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Mr. Kevin J Carey, Mr. Sanjeev Gupta, and Ms. Catherine A Pattillo

rise with growth, thereby contributing to poverty reduction. At the same time, the extent of poverty reduction in a country would depend on the initial income distribution, making the measurement of inequality an important indicator for evaluating the country’s prospects of reaching the income poverty MDG. Recent evidence of different rates of poverty reduction and rising inequality in sub-Saharan Africa points to the continued relevance of the growth-poverty-inequality nexus ( Iradian, 2005 ). Increasing inequality is of particular concern when it undercuts the

International Monetary Fund. External Relations Dept.

sub-Saharan Africa alone, 2 million people will die of AIDS this year, and 115 million children in developing countries are not in school.” The good news is that global prospects for achieving the first MDG—halving income poverty between 1990 and 2015—are promising. Due largely to rapid progress in China and India, East Asia has already achieved the income poverty MDG, and South Asia is on target. A particularly striking example is Vietnam, a low-income country that reduced the incidence of poverty from 51 percent in 1990 to 14 percent in 2002. Most other

International Monetary Fund

Poverty Reduction Program–SDPRP) presents sectoral targets and spending programs, that are considered to be consistent with achieving the income poverty MDG, while also making progress towards achieving the other MDGs. 3 These programs, however, reveal a significant gap between available resources and those required for achieving these objectives. For instance, the estimated costs of fully implementing the SDPRP during 2002/03-2004/05 (including the cost of the Food Security Program), are 138 percent of 2002/03 GDP, while the government’s proposed medium

International Monetary Fund

continue to be large and rising (about 15 percent of GDP). A third approach is to target a specific growth rate if achieving the income poverty MDG is unrealistic with present resources and policies, which is not the case in Mozambique. 3 3. The objective of this paper is to assess the macroeconomic challenges of managing scaled-up foreign aid in Mozambique . The paper is organized as follows: section B analyses the past impact of aid in Mozambique; section C presents illustrative scaling-up scenarios geared to identifying macroeconomic policy tradeoffs and

Mr. Andrew Berg and Zia Qureshi

countries averaged 6.7 percent—the highest level in three decades. In sub-Saharan Africa, where real income per capita currently is lower than it was in the mid-1970s, there have also been improvements. Twelve countries in the region—including Ghana, Mali, Mozambique, Tanzania, and Uganda—are experiencing growth accelerations of the kind more commonly associated with other regions, with annual GDP growth averaging more than 5.5 percent since the mid-1990s. Still, achieving the income poverty MDG in sub-Saharan Africa would require a doubling of the region’s average GDP

Yongzheng Yang, Mr. Robert Powell, and Mr. Sanjeev Gupta

growth rate in an environment of scaling up. Target growth rates are given with a view to achieving the income-poverty MDG; higher external resources are assumed to be available; and the analysis suggests the kind of improvements in productivity and/or other policies that might be required to meet the macroeconomic goals for a given increase in aid. 1.5. Estimating Additional Aid and Identifying Appropriate Policies The amount of additional aid and the macroeconomic and sectoral policies required to achieve the MDGs will vary from country to country. To

Mr. Shanaka J Peiris and Mr. Jean A. P. Clément

absorb a higher level of aid and use it efficiently. A full costing of the MDGs has not been undertaken for Mozambique, but the country appears to be well placed to achieve the income poverty MDG (halving the poverty rate by 2015) with present resources and policies. 19 Therefore, we consider the macroeconomic consequences of an