Poverty Reduction

Expansionary fiscal policy can promote poverty reduction - The focus in public investment has traditionally been on maintaining macroeconomic stability (including maintaining a low level inflation). Macroeconomic stability is necessary but not sufficient for pro poor human development, and fiscal policy should not be limited to expenditures financed from the current budget (countercyclical and redistribution measures notably). More expansionary fiscal policy through investments in targeted sectors such as health, education, roads and R&D can foster a non-inflationary domestic capital accumulation process which directly and indirectly reduces poverty and provide a more long term and durable basis for human development;

Public investment is a necessary complement and prerequisite for private investment - Increased public investment has traditionally been perceived as a threat to private investment, based on concerns of “crowding out” (when an increase in public investment must be compensated by a decrease in private investment). However, recent experience (notably in China and Vietnam) has indicated that private investment can be “crowded in” by well-designed public investment programs that attract private investment due to the perceived cost reductions and profit expectations associated with improved infrastructure and increased productivity of capital and labor;

Benefit incidence analysis – It is important for governments to be able to identify who benefits from public spending and by how much. Benefit incidence analysis is an effective tool for allowing governments to evaluate if a public expenditure programme is pro-poor and how effective it has been at reaching the poor;

Budget forecasting and Medium Term Expenditure Frameworks - Pro-poor public investments often require significant and sustained funding over a long time horizon (at least 15 years). This can be facilitated with the use of Budget forecasting and Medium Term Expenditure Frameworks - a revisable statement of fiscal policy objectives and integrated medium term macroeconomic and fiscal targets and projections- with an optimal time horizon of 3-5 years. The benefit of a MTEF is that it can integrate finance and planning mechanisms and can make the budget more predicable and reliable.