Interrelations among PFM Reforms,

Poverty Reduction and Growth

Tarun Das, Macroeconomic Adviser

m
 
 



 
!ontents of this presentation
1. Basic objectives of PFM reforms
2. Salient components of NDP, PRSP
Report and MDG Report
3. Rationality of integrated policies
4. The case study for the Gambia
5. Concluding observations

m
 
 



 
 2 Basic Objectives of PFM Reforms
ƕ To maintain macroeconomic stability with
moderate inflation and sustained growth
ƕ Enhance fiscal discipline and accountability
ƕ Enhance revenue realization
ƕ Curtail unproductive expenditure
ƕ Improve delivery and quality of public goods
and services
ƕ To make subsidies targetted to the really
needy and weaker sections of the society
ƕ All these objectives are also preconditions
for high growth and poverty reduction.

m
 
 



 
 2.1 Salient components of NDP, PRSP
Report and MDG Report
ƕ MDG and PRSP reports deal with policies and
programs to achieve MDGs. PRSP has a focus
on poverty reduction, but it also deals with
other goals such as education, health, gender
equality, environmental sustainability.
ƕ Reports emphasize that attainment of broad-
based economic growth, which is more
inclusive, participatory, and stable over time, is
a pre-requisite for sustainable reduction of
poverty and unemployment.
ƕ All the countries have initiated various reforms
and programs to enhance efficiency of their
economy; and are trying to mainstream MDG
and PRSP into the National Development Plans.
m
 
 



 
 2.2 Stylized Policies and Programs under
MDG and PRSP
a) Macro stabilization policies & PFM reforms;
b) Structural reforms in trade, industry, land,
labor and capital markets
c) Sectoral priorities for poverty reduction and
employment generation
d) Development of physical infrastructure and
human capital
e) Conflict resolution, social development and
environment protection
f) Direct poverty alleviation programs
g) Improving legal and institutional set-up
h) External Aid coordination and harmonization
i) Strengthening systems for measurement,
evaluation, monitoring and review
m
 
 



 
 3.1 Rationality of Integrated policies
ƕ Root cause of poverty is unemployment .
ƕ Therefore, any poverty reduction program
must focus on development of employment-
intensive sectors such as agriculture, SMEs,
retail trade, transport and communications.
ƕ However, poor cannot participate fully in these
activities unless they are adequately skilled
and healthy.
ƕ Therefore, improving education levels and
health conditions of the poor and upgrading
their skill are essential for poverty reduction.
ƕ But all these activities require higher revenue
collection, private participation, improvement
in supply and quality of basic public services.
ƕ And so the need for PFM Reforms.
m
 
 




 3.2 Role of macro-stabilization policies
ƕ Macro-economic volatility puts a break on
economic growth. Stable macroeconomic
environment, with low inflation and sustainable
fiscal deficit, helps the poor to safeguard their
purchasing power in years of natural calamities
or adverse business and trade cycles.
ƕ High inflation hurts everybody particularly the
poor as their incomes are not indexed to
prices, and thus increases the poverty ratio.
ƕ However, sound macro-economic polices have
only limited capacity to alleviate poverty as the
trickle down effects of high growth may be
uneven, slow, lagged and time consuming.
ƕ We also need targeted poverty alleviation and
employment generation programs.
m
 
 



 !
3.3 Role of PFM reforms for poverty reduction
"arious studies by the World Bank conclude:
ƕ PFM reforms lead to reduction of fiscal deficit,
increased private investment ,stable inflation.
ƕ Increased share of private sector in total
investment leads to poverty reduction, as
private investment is more productive and
more efficient than public investment .
ƕ A reduction of fiscal deficit helps in poverty
reduction, as it does not lead to crowing out of
private investment.
ƕ Increased share of investment in social sectors
lead to poverty reduction.
ƕ Increased share of services in GDP lead to
poverty reduction as they have higher
employment elasticities.
m
 
 



 "
 3.4 Lessons from country case studies
ƕ Broad-based growth and overall human
development lead to attainment of other
millennium development goals such as
universal education, gender equality, good
health, sustained environment and global
partnership for development.
ƕ But, it is neither possible nor advisable to
identify a unique set of policies or programs
which will hold good equally for all countries at
all times.
ƕ They depend on the countryƎs socio-economic-
political environment.
m
 
