Relations Between PFM and PRGF
Relations Between PFM and PRGF
Relations Between PFM and PRGF
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1. Introduction
This paper has two parts. Part-1 presents the Gambian case study on the interrelations
between PFM Reforms, PRSP, PRGF and MDGs. Part-2 presents an abridged version of
a comprehensive report prepared by the author as a Consultant for UN-ESCAP, Bangkok.
Thailand on the base of case studies in 14 selected countries in Asia and Pacific.
Part-I:
Case Study for the Gambia on the Interrelations
Between PFM Reforms, PRSP, PRGF and MDG
Contents of 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
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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
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• Increased share of services in GDP lead to poverty reduction as they have higher
employment elasticities.
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4.3 PRSP-II of the Gambia- Pillars 3-4
• 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,
• PILLAR 4 - Build the capacity of local communities and Civil Society
Organizations (CSOs) to play an active role for poverty reduction
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 HIV/ Aids,
5.3 Population
5.4 Nutrition,
5.5 Climate change
5.6 Environment
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Selected References
Das, Tarun (2003a) Role of Agro-based and Resource-Based Industries for Export Promotion
and Poverty Alleviation in ESCAP countries, pp.1-126, ESCAP, UN, Bangkok, January 2003.
Das, Tarun (2003b) Economic Reforms in India- Rationale, Scope, Progress and Unfinished
Agenda, pp.1-80, Bank of Maharashtra, Pune, February 2003.
International Monetary Fund (IMF) (2003) Aligning the PRGF and the PRSP Approach:
Issues and Options, Washington D. C., April 25, 2003.
IMF, Independent Evaluation office (2004), Evaluation Report on PRSPs and the PRGF,
Washington D.C., July 7, 2004.
International Monetary Fund (2009b) The Gambia: Poverty Reduction Strategy Paper
— Annual Progress Report, IMF Country Report No. 09/75, pp.1-134, International
Monetary Fund, Washington, Feb 2009, available on IMF Website http://www.imf.org
under Country/the Gambia.
Son, Hyun H. and Nanak Kakwani (2006) Global estimates of pro-poor growth, IPC Working
Paper series no.31, International Poverty Centre, Brazil.
United Nations, ADB and UNDP (2008) A Future Within Reach, 2008.
United Nations International Poverty Centre (2007) Analyzing and Achieving Pro-poor
Growth, in Poverty in Focus, International Poverty Centre, Brazil, March 2007.
World Bank and the International Monetary Fund (2004) Poverty Reduction Strategy
Papers—Progress in Implementation, pp.1-56, September 20, 2004.
National Planning Commission, Office of the President (2008), PRSP II Annual
Progress Report, January- December 2007, pp.1-132, May 2008.
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Part-II:
Abridged version of a Report prepared on the basis of
Case Studies in 14 selected countries in the Asia and Pacific
Tarun Das, Macroeconomic Adviser
ADB ISPEFG, the Gambia, Banjul.
______________________________________________________________________
This paper is a part of a wider study made by the author as a Consultant for UN-ESCAP1,
Bangkok, Thailand in 2007 on the interrelationships among Millennium Development
Goals (MDG) Reports and strategies, National Development Plans (NDPs) and Poverty
Reduction Strategy Papers (PRSPs) on the basis of case studies in 14 Asian countries viz.
Afghanistan, Bangladesh, Cambodia, China, Laos, Maldives, Mongolia, Myanmar,
Nepal, Pakistan, Papua New Guinea, Samoa, Thailand, Timor Leste.
The reduction of income poverty depends on sustained high economic growth. There is a
general consensus among the poverty experts, policy makers and multilateral funding and
development agencies that a rise in per capita income is a major element in sustainable
poverty reduction. However, similar rates of growth can have very different impact on
poverty depending on the initial levels of income inequalities and different socio-
economic-political environment over time and space (UNDP IPC 2007). A recent
working paper from the UNDP International Poverty Centre, Brazil (H. H. Son and N.
Kakwani 2006) presents regional and global estimates of growth and their pro-poorness
on the basis of cross-country data for 237 growth spells in 80 low-and middle-income
developing countries during 1984-2001. The study indicated that there are large
variations not only in growth rates but also in the impact on poverty.
The study defined growth as pro-poor if poor households increase income proportionately
more than the non-poor (i.e. households above the poverty line). When growth is negative
i.e. in a recession, it is termed as pro-poor if the income decrease for the poor is
proportionately less than that for non-poor households. The study indicated that of all the
237 growth spells under observation, 44.7 percent witnessed negative growth rates. In the
remaining 55.3 percent growth spells with positive growth rates, growth was pro-poor
only in 23.2 percent cases. Out of all the growth spells (including negative growth rates),
majority of the cases (accounting for 55.5 percent of total) were anti-poor (Table 1.1).
