Public resource management
A nation’s fiscal policy – the way a government collects and spends public resources – can play a major role in reducing poverty. If countries are to reach the Millennium Development Goals (MDGs), they need flexible fiscal policies geared toward employment generation.
During the 1990s, a preoccupation with short-term macroeconomic stability and fiscal solvency constrained the capacity of developing countries to adopt counter-cyclical policies and promote development.
Fiscal sustainability and efficiency are necessary, but a country that limits itself to collecting taxes efficiently and keeping its spending low may not make the investments necessary to fight poverty. Building schools and hospitals, training teachers and doctors and providing access to water, sanitation and transportation – actions necessary in many countries if they’re to reach the MDGs – will require more public financing.
Increased public spending is often regarded as having a ‘crowding out’ effect on private investment. But in countries desperately short of infrastructure and services, public spending helps to ‘crowd in’, or stimulate, private investment. Well-designed public investment programmes can increase the productivity of capital and labour. For example, when a government invests in building a road from a rural province to the capital it reduces the cost of doing business for farmers and entrepreneurs who transport their goods along it. When it provides free education to children, companies benefit from a better-educated labour force.
How can poor nations finance such initiatives and remain fiscally prudent? Foreign aid is only part of the answer. UNDP supports governments assess their options in mobilizing domestic resources through sensible taxation and borrowing. As a result, UNDP helps to strengthen policymakers’ ability to provide macro-economic stability, create jobs and fight poverty more effectively.