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The macroeconomic implications of MDG-based strategies in sub-Saharan Africa1

Policy Research Brief, no. 4

John Weeks and Terry McKinley

International Poverty Centre (IPC)

October 2007

SARPN acknowledges the IPC as a source of this document: www.undp-povertycentre.org
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Introduction to MDG-Oriented Macroeconomic Policies

At the Gleneagles summit in 2005, the G-8 committed to doubling Official Development Assistance (ODA) to Africa by 2010 in order to help finance national efforts to reach the Millennium Development Goals (MDGs). Will such a substantial scaling-up of ODA lead to more expansionary macroeconomic policies? This Policy Research Brief assesses the implications for fiscal, monetary and exchange-rate policies.

Despite a recent upsurge of export-driven growth in sub-Saharan Africa, macroeconomic policies remain focused on maintaining macroeconomic stability. The prevailing neoliberal economic model relies on market forces to drive development. This implies fiscal policies preoccupied with small deficits, monetary policies fixated on low inflation targets and exchange-rate policies committed to full flexibility.

Such policies are unlikely to accelerate growth and broaden its impact to the extent necessary to halve extreme income poverty by 2015 (i.e., achieve MDG #1) and support the attainment of the other MDG targets for human development. So, is there an alternative economic model that could be successful?

This Policy Research Brief advances an alternative that entails three major changes in macroeconomic frameworks: 1) fiscal policies should become more expansionary—focusing on expanding public investment—and more intent on raising domestic revenue; 2) the exchange rate should be managed in order to promote export competitiveness and currency stability; and 3) monetary policy should accommodate fiscal expansion and export promotion, achieving low real rates of interest that promote private investment and alleviate public-sector debt.

Because policymakers in sub-Saharan Africa have operated under the binding constraints of a neoliberal economic model, the region’s growth performance still lags behind the rates necessary to attain the MDGs, despite fortuitous external factors. Figure 1 (next page) illustrates the growth performance during 1985-2005 for three groupings of countries in the region: conflict-affected countries (10 countries), non-conflict middle-income countries (7) and non-conflict low-income countries (24).

The recovery of conflict-affected countries since the mid-1990s has led to the misleading impression of significant improvement in the whole region. However, middle-income countries have been doing worse during this period and improvements in low-income countries have been only modest.

For the low-income group of 24 countries, growth of income per person averaged a mere 0.2 per cent during the 1990s and rose to only 1.2 per cent during 2000-2005. This lacklustre performance underscores the need for more expansionary, investment-focused macroeconomic policies.


Footnote:
  1. We thank for their helpful comments and suggestions the two external peer reviewers of this Policy Research Brief: Robert Pollin, Co-Director of the Political Economy Research Institute, and James Crotty, Sheridan Scholar and Professor of Economics, University of Massachusetts-Amherst.


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