal and monetary policies •Strengthen mobilization of domestic resources •Enhanced international cooperation to strengthen tax revenue collection Objectives: •Supportive of growth of real output and employment. •Minimize the impact of external and other shocks on poverty •Buttress the fiscal capacities of all Governments ( SGR 2010: Keeping the Promise, para 50 ) 3
Forward ‐ looking Macroeconomic Policies for Inclusive and Sustainable Development Development experience of the 1990s •“Macroeconomic policies improved in a majority of developing countries in the 1990s, but the expected growth benefits failed to materialize… forecast. In addition, a series of financial crises severely depressed growth and worsened poverty . . . [B]oth slow growth and multiple crises were symptoms of deficiencies in the design and execution of the pro-growth reform strategies … with macroeconomic stability as their centerpiece.” (World Bank’s Lessons from the 1900s, 2005, p. 95) 4
Forward ‐ looking Macroeconomic Policies for Inclusive and Sustainable Development Conventional macroeconomic policies Debt and macro instability Inflation and growth Water intensity 5
Forward ‐ looking Macroeconomic Policies for Inclusive and Sustainable Development Public expend & human development Social protection spending versus human development 6
Forward ‐ looking Macroeconomic Policies for Inclusive and Sustainable Development Taxation and inequality 70 SYC ZAF 60 HND BOL COL BRA PRY LSO ARG CHL PER SWZ MEX 50 CRI COG SLV JAM Gini coefficient MKD CHN RUS USA THA MAR GEO 40 y = -0.3017x + 44.964 TUR IRN ISR LTU PRT MYS BTN VNM MDV GBR YEM MNG LVA BIH EST IRL JOR R 2 = 0.0592 POL AZE ESP MDA ALB ITA AUS GRC BEL IND TJK FRA ARM HRV CHE CAN ROU NLD HUN EGY LUX 30 SVN DEU AUT BLR KAZ UKR SRB FIN CZE BGR SVK SWE NOR DNK 20 10 0 0 10 20 30 40 50 General government taxes over GDP (per cent) 7
Forward ‐ looking Macroeconomic Policies for Inclusive and Sustainable Development Developmental fiscal policies •..fiscal policy serves both as an instrument of macroeconomic stabilization and as an instrument to achieve growth and poverty reduction objectives. •…stability is necessary for growth, it is not sufficient. •The fiscal deficit is a useful indicator for purposes of stabilization…, but it offers little indication of longer term effects on government assets or on economic growth. •The design of fiscal policy … requires that attention be focused on the likely growth effects of the level, composition and efficiency of public spending and taxation. •Fiscal policy that neglects these effects runs the risk of achieving stability while potentially undermining long-term growth and poverty reduction. IMF-World Bank Development Committee (2006), "Fiscal Policy for Growth and Development: An Interim Report." DC2006-0003, April 6 (p. i) 8
Forward ‐ looking Macroeconomic Policies for Inclusive and Sustainable Development Asia-Pacific perspectives � Asia-Pacific has been the fastest growing region. • Sustained output growth has halved the proportion of people living on less than $1.25 per day in the region from 52% to 19% between 1990 and 2010. � Yet, economic insecurity is prevalent, as • 762 million live on less than $1.25 a day • 924 million live on between $1.25 and $2 a day • 544 million are undernourished. • 1.1 billion workers are in vulnerable employment. 9
Forward ‐ looking Macroeconomic Policies for Inclusive and Sustainable Development Growing inequalities 10
Forward ‐ looking Macroeconomic Policies for Inclusive and Sustainable Development Inequalities & macro instability Gini-CAD Gini-DebtHH 40.00 100.00 30.00 80.00 ( % ) 20.00 ( % ) 60.00 H H D / G D P 10.00 C A D / G D P 40.00 0.00 25.0 30.0 35.0 40.0 45.0 50.0 55.0 20.00 -10.00 -20.00 0.00 25.0 35.0 45.0 55.0 -30.00 Gini Gini 11
Proposed policy package � A job guarantee programme • 100 days per year for participants � A universal, non-contributory pension • For all aged 65 or older � Benefits to all persons with disabilities • For all aged 15 65 � Increasing the share of public health expenditures Forward ‐ looking Macroeconomic Policies for • 5% of GDP by 2030 Inclusive and Sustainable Development � Universal enrolment in primary and secondary education • Primary by 2020 and Secondary by 2030 � Energy access to all • Modern energy services by 2030 � Illustrative package of policies to promote inclusive and sustainable development in 10 Asia-Pacific countries 12
Forward ‐ looking Macroeconomic Policies for Inclusive and Sustainable Development Investing in inclusive and sustainable development � Overall public expenditure and investment requirements to implement such a policy package vary across countries � Total investment needs of above package of policies 5% to 8% of GDP by 2030 � Public investment needed to deliver policies to sustain growth and promote inclusive and sustainable development In the case of China, the cost of the package is • projected to reach 3.3% of GDP in 2020 and 5.2% of GDP by 2030 The cost of the package is projected to exceed • 10% of GDP by 2030 only in Fiji (13%) and Bangladesh (22% 13
Doable and economically sustainable � Most countries can self-finance • broadening tax bases, • tax regimes more progressive, • tax administration more efficient • tighter regulations on capital flights • fighting corruption Forward ‐ looking Macroeconomic Policies for • reducing non-development expenditures Inclusive and Sustainable Development � LDCs would need global partnership and development cooperation � Will not jeopardize macroeconomic stability 14
Forward ‐ looking Macroeconomic Policies for Inclusive and Sustainable Development Key messages � New paradigm that emphasizes the developmental role of macroeconomic policies. � Grow now, distribute + clean up later is a dead end! � Investing in social and environment pillars will strengthen the economic pillar… � …and lead to sustained, inclusive and equitable economic growth. � It is doable without jeopardising macroeconomic stability in a broader sense 15
Thank you Visit ESCAP website http://www.unescap.org/pdd/publications/survey2013/download/Economic-and-Social- Survey-of-Asia-and-the-Pacific-2013.pdf
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