The study suggests that global growth processes have generally not been pro-poor.
1
Das, Tarun (2007) Inter-linkages between UN-MDGs, Poverty Reduction Growth Strategy and
National Development Plans - Selected Country Experiences from ESCAP, Part-1, Main Report, pp.1-84,
Part-2, Annexes, pp.1-78, ESCAP, United Nations, Bangkok, Oct 2007. Report was presented by the
author at the Regional MDG Workshop at Bangkok on 15-18 Oct 2007, and main conclusions of the
study published in a joint ADB-ESCAP-UNDP Report entitled “A Future Within Reach”, 2008.
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Table 1.1 Country grouping by pro-poor and anti-poor growth rates
Country Groupings Positive growth Negative growth
East Europe and Central 12.3 21.1 33.3 21.1 45.6 66.7
Asia
Latin America and 30.4 29.1 59.5 24.1 16.5 40.5
Caribbean
Middle East and North 35.7 14.3 50.0 28.6 21.4 50.0
Africa
Sub-Saharan Africa 20.0 34.3 54.3 31.4 14.3 45.7
Above observations also hold good for Sub-Saharan Africa. Table 1.1 shows that in Sub-
Saharan Africa, growth rates were positive in 54.3 percent of the spells, but only 20
percent of the spells witnessed both positive and pro poor growth. However, during
recession, majority of the spells were pro-poor indicating the respective
governments adopted adequate safety nets for the poor during the periods of
economic crisis.
There seems to be a broad consensus among analysts and policy makers that higher
growth is a necessary condition but not sufficient for poverty reduction. It needs to
be accompanied by pro-poor policies and strategies. But there is no consensus about how
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to define and measure pro-poor growth. The International Poverty centre (IPC) at Brazil
initiated a debate on this issue among researchers in 2004-05 in a series of One-Pagers,
summarized in Number-6: Pro-poor growth; finding the Holy Grail. The March 2007
Issue of the IPC’s Journal “Poverty in Focus” carries this debate further and concludes
that “much more pro-poor growth, whatever be the definition, is needed in most
This section analyses the stylized policies and programs advocated in both MDG Reports
and PRS Papers. It is observed that the attainment of stable and broad-based economic
growth, which is more inclusive and participatory, is a pre-requisite for sustainable
reduction of poverty and unemployment.
Both the MDG reports and the Poverty Reduction Strategy Papers (PRSP) deal with
policies, programs and strategies to achieve MDG targets. Although the PRSP has a focus
on poverty reduction, it also deals with other goals such as education, health, gender
equality, environmental sustainability and global partnership for development. The
reports emphasize that the attainment of broad-based economic growth, which is more
inclusive, participatory, and stable over time, is pre-requisite for sustainable reduction of
poverty and unemployment. It is observed from country case studies that all the countries
have initiated a wide range of policies, reforms and programs to enhance efficiency,
productivity and international competitiveness and to impart dynamism to the overall
growth process with a focus on faster reduction of poverty, hunger, illiteracy and ill
health. These policies and program can be grouped under nine broad heads as below:
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These broad policies are listed in details in Table-2.1. It may be emphasized at this stage
that all these polices and programs are interrelated and provide a package of reforms and
policies that need to be undertaken collectively by a country, although at varying degrees
of coverage, scope and intensity depending on its size, level of development and socio-
political environment, for attaining sustained growth with poverty reduction. Broad-based
growth and overall human development will lead to attainment of other millennium
development goals regarding universal education, gender equality, good health, sustained
environment and global partnership for development. It is neither possible nor
advisable to identify a single policy or program which will satisfy all the
development goals or which will hold good equally for all countries at all times. Age-
old Tinbergen (1964) theory on planning techniques also states that a planner needs at
least the same number of policies as the number of objectives he is entrusted with.
