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Securing Fiscal Space for the MDGs - 4 June to 29 June 2007


In January 2007 members of UNDP's Poverty Reduction Practice network selected ‘pro-poor fiscal policies’ and 'MDG-consistent MTEF' as priority areas deserving more attention on the network. In response, this e-discussion has been organised to bring together diverse experts and practitioners working in this area. In addition to contributions from network members, a number of resource persons will also contribute their perspectives in the context of particular questions.

This discussion benefits from a paper presented to the Intergovernmental Group of Twenty Four (G24) Fiscal Space for Public Investment: Towards a Human Development Approach by Rathin Roy, Antoine Heuty and Emmanuel Letouzé. Network members can also acquaint themselves with key concepts, terms and facts related to this eDiscussion. A full list of background documents is included below. To join the eDiscussion, please send a message to pr-public-finance@groups.undp.org.

GUEST MODERATORS:

Rathin Roy, Public Resource Management Advisor, UNDP/ Bureau for Development Policy, Poverty Group. Dr. Roy holds a PhD from the University of Cambridge in Public Economics. He has taught Economics at the Universities of Cambridge, Manchester and London, and has published books and research papers on a range of fiscal issues in developing countries. His areas of interest include fiscal space, fiscal policy, including pro-poor fiscal policy, public investment, MDG costing, fiscal decentralization, and enabling fiscal frameworks for the MDGs. He has extensively worked in developing countries, providing technical advice to governments on macro and fiscal policy issues in over forty developing countries in Asia, Africa, the Middle East and Eastern Europe. Dr. Roy has most recently worked in Cambodia, China, Laos, Sierra Leone, Syria, Yemen and Zambia.

Elliot Harris,Chief of the Development Issues Division, IMF/Policy Development and Review Department.
Mr. Harris was educated at the universities of Georgetown in Washington DC, and Marburg and Kiel in Germany. He joined the IMF in the Economist Program (EP) in 1988, and has worked extensively on African countries, as well as in the Fiscal Affairs Department on public expenditure policy issues. He has been the IMF mission chief to several countries in Africa, negotiating PRGF-supported agreements. Since March 2007, Mr. Harris is Chief of the Development Issues Division in the Policy Development and Review Department, working on the poverty reduction strategy approach; donor harmonization and alignment and issues of the aid architecture; the MDGs.

DISCUSSION CONTEXT:

Following the World Summit in 2005, when all countries committed to adopt and implement an MDG-based National Development Strategy by the end of 2006, the development community’s focus has increasingly shifted to operationalizing the ambitious targets set out in the MDGs.

Many countries have now developed these longer-term development plans (MDG-based PRSPs or National Development Strategies). However, experience in various countries suggests that these strategies are not implemented due to difficulties in provisioning for the costs of implementation of MDG strategies in medium-term frameworks and annual budgets. Too often, there is a disconnect between the medium- and long-term needs assessment, macroeconomic framework, and annual budgets. And hence, a binding constraint to operationalizing the MDGs has been the lack of adequate financing.

MDG-based National Development Strategies call for a significant scaling up of public investment. Bottom-up approaches such as the Needs Assessment approach are often used to identify the sectoral investments needed to reach the targets for Goals 2-7 (in areas such as health and education). In addition, a significant increase in overall public investment is necessary to reach the growth rate required to achieve the income poverty target for 2015. However, the traditional emphasis within macroeconomic frameworks on maintaining short-term macroeconomic stability (low inflation, steady exchange rate, etc) and fiscal solvency (a manageable level of debt) can place a constraint on public spending.

The various options available to governments to finance a scaling up of investment - increased ODA, additional borrowing, enhanced revenue collection, and improved efficiency and reprioritization of expenditures - each have potential implications on macroeconomic variables. Ultimately, achieving the MDGs will require a new approach to long-term macroeconomic programming that more fully reconciles the need to maintain short-term macroeconomic stability and fiscal solvency with the concurrent need to expand fiscal space and scale up public investment.

Given this context, it would be beneficial to understand what experiences countries have had with scaling-up public expenditure to meet the MDGs, including the financing strategies they employed and how the macroeconomic impacts were managed.

OBJECTIVES:

Overall, this discussion aims to:

  • Strengthen the understanding among field practitioners of the terms and concepts associated with an MDG-consistent Medium Term Expenditure Framework (MTEF) and fiscal space, as well as the linkages between a long-term MDG strategy, a medium-term framework, and the annual budget.
  • Identify country experiences with linking long-term strategies, medium-term frameworks, and annual budgets.
  • Identify options available to governments to secure fiscal space for the MDGs and the challenges involved. Introduce the fiscal framework diamond as a diagnostic tool and solicit feedback.
  • Articulate the common goals and different approaches of development partners and identify potential ways to increase constructive collaboration (at both the global and national level). Identify the strategic role of the UN vis-à-vis national governments and the BWIs.