 



 #
 3.5 Lessons from best practices
ƕ International best practices of development
process indicate that a piece-meal approach to
development policy does not serve tangible
results, rather delays comprehensive reforms
program, raises transitional costs and
lengthens the transition period to achieve
desirable development goals.
ƕ Basic question is not: whether these policies or
programs need to be taken. Rather the
question is: how to prioritize and sequence
these reforms and with what speed and
intensity?
ƕ Again, a universal answer to this question is
neither feasible nor desirable.
m
 
 



 $
4.1 The Gambia PRSP-II (2007-2011)
ƕ PRSP-II incorporatied programs focused on the
Millennium Development Goals (MDGs) with the
following overall strategic priorities:
a) macroeconomic stability and effective public
resource management;
b) promotion of pro-poor growth and
employment through private sector
development;
c) improved basic social services;
d) strengthened local communities and civil
society organizations (CSOs); and
e) Multi-sectoral programs on gender,
environment, nutrition, and population.

m
 
 



 
4.2 PRSP-II of the Gambia- Pillars 1-2
ƕ PILLAR 1 - Create an enabling policy
environment to promote economic growth and
poverty reduction
1.1. Macro-economic management
1.2 Improve legal system
1.3 Civil service reforms
1.4 Public Utilities Regulation Reforms
ƕ Pillar-2: Improve productive capacity and social
protection of the poor and vulnerable sections
(MDG-I)
2.1-2.2 Agriculture, Fisheries & marine resources
2.3 -2.4 Tourism, and Industry
2.5-2.6 Trade and Employment
2.7-2.8 Energy and Infrastructure
2.9 Telecommunication
m
 
 



 
4.3 PRSP-II of the Gambia- Pillars 3-4
ƕ PILLAR 3 - Improve coverage of the basic social
service needs of the poor and vulnerable [MDG
2, 4, 5 and 6]
3.1 Health,
3.2 Basic Education,
3.3 Higher Education
3.4 Water supply,
3.5 Sanitation,
ƕ PILLAR 4 - Build the capacity of local
communities and Civil Society Organizations
(CSOs) to play an active role for poverty
reduction
m
 
 



 
 4.4 PRSP-II of the Gambia- Pillar-5

PILLAR 5 - Mainstream poverty-related cross-

cutting issues into poverty reduction
[MDG 3, 6, 7]
5.1 Gender,
5.2 HI" Aids,
5.3 Population
5.4 Nutrition,
5.5 Climate change
5.6 Environment

m
 
 



 
 4.5 PRGF- Medium Term
Macroeconomic Framework
a) Real GDP growth rates of 4.6Ƌ6% a year;
b) Inflation falling to 6 percent in 2009 and to 5
percent in 2010;
c) A reduction in governmentƎs domestic debt
from 25.5 percent of GDP at end-2008 to 17.3
percent at end-2011;
d) External current account deficits (including
official transfers) falling from about 16% of
GDP in 2008 to about 12% in 2011; and
e) Rebuilding international reserves to cover at
least 4 months of imports.

m
 
 



 
 5.1 Fund-Bank Review of PRSP-II
ƕ Progress towards the MDGs is reported to be
mixed. While the target of reducing poverty to
15 percent (goal 1) is unlikely to be achieved,
The Gambia has made significant strides in
several areas including:
ƕ (i) Goal 2 on the achievement of universal
primary education;
ƕ (ii) Goal 3 on the promotion of gender equality
and empowerment of women; and
ƕ (iii) Goal 4 on the reduction of child mortality.

m
 
 



 
 5.2 Fund-Bank Review of PRSP-II

ƕ The Joint Staff Advisory Note (JSAN) on PRSP

recommends the following priority tasks by the
government of the Gambia:
a) developing a comprehensive agricultural
sector strategy;
b) maintaining macro-economic stability
c) prioritizing improvement of governance; and
d) Refining PRSP performance indicators.
The Fund-Bank recommend development of
sectoral strategic plans and overall Medium
Term Expenditure Framework.

m
 
 



 !
 m
 you
H
e
Good D


m
 
 



 "