Table-2.1: Common policies and programs under MDG Reports and PRSP
Broad Heads Detailed strategies, policies and programs
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4. Development of efficient 4.1 Infrastructure development – Power,
physical infrastructure and skilled transport, telecommunications, water and
human capital sanitation
4.2 Social sectors development- education and
health
4.3 Forestry p policy
5. Conflict resolution, social 5.1 Community participation
development and environment 5.2 Control of pollution and environmental
protection hazards
5.3 Economic and social security measures
5.4 Mainstreaming women and the excluded
groups through reservation in parliament
6. Direct poverty alleviation 6.1 Targeted employment generation
programs for the target groups programs
6.2 Food for works programs, public works
programs for local communities
6.3 Housing programs for the poor
7. Improving legal and institutional 7.1 Good governance and strengthening
set up institutional set up
7.2 Civil service and administrative reforms
7.3 Decentralization and local governance
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2.2 Rationale for a package of policies and programs for poverty reduction
The poor persons are caught by forces at the individual, local, national, and global levels
that combine to form a four-tiered poverty trap. At the individual level, factors include
skewed distribution of land and other assets, various demographic factors leading to
physical weakness and higher probability of disease and high fertility rate. At the local
level, poor faces greedy moneylenders and false promises by self-interested politicians,
and has relatively lower power to fight against corrupt institutions. These are reinforced
at the national level by various policies ranging from tax laws to the sanction of
commercial credits that are generally pro-rich or anti-poor. At the global level, the poor
are held down by a mix of factors such as oppressive debt burdens, high interest rates,
tied grants, falling export prices, and rising capital flight.
At the individual level, there are four factors that lead to poverty trap. The first
individual factor is the lack of productive assets. The poor are poor not only because they
earn less but also because they own less.
The second individual factor leading to poverty trap relates to physical weakness and
illness due to lack of nourishment, clean water, basic medical care, and adequate housing
space and sanitary services. Physical weakness often combines with low income to form
a vicious circle of poverty and ill health.
High fertility rates form the third part of the individual poverty trap. The poor families
have larger size, larger proportion of children, irregular sources of livelihood, low
productive jobs, high risk and insecure shelter and limited accessibility to basic services.
Rapid population growth and lack of sufficient employment opportunities force wages
down to the survival level, as the poor compete with each other for limited jobs.
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The fourth individual factor combines a host of other demographic factors. The culture of
poverty theorists argue that poverty breeds poverty and a poor family has a high
probability of staying poor as these families are associated with high risks of ill health,
high fertility rates, inadequate education and training and lack of dynamism. With the
progress of urbanization and rapid growth of services sectors, traditional joint families,
which provided limited but efficient mutual support networks within a family,
progressively broke down into micro families, which are economically less viable.
At the local level, majority of the poor people live in rural areas. A poor family is
associated with extreme vulnerability to unforeseen expenses due to natural calamities,
crop failures, fires, illness, funerals, and the costs of legal battles and bribes. To meet
these expenses a poor family very often borrows at usurious rates from greedy
moneylenders, piling debt on deprivation, or sell or mortgage at low rates whatever assets
they have such as land, livestock, family silver, house, tools, even their future labour.
Another factor leading to the local poverty trap is powerlessness of the poor. Ignorant of
the law and without adequate resources to hire legal advice, the poor household is an easy
victim of exploitation by moneylenders, merchants, landlords, petty officials and police.
Aware of the power of the richer rural and urban people and their alliances with the
bureaucrats and politicians, the poor household avoids any activity, which might
endanger their employment, tenancy, loans or protection. There is a saying by the
peasants in province of West Bengal in India that “Fishes can’t afford to live on bad
terms with the crocodiles in the pool.”
At the national level, poverty trap arises due to pro-elite or anti-poor public policies.
Public credit schemes for agriculture generally flow to the privileged rural groups or the
so-called kulaks. Education budgets are similarly tilted towards the rich. University and
higher education is an excellent investment for any nation, but the poor need primary and
secondary education first. In health care, the same pattern emerges. Subsidized urban
hospitals take the lion’s share of public health budgets, but help those who least need
public assistance. Community-based health centres and rural clinics, which form the
backbone of a health care system and cater to the poor, are generally under funded.
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2.4 Poverty and the Environment
Most of the world’s environmental threats, from ground-water contamination to air and
noise pollution and climate change, are byproducts of affluence. But poverty also leads to
ecological deterioration when people overexploit their resource base. The prevailing
conditions of poverty and unemployment force the poor people to live in slums and
squatter settlements without basic services and further degrade their environment. Rural
sector also faces the emerging environment problems. The pressure of land is exacerbated
by farmers’ needs to gather fuel wood and graze their livestock. Farmers burn animal
dung and agricultural waste instead of using these resources for soil enrichment. Poor
people use forest resources as fuel wood leading to deforestation, which cause droughts.
The short-term needs force landless families to put forestland and mountain slopes on
cultivation. Environmental degradation, in turn, perpetuates economic deprivation, as
degraded ecosystems result in diminishing yields to their poor inhabitants and further
impoverishment of the population. A self-enforcing downward spiral of economic
deprivation and ecological degradation takes place. Pushed to the brink of starvation,
evicted from familiar lands and ancestral homes, or deprived of alternatives by misguided
laws, they lack access to sufficient quantities of food, land, water or capital to provide
them with a sustainable livelihood.
