Pro-Poor Fiscal Policy, Widening Fiscal Space and Medium-Term Budgeting RATHIN ROY

Definitions of Fiscal Space IMF: “room in a government´s budget that allows it to provide resources for a desired purpose without jeopardizing the sustainability of its financial position or the stability of the economy (Heller, 2005)” UNDP: “concrete policy actions for enhancing domestic resource mobilization, and the reforms necessary to secure the enabling governance, institutional and economic environment for these policy actions to be effective (Roy and Heuty, 2005).”

Fiscal frameowrks: Conceptual differences PRSP: Incremental Macroeconomic stability Short term envelope Focus on efficiency gains for revenue collection and spending Sector based budget allocations  MDG Based NDS:  Transformational Focus on MDG resource needs Long term envelope Focus on equity and distributional issues Target based budget allocations – intersectoral budgeting

FISCAL FRAMEWORKS: POLICY FOCUS PRSP: Reprioritizing expenditure Boosting efficiency. Raising revenue debt “sustainability” determines resource envelope Monetary expansion: “Not a solution” MDG-based NDS.  Expansionary fiscal policy Assesssing savings realization failure Minimizing burden of taxation on the poor Domestic borrowing sustainability based on MDG results assessed long-term. Enabling monetary policy

Fiscal Space Scope exists to enhance the “fiscal space” available to governments to improve domestic resource mobilization Challenge: identify and design modes of resource mobilization that are pro-poor in nature  Net incidence of incremental domestic resource mobilization on disposable income of poor minimized  Fresh look at domestic borrowing and extant notions of fiscal “sustainability”

PRO-POOR DOMESTIC RESOURCE MOBILIZATION: LONG TERM SUSTAINABILITY Is the achievement of the MDGs at the country level both a necessary and a sufficient condition for sustainable growth and human development?  Will Big Push mean Liberia is not an LDC by 2015? If not, why not? ODA- growth link is tenuous and uncertain unless the capital accumulation process underlying the “big push” is specified and embeds the necessary conditions for long term sustainable growth. Need to understand MDGs strategy as a process of generating sustainable regimes of accumulation

Key issues Under which circumstances are ODA inflows likely to favor the development of country regimes of accumulation? No conclusive evidence of a negative relationship between aid and domestic resource mobilization Though the development of regimes of accumulation is country-specific, aid harmonization and capacity building are critical factors for ensuring long term sustainable growth