Rekindling growth in low-income countries
* Priority is to restore strong, inclusive growth
* Fiscal space needed for infrastructure investment and social
spending
* Enhanced global cooperation could help lift millions more out of
poverty
Low-income countries, including in sub-Saharan Africa, are recovering
much better than during previous recessions. But years of progress have
been lost because of the global economic crisis and the food and fuel
crisis that preceded it, said IMF Managing Director Dominique
Strauss-Kahn during a visit to Brussels December 5 to 7.
IMF Managing Director Dominique Strauss-Kahn |
While the strong macroeconomic performance of low-income countries
during the crisis is the ‘good news,’ the ‘bad news’ is that fewer
people were brought out of poverty, he said. Strauss-Kahn was addressing
a group of international parliamentarians at the Belgian Parliament as
well as participants in European Development Days, a forum bringing
together heads of state, parliamentarians, donors, international
organizations, academics, and a broad range of civil society groups.
IMF support during the crisis
Good policies prior to the outbreak of the global financial crisis
meant that many low-income countries had room to let their fiscal
automatic stabilizers operate and increase real spending during the
crisis. IMF support also made a difference, and helped protect the
poorest and other vulnerable groups, Strauss-Kahn said.
During the crisis, the IMF quadrupled its concessional lending to
low-income countries, offered at zero interest rates through the end of
2011. Almost 90 percent of countries with an IMF-supported program
increased real spending, compared with 67 percent of countries that did
not receive IMF support.
Making up lost ground
In 2009, real spending on health and education in low-income
countries was up by 10 percent, and public investment increased by 17
percent.
“This shows that IMF-supported programs helped countries to cope with
the crisis and go further than they might otherwise have been able to
do,” he said.
Despite such progress, the World Bank estimates that about 70 million
fewer people will have escaped from the chains of poverty by 2020
because of the global financial crisis and the food and fuel crisis that
preceded it. Many millions more will suffer the consequences of
prolonged unemployment and underemployment.
In order to make up for lost ground, all must play their part-the
developing countries themselves, the advanced economies, and the
international institutions, Strauss-Kahn said. Cooperative action could
boost world growth by 2.5 percentage points over five years, create 30
million new jobs, and lift 33 million people out of poverty, according
to IMF analysis.
Keeping promises on aid
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Strauss-Kahn urged advanced countries to keep the Gleneagles promises
on aid, and find ways of channeling financial support to help low-income
countries overcome the challenges of climate change. “This is not the
time to cut aid,” he said. At the Gleneagles summit in 2005, the Group
of Eight leaders promised to double aid to sub-Saharan Africa by 2010.
Trade should also be opened up. This comes without budgetary cost and
has the potential to unleash a wave of productivity and growth.
Strategy for growth
In low-income countries, the key priority is to restore strong,
“inclusive growth” and make this growth more resilient to future shocks
through homegrown policies, Strauss-Kahn said. Rebuilding policy buffers
would increase resilience and can be done in a way that still allows for
space to invest in infrastructure and increase social spending, he said.
A key priority must also be to strengthen domestic revenues. Low-income
countries should also seek to raise domestic savings and develop local
financial markets, which would help make their economies more resilient
to shocks and foster private sector activity, he added.
The IMF, for its part, would continue to play its role by providing
policy advice and financing when needed. Its lending programs are now
more flexible, and policy conditions have been streamlined, Strauss-Kahn
said. The IMF supported countercyclical fiscal policies during the
crisis, introduced a more flexible approach to debt, and advocated the
protection of social spending. And it provides extensive technical
assistance to support capacity building, including among the fragile
states.
A major reform of the IMF’s governance structure in November 2010
enabled a 6 percent shift in quota shares to dynamic emerging market and
developing countries, while protecting the voting shares of the poorest
member countries.
The Board of Governors, the IMF’s highest decision-making body, must
ratify the new agreement by an 85 percent majority of votes cast before
it comes into effect. Strauss-Kahn said he hoped that the IMF could
count on the support of legislators to secure ratification. He thanked
Europeans for their continued collaboration with the IMF.
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