Macro adjustment policies are broadly divided into two groups- stabilization policies and
structural reforms. While stabilization policies aim at reducing macro economic
imbalances by attacking demand, structural adjustment policies aim at increasing supply
and improving productivity and growth by imparting competitiveness, efficiency and
dynamism to the system. These encompass the following specific measures:
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3.2 Reorientation of public policies
Almost all the countries of the world now are going through a phase of extensive market
reforms with an emphasis on the so-called LPG (viz. liberalization, privatisation and
globalization). There is a re-orientation of public policies and a change of the role of the
government from a controller to an enabler, from a supplier to a facilitator, from an
operator to a policy maker, and from a regulator to a trustee of social equity and
environmental sustainability. At present the basic job of the government is to create
enabling environment for public-private partnership, to link fiscal, monetary and other
incentives to productivity, to streamline public investment and social welfare programs,
to repair market failures, and to strengthen institutional structures and legal system. There
is emphasis on greater decentralization in implementation, transparency in policy making,
and consultations with stakeholders for greater public participation in development.
Two basic trends are affecting governance in most of the Asian countries. The first
trend is decentralization i.e. increased administrative, political and fiscal power is
being transferred to the sub-national governments for implementation of programs,
particularly relating to social sectors. This means that the basic job of the national
government is to formulate policies and programs, monitor performance and
implementation, build institutional capacity, facilitate change and enforce standards and
quality. On the other hand, more powers and resources are being devolved to the sub-
national governments.
There is a distinct change in the mindset of bureaucrats and the realization of a need for
greater co-ordination, co-operation and partnership with private economic agents for
development. It is now recognized that both well-governed state and well functioning
markets are essential for high growth and sustainability, and Government and free
markets should supplement and complement each other. Government should withdraw
from sectors where private participation would be more productive and more efficient,
and still the scope of government should remain large in development of social sectors
and physical infrastructure.
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poor as their incomes are not indexed to prices, and thus contributes directly to higher
poverty rates. However, sound macro-economic polices have only limited capacity to
alleviate poverty directly as the trickle down effects of high growth may be uneven and
time consuming. These policies should be directed at promoting growth through prudent
implementation of macro-economic goals, and eschewing direct interventions for
protecting the interests of the poor and for developing target groups of industries with
employment potential and comparative advantage.
Studies done by Dutt and Ravallion (1997), Ravallion and Dutt (1996) and the World
Bank (1998, 1999, 2000, and 2002) on the interrelations between poverty reduction and
macro stabilization policies made the following observations:
(d) Services sectors are the fastest growing sectors in a developing economy and
account for more than sixty per cent of GDP. These sectors have in general higher
employment elasticities. Their growth, therefore, helps in poverty reduction.
(f) A reduction of fiscal deficit helps in poverty reduction, as it does not lead to
crowing out of private investment.
The relations of poverty with other variables lead to the following policy prescriptions:
(1) Higher growth rate of income than that of population is essential for poverty
reduction as it provides extra income for distribution among the poor without
affecting adversely the well being and savings of the relatively richer households.
(2) While growth in per capita income is a necessary condition for poverty reduction, it
is by no means sufficient. It is important to create an enabling environment for the
poor so that they can participate in, and benefit from the growth process. The pro-
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poor public policies include creation of employment opportunities and enhancing
the level of health, education and skill of the poor.
(3) A stable macroeconomic environment, along with low inflation and sustainable
fiscal deficit, makes it possible for the poor to safeguard their purchasing power in
years of natural calamities or adverse business and trade cycles.
(4) The reduction of government deficit allows commercial and development banks to
provide more funds for private investment, which is more productive and more
efficient. It also allows the government to devote more scarce resources to
investment in social sectors.
In many countries, various fiscal incentives and direct subsidies are provided for
development of health, education, sanitation, water supply and other social services.
Government also provides fiscal incentives such as tax holidays, deferment of taxes and
duties, concessional supply of land, power and other basic inputs to the industry. In many
cases, the benefit has been marginal either because they are not available to small and
medium industries or they are more accessible to larger industries. Moreover, tax
holidays have been less effective in the regional dispersal of industries, as industries tend
to be located near the main demand centres or regions with better infrastructure facilities.
Instead of providing tax breaks for industries, it may be more productive to develop basic
infrastructure facilities in backward areas through increased allocation of public funds.
A reform of government policies should redirect the focus from the microeconomic level
of the firm to the macroeconomic level of business and the economic environment.