In addition to encouraging the exchange of experiences and lessons learned between country teams, the results of this discussion will be used to identify areas for upcoming UN training activities and knowledge products (to enable UN colleagues to provide support to government counterparts in this topic). It will also provide impetus and input for a higher level technical discussion between the UN and BWIs on these issues, in order to promote complementary approaches.

DISCUSSION QUESTIONS:

The eDiscussion will run in two parts. The first part will introduce the notion of ‘fiscal space’ and present a diagnostic tool, the ‘fiscal space diamond’, used to analyze the various financing options available to a government when designing MDG-consistent fiscal policy and engaging with donors. In looking at the four pillars of fiscal space – increased ODA, additional borrowing, enhanced revenue collection, and improved efficiency and reprioritization of expenditures – the discussion will seek to identify the options and challenges to secure fiscal space for the MDGs. The second part of the eDiscussion will focus on the dynamic effects, both direct and indirect, between various financing strategies and macroeconomic variables and how these interactions can impact MDG achievement.

PART 1 - The Four Pillars of Fiscal Space (4-15 June 2007)

  1. To what extent and how do the needs assessments inform the long and medium term fiscal framework and the annual budget at the country level?
  2. What are the challenges and opportunities to secure fiscal space for the MDGs through one or more of its four pillars - increased ODA, additional borrowing, enhanced revenue collection, and improved efficiency and reprioritization of expenditures? What are the advantages and disadvantages of these fiscal instruments (or pillars) and how to achieve the optimal trade-offs between them?
  3. Are there recent experiences of innovative means to create fiscal space, particularly in special development settings (post-conflict countries, Small Island Developing States, etc)?

PART 2 - The macroeconomic implications of expanding the fiscal space (18-29 June 2007)

  1. What are the short term macro-fiscal challenges (e.g. crowding out, Dutch disease, inflation...) to an MDG-based national development strategy?
  2. What are the long term macro-fiscal challenges (e.g. fiscal sustainability, savings generation and mobilization, capital accumulation process...) to an MDG-based national development strategy?
  3. To what extent do the macro-fiscal projections incorporate the need for and the possibility of an exit strategy from aid?
Partnering with UN Networks
This discussion is also cross-posted with the network on Poverty Reduction Strategies and MDGs at UNECA (UN Economic Commission for Africa). The network aims to strengthen knowledge sharing and peer learning among Africa’s policy makers on PRSPs and national development strategies. It is supported by UNDESA and managed by the African Centre for Gender and Social Development. To learn more about the network, contact Amal Redwan.
 
RESOURCE PERSONS
  • Amine Kebe, Department for Health Policy, Development and Services, WHO
  • Choedchai Khannabha, Government of Thailand
  • Fatmata Sesay, Government of Sierra Leone
  • David Goldsbrough, Centre for Global Development
  • Diane Elson, University of Essex, UK
  • Fouzi Mourji, Université Hassan II, Morocco
  • Francisco Rodriguez, Wesleyan University, USA
  • Gerard Chambas, CERDI (Centre for Studies and Research in International Development), France
  • Jean Francois Brun, CERDI (Centre for Studies and Research in International Development), France
  • Michel Bouvier, Paris I Panthéon-Sorbonne University/ GERFIP (European Group for Research in Public Finance)
  • Nancy Alexander, Citizens’ Network on Essential Services (CNES)
  • Paolo de Renzio, ODI/ Oxford University, UK
  • Rick Rowden, Action Aid
  • Romilly Greenhill, Action Aid
  • Abdoulie Sireh Jallow, UNDP Zambia
  • Antoine Heuty, Poverty Group, Bureau for Development Policy, UNDP
  • Anuradha Seth, Regional Centre in Colombo, UNDP
  • Ayodele Odusola, UNDP Nigeria
  • Brett House, UNDP New York
  • Degol Hailu, Caribbean Sub-Regional Resource Facility, UNDP
  • Emmanuel Letouze, Poverty Group, Bureau for Development Policy, UNDP
  • Khalid Abu Ismail, Arab States Sub-Regional Resource Facility, UNDP
  • Luis Lopez Calva, Regional Bureau for Latin America and the Caribbean, UNDP
  • Marielza Oliveira, Regional Bureau for Latin America and the Caribbean, UNDP
  • Neil Boyer, UNDP Gambia
  • Nicolas Depetris Chauvin, Office of Development Studies, UNDP
  • Peng Longyun, Regional Centre in Colombo, UNDP
  • Udo Etukudo, Regional Centre in Johannesburg, UNDP
  • Yuba Raj Khatiwada, Regional Centre in Colombo, UNDP

SELECTED BACKGROUND READINGS:

I. Research papers

II. Key concepts, terms and facts

III. Country Studies