黑料社区

More expansionary fiscal and monetary policies听are needed to meet the Sustainable Development Goals

This month, the international community will gather at the United Nations in New York to review progress on the implementation of the 17 Sustainable Development Goals (SDGs) that are intended to reduce poverty, hunger and economic inequality and promote development, particularly in developing countries. But only one of the SDGs, #17, says anything about how to finance all the efforts. While SDG 17 calls for more international cooperation and foreign aid, it only suggests that developing countries strengthen domestic resource mobilization (DRM) by improving their tax collection and curtailing illicit financial flows, etc.

While important, this approach neglects much bigger problems with the prevailing set of macroeconomic policies that hamper the ability of developing countries to increase public investment, employment and scale-up the long-term investments in the underlying health and education infrastructure needed to achieve the SDGs. The policy framework used in many developing countries is characterized by an overly restrictive low-inflation target achieved by using high interest rates and backed up by strict inflation targeting regimes at independent central banks.

These prevailing policies place major constraints on the ability of countries to mobilize more domestic resources, thus present a major obstacle to achieving SDG 17. The problematic nature of the policies was underscored in a 2017 joint publication by the听听which called on countries to adopt 鈥渁 more accommodating macroeconomic framework.鈥� This would entail lowering interest rates and allowing governments to use 鈥渉igher budget deficit paths and/or higher levels of inflation without jeopardizing macroeconomic stability鈥� in ways that could enable increased public investment. But doing so would bump up against the prevailing conservative policy orthodoxy as practiced by most central banks and finance ministries around the world and enforced by the International Monetary Fund (IMF) through its loan conditions and policy advice to developing countries.

The IMF insists the policies are needed to first ensure 鈥渕acroeconomic stability鈥� before other goals like the SDGs can be pursued. But there is concern that the IMF鈥檚 definition of macroeconomic stability is too restrictive. While policies have been successful at reducing inflation in developing countries, they tend to suppress aggregate demand and make it difficult for governments to generate higher GDP growth and employment. Most importantly, they undermine the ability of countries to engage in deficit spending needed to significantly increase public investment for long-term development. To achieve and maintain low inflation, the IMF typically advises central banks of developing countries to raise the interest rate at which they lend to other banks to between 15 and 25 percent or higher, which can quickly make any deficit financing by governments unaffordable. The net effect is to constrain governments鈥� ability to increase long-term public investment as a percent of GDP in key听. The deficit reduction policies reduce resources available for long-term capital expenditure and instead often lead to layoffs, hiring freezes and public sector wage caps, which tend to听听the basic functioning of government over time. In other words, today鈥檚 advocates of the SDGs have a 鈥渕onetarism problem鈥�.

The prevailing orthodoxy is monetarism, a school of thought in economics which came to听听with the Reagan/Thatcher revolution of the 1980s and that proposes that the size of the money supply in an economy is the key factor to control for reducing inflation and managing economic cycles. Although their central theory about a link between the money supply and nominal GDP rates was disproven over time, monetarists still influence contemporary policy: primarily, the prioritization of low inflation over other goals and use of high interest rates as the key policy tool to lower inflation.

The ILO, UNICEF and UN Women report called for a 鈥渕ore accommodating macroeconomic framework,鈥� in which more expansionary policy options are considered by developing countries. These听听allowing for higher budget deficit paths and/or permitting higher levels of inflation. While annual inflation rates above 20 percent are certainly a problem, the historical record on the听听shows that countries were able to maintain moderate levels of inflation 鈥� between 10-20 percent 鈥� for long periods without jeopardizing macroeconomic stability. This stands in stark contrast today鈥檚 prevailing monetarist orthodoxy that prioritizes inflation at 5 percent or lower for developing countries.

Monetarist policies have been broadly criticized for slowing potentially higher GDP growth rates and undermining the ability of countries to scale-up long-term investment in public health, education, and infrastructure. Important听听have been issued about how IMF policies 鈥渙verly concerned with macroeconomic stability鈥� may be too austere, lowering economic growth from its optimal level and 鈥溙齪rogress on poverty reduction.鈥�

While the academic literature on the impacts of IMF programs on economic growth is mixed, there is considerable听听that IMF听听is correlated with听听, and negative听听on听听and听(the IMF opposes听). There are also concerns about the disproportionately negative economic听, and how the policies听governments鈥櫶�听to fulfil economic and social听.

But听听the criticisms, the IMF is听听conditioning loans and advising developing countries to adopt overly restrictive fiscal and monetary policies. This situation presents a challenge for advocates of the SDGs who want countries to do more than just increase tax collections.

There is much more that developing country governments could do on DRM. In addition to a 鈥渕ore accommodating macroeconomic framework,鈥� advocates of more progressive approaches to DRM are calling for听听the critical role of听, and in particular,听. Despite the projected trillions of dollars needed to meet the SDGs, there is听听that 鈥渢raditional鈥� public funding sources cannot fill the gap. Central banks, too, have historically played听听roles in policies designed to achieve national development听听that should be听. Others听听the IMF could听听to better support countries鈥� efforts to achieve the SDGs 鈥� but doing so is likely to require political pressure by civil society advocates.

But expanding the tool box will require challenging the dominant orthodoxy on macroeconomic policy and exploring听heterodox听approaches that offer options for increasing public investment. With more expansionary policies, developing countries could increase GDP growth, employment and long-term public investment while improving听. Advocates for the SDGs can start by insisting that the entire range of macroeconomic policy options is fully explored and opened to a broader and more inclusive public debate.

Rick Rowden recently completed his PhD in Economic Studies and Planning from Jawaharlal Nehru University (JNU) in New Delhi.

This essay was first published on the听.听