Instead of focusing on the different concessions to be provided, greater emphasis should
be placed on creating an enabling environment for long-term development of industries
and services. This may entail the dismantling of costly incentives and subsidies that
encourage inefficiency and waste in firms, increasing the availability of essential inputs
and bank credits for small and medium industries, and introducing a wide array of
marketing options and possibilities.
All the developing countries are trying to attract foreign direct investment (FDI) and
portfolio investment. FDI acts an engine of growth and embodies a package of important
sources of capital, technology, and managerial, marketing and technical skills. The
presence of multinationals promotes greater efficiency and dynamism in the domestic
economy. The training gained by workers and local managers and their exposure to
modern organizational system and methods are valuable assets.
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The diversity of experiences in Asian economies with respect of FDI requires different
policy approaches on the part of host countries. Those countries that have only recently
been open to FDI need to ensure that the “open door policy” is maintained and remains
stable. They should examine the possibility of a further 17liberalization of FDI regimes;
the harmonization of FDI and related policies on industry, trade and technology; and
improving the efficiency of their administrative set-up for investment approvals. In doing
so, all countries in the region should pay particular attention to the firms from
neighbouring countries, so as to capitalize the growing intra-regional investment. Special
attention needs to be given to small and medium-sized enterprises whose special needs –
dictated by their limited financial and managerial resources and insufficient information –
may call for incentives for the joint ventures. The Asian market has high potentials for
small and medium-sized TNCs.
There is a need for developing innovative financing measures for the poor such as setting
up of venture capital funds, leasing and hiring companies, mortgage finance companies,
factoring companies, trade credit suppliers and micro finance.
Micro Finance
There are a number of reasons why MFIs are likely to bring benefits to the poor. MFIs
enjoy better local knowledge and proximity, which is an important advantage because the
majority of poor households live in vast rural areas that are underserved by the
commercial banks. Furthermore, the semi-formal and informal MFIs complement the
formal financial system by providing financial services to those who have limited access
to the formal financial system.
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3.7 Sectoral Policies
But, SMEs face a number of problems and constraints, such as outdated technology and
low productivity, lack of skill of labour and management, infrastructure constraints, low
economies of scale, lack of modern marketing, high cost of domestic credit and lack of
foreign investment, and increased competition due to removal of quantitative restrictions
and reduction of customs duties. A wide range of opportunities can be seized by small-
scale and labour-intensive industries for additional employment and poverty alleviation if
suitable government policies are taken to remove these constraints.
Rationale for promoting agro and resource based SMEs lies in their valuable
contributions to employment generation and poverty alleviation. These enterprises
contribute significantly to poverty alleviation and promote economic and social justice by
employing a significant portion of the poor and low skill work force, which may
otherwise remain unemployed or under employed. Higher employment in rural areas
helps in reduction of inequalities, development of backward areas and balanced regional
growth and development.
The poor persons cannot participate in the growth process for reasons of extreme
deprivation or vulnerability combined with poverty or face continuing exposure to risks
of ill health and malnutrition, which may jeopardize their ability to participate in the
opportunities offered by growth. Employment generated by the SMEs provides effective
safety nets that insure rural poor against the income fluctuations.
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and domestic services to manufacturing, transport and construction. The social groups
include artisans and craftsmen, hawkers, fruits and vegetable vendors, women, and daily
laborers for construction and other services. Employment or ownership of micro
enterprise provides the poor with a source of empowerment and income security and
enables them to participate actively in rural and overall economic development.
Locations of agro-based SMEs in rural areas help to distribute the benefits of economic
growth broadly among the rural poor. They also improve value addition and productivity
of rural industries through wider distribution networks and greater access to both internal
and external markets. A dynamic SMEs sector serves not only to create employment but
also to earn foreign exchange through exports, upgrade the quality of the labour force and
diffuse technological know-how throughout the economy. These industries help to
mobilize domestic resources by utilizing the savings, labour and agricultural raw
materials that otherwise remain idle. They serve the low-income consumer markets and
produce a wide variety of goods that also include sophisticated products for export.
The location of small and medium industries in rural areas creates livelihood
opportunities that help to stop migration to urban centres. They provide a training ground
for the small-scale entrepreneurs and business management personnel, who may later join
larger undertakings.
The role of financial markets as an instrument to promote SMEs and to alleviate poverty
is generally focused on supplying credit facilities. However, credit is only one of the
financial services that the poor need. Access to bank accounts or savings facilities in the
rural areas is equally important. For example, people who extract their income primarily
from agriculture must build up financial assets following harvests to sustain themselves
for the rest of the year. Even the poorest households are eager to save if they can obtain
positive real interest rates and there are conveniently located deposit collecting facilities.
This point has been confirmed by the experience in Bangladesh and Indonesia.
Integration of SMEs into global market offers the potential for more rapid growth and
poverty reduction. Increased market access for agricultural products would work to
directly address poverty reduction in developing countries. While the rapid expansion of
demand for unskilled labour in manufacturing and urban services in many developing
countries has sharply reduced rural poverty, about three-quarters of the world’s poor still
live in rural areas, where agriculture is often the dominant economic activity (Das
2003a). Agriculture accounts for about 27 per cent of GDP in developing countries, a
similar share of exports and 50 per cent of employment. This dependency on agriculture
is even higher in LDCs. But agricultural markets are among the most heavily distorted
and attract tariffs several times higher than those facing manufactured imports.
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Historically, textiles and clothing (T&C) have played a unique role in economic
development and poverty reduction. Their contribution to the Industrial Revolution in
Western Europe and North America in the 18th and 19th centuries is well known, and they
continued to spearhead industrialization in many developing countries in the 20th century.
Since textile and clothing production often requires only simple technology and is
intensive in unskilled labour, many developing countries have a strong comparative
advantage in these sectors. In the mid-1960s, developing countries accounted for 15 per
cent of world textile exports and less than 25 per cent of world clothing exports. By 1998,
these shares had reached 50 per cent and 70 per cent, respectively. However, the sector
has also long been a prime target for protectionism.
Despite these positive aspects, SMEs are criticized for their inability to realize economies
of scale in procurement and production, and to have higher costs of production. In many
countries, SMEs exist on the strength of costly government support programs in terms of
several fiscal, monetary and other concessions.
Various empirical studies by Ahluwalia (1990), Chakravarty (1990) and the World Bank
(2000 and 2003) concluded that higher economic growth, with a focus on pro-poor
economic policies, is a key driver of poverty reduction. A research study by Ghura, Leite
and Tsangarides (2003) also observed that some public policies are “super pro poor” i.e.
they appear to directly influence the incomes of the poor. On the basis of cross-country
econometric relations, they concluded the following:
(i) Countries with higher income shares of the poor are characterized by higher
macroeconomic stability, lower income inequality, higher literacy, more democratic
institutions, better governance, better internal environment, more open trade
regimes and higher levels of financial development than those in other countries.
(ii) Economic growth is an important factor in raising the incomes of the poor.
(iii) Certain public policies have direct impact on the incomes of the poor, even after
taking into the effect of growth. These include policies that lower inflation, shrink
the size of the government, promote financial deepening, and raise the educational
level. The policies are considered “super pro- poor” because they raise the incomes
of the poor directly, as well as indirectly through economic growth. The direct and
indirect effects are mutually reinforcing, and there is thus no trade-off between
growth promotion and poverty alleviation.
(iv) The poor are significantly vulnerable to adverse movements in the terms of trade
and acceleration of inflation rates as their incomes are not indexed to prices.
(v) A number of variables, such as trade openness, investment rate, the extent of
democracy, life expectancy, and civil wars that are generally shown to affect
economic growth do not directly influence the incomes of the poor.
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Most of the Asian economies have introduced several employment generation and
poverty alleviation programs over the years. The ongoing economic reforms have also a
human face and are trying to strengthen the anti-poverty programs and to provide safety
nets to the vulnerable sections that might be adversely affected by structural changes. In
the past, public expenditures for poverty alleviation in the form of subsidies and price
controls tended to be captured mostly by the better off and funded by the fiscal deficits.
These policies may have harmed the poor through the adverse effects of inflation. More
recently, progress in poverty reduction has been attributed to policies that enabled more
rapid economic growth than in the past by shifting public expenditure away from industry
towards development of physical infrastructure and human capital and other social
concerns, and by improving targeting of poverty reduction programs through changes in
the public distribution system and involvement of civil societies and NGOs for
formulation, implementation and monitoring of poverty alleviation programs.
Power, water, industrial estates, roads, telecommunications and a clean environment are
some of the more critical aspects of infrastructure for doing business. Production and
commerce are heavily dependent on these inputs. Development of proper legal and
institutional set up and efficient infrastructure are, therefore, essential for inducing
industrial development, employment generation and overall economic growth.
In open and developed economies, such as Singapore and Hong Kong, only minimal
investment laws and regulations exist and administrative costs are negligible. Most of the
developing countries face infrastructure constraints. The experiences of China, Indonesia,
Malaysia, Taiwan and Thailand suggest that the faster an economy is reformed and
infrastructure is built, the greater would be the participation of private investment
including foreign investment. Regulations need to be made simpler and more transparent,
and their administration may be made more efficient.
The World Wide Web is changing the face of the market place. Information is being
described as the fifth factor of production in addition to land, labour, capital and
entrepreneurship. Databases on market related and financing related information need to
be identified and made accessible in a user-friendly manner. Government must provide
more information related to poverty reduction, health, education and other social services
through the Net.
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3.9.2 Human Resource Development
Along with efficient physical infrastructure, skill labour is a critical factor for enhancing
productivity and efficiency of the more dynamic traded goods and services sectors.
Technological and organizational innovations drive foreign investment into those
countries, which have trained and skilled workforce and fairly high educational
standards. This explains the overriding importance of developing countries to invest more
in the development of human resources, infrastructure and services. It also highlights the
risk of the least developed countries (LDCs) of being marginalized due to infrastructure
constraints and lack of skilled labour.
While improving education, special care needs to be taken to ensure gender equality as
research shows that gender inequality in education and employment has a negative
impact on economic growth and notably on poverty reduction (Stephen Klasen 2006).
Gender inequality has much more adverse impacts on growth rates than on overall
income inequality.
Another key finding is that women tend to devote a larger share of households resources
to most essential activities of a household (Janet Stotsky 2006). Women are also more
oriented toward productive savings and investments behaviour though they are less likely
to take financial risk. In general, women are less corrupt and their political empowerment
supports a larger role of public insurance. It is, therefore, desirable to formulate country-
specific policies for promoting pro-poor growth through reduction of gender inequality.
It is also necessary to strengthen the regulatory system and the legal and institutional set-
up for orderly growth of industries. As regards the limits and nature of government
intervention in private sector activities, it is necessary to devise optimal rules for
regulatory system, which while servicing its legitimate purpose will not transcend its
limits to the disadvantage of the private sector development. First, any policy affecting
allocation of resources and regulation of private sector needs to be transparent and based
on a specified set of procedures. Second, even when there is strong presumption in favor
of government intervention, it is imperative to limit it to minimum necessary scale.
Third, from amongst the available alternative regulatory sets, it is necessary to go in for
one, which provides the least scope for rent seeking.
Along with deregulation, more important measures are needed to be directed towards
creating a legal and institutional infrastructure for the smooth functioning of the private
22
sector. This is well illustrated by the Indonesian experience. Though Indonesia’s
industrial policy, trade and financial sector reforms were deep and sweeping, they failed
to get a full pay-off as Indonesia lagged in changing its corporate law and other laws vital
to trade and industry. Similar was the case with issues of land and property rights.
An important lesson from the East Asian development experience is that a holistic
approach to deregulation is more productive than a partial deregulation in any one sphere
say in industrial policy which is divorced from any reform in other areas. Domestic
deregulation should proceed pari pasu with 23liberalization of trade and tariffs in order to
ensure optimal allocation of resources between traded and no-traded goods.
Regional economic cooperation promotes technology and capital transfer and helps to
accelerate growth of trade and industry. The successful use of strategic trade, industrial
and macro-economic policies in South East Asia led to a pattern of regional division of
labour, described as the “flying geese” model. As the leading economies in the region
successfully shifted from resource-based and labour-intensive industries to sophisticated
manufacturing activities, they provided space for the less developed countries to enter
simpler manufacturing stages. Regional trade and investment flows played a central role
in this process by helping to create markets and by the transfer of skills and technology to
neighbouring countries. The challenge now lies in the extension of this regional dynamics
and the growth pattern to include newly emerging countries such as China and India, as
well as other less developed countries in South and East Asia (Das 2002).
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also appropriate regional arrangements to ensure the stability of financial markets,
including lending facilities and agreement on a sustainable pattern of exchange rates.
For stronger regional integration in South Asia as well as East and Southeast Asia, many
countries are starting to coordinate and harmonize policies for tariffs, taxation,
investment and business regulations. But the most productive impetus to regional
integration would come from removing the restrictions on movements of goods, capital,
and people and improving the transport and communications connectivity among the
countries, particularly among the neighbors. Regional integration is also likely to get a
boost from strengthening the regional growth centres in South Asia and Southeast Asia.
These could produce important pull effects on growth throughout the continent. They
would help promote FDI by enlarging markets. But regional integration should not be a
substitute for globalisation, but should be a means to strengthen it.
The international organizations like the World Bank, IFC, IMF, Asian Development
Bank, UNDP, UNICEF, UNIDO and UNCTAD are engaged in the provision of technical
assistance, consultancy and advisory services with regard to the development of the
private sector, infrastructure and human resource development, and promotion of non-
debt-creating financial flows. The regional organizations can spur institutional progress
by providing forum for high-level discussions on Asian solutions to Asian problems and
by providing a framework for collective policy actions for poverty reduction,
development of technology and higher education, environment sustainability, and control
of HIV/ AIDS and other communicable diseases.
Donors of foreign aid expect it to boost investment and aggregate demand by transferring
real resources to recipient countries. Furthermore, attaining the Millennium Development
Goals (MDGs) calls for substantial increases in aid in order to strengthen domestic
investment and expenditures on development of infrastructure and social sectors. Yet, the
IMF has been encouraging some of the poorest countries, particularly in Sub Saharan
Africa (SSA) to adopt restrictive policies that prevent the transfer of real resources from
abroad, including capital imports. A recent report by the Independent Evaluation Office
of the IMF, entitled The IMF and Aid to Sub-Saharan Africa, 2007, found that SSA
countries with an IMF Poverty Reduction and Growth Facility (PRGF) spent an average
of only 28 per cent of aid flows during 1999-2005. This report also sates that only 63 per
cent of aid flows to Sub-Saharan Africa were ‘absorbed’ during 1999-2005. The
remaining 37 per cent were used to stockpile reserves (Lapavitsas 2007).
This implies that not only the italicization of committed ODA is low but
also the aid receiving country does not have the adequate absorptive
capacity. This is due to various restrictions on utilization of aid. There
is need to Liberalise some of these policies by the donor countries and
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allowing aid to be utilized even for operational expenditure related to
the achievement of MDG targets.
Both the MDG reports and PRSP put emphasis on the need for an
effective, efficient and coordinated policies and programs at the
country level. They fully support national priorities and development
needs as indicated in the national plans. There is also emphasis on
analysis, reporting and monitoring poverty, hunger and other
development indicators over time, integration of the goals into national
development plans or poverty reduction strategies, and
implementation and operational activities.
It may be mentioned here that recently in a study for the International Poverty Centre;
Mwangi S. Kimenyi has proposed 10 Commandments of pro-poor growth. The basic
notion is that the policies must be designated to stimulate growth in those sectors and
areas in which the poor people earn their livelihood.
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(vi) Target those groups that operate outside the markets;
(vii) Include a food security policy;
(viii) Include policy initiatives that protect vulnerable populations from shocks;
(ix) Include policies that support accumulation of tradable assets by the poor; and
(x) Improve institutions that empower the poor with increased diffusion of power.
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Selected References
Ahluwalia, Montek Singh (1990) Policies for poverty alleviation, Asian Development Review,
Vol.8, No.1, pp.111-132, Asian Development Bank, Manila.
Besley, Timothy and Louise J. Cord (2006) Delivering on the Promise of Pro-poor Growth,
Palgrave, New York.
Bouché, Nathalie, Carl Riskin, Li Shantong, Ashwani Saith, Wu Guobao and Wang
Huijiong (2006) Macroeconomics of Poverty Reduction- The Case Study in China, pp.1-150,
United Nations Development Programme, New York, 2006.
Chakravarty, S. (1990) Development strategies for growth with equity: The South Asian
experience, Asian Development Review, 8(1), pp.133-159, Asian Development Bank, Manila.
Das, Tarun (2003a) Role of Agro-based and Resource-Based Industries for Export Promotion
and Poverty Alleviation in ESCAP countries, pp.1-126, ESCAP, UN, Bangkok, January 2003.
Das, Tarun (2003b) Economic Reforms in India- Rationale, Scope, Progress and Unfinished
Agenda, pp.1-80, Bank of Maharashtra, Pune, February 2003.
International Monetary Fund (IMF) (2003) Aligning the PRGF and the PRSP Approach:
Issues and Options, Washington D. C., April 25, 2003.
IMF, Independent Evaluation office (2004), Evaluation Report on PRSPs and the PRGF,
Washington D.C., July 7, 2004.
Khan, A. R. (2007) Asian experience on Growth, Employment and Poverty, An overview with
special reference to the findings of some recent country studies, International Labor Office (ILO).
Son, Hyun H. and Nanak Kakwani (2006) Global estimates of pro-poor growth, IPC Working
Paper series no.31, International Poverty Centre, Brazil.
United Nations, ADB and UNDP (2008) A Future Within Reach, 2008.
United Nations International Poverty Centre (2007) Analyzing and Achieving Pro-poor
Growth, in Poverty in Focus, International Poverty Centre, Brazil, March 2007.
World Bank and the International Monetary Fund (2004) Poverty Reduction Strategy
Papers—Progress in Implementation, pp.1-56, September 20, 2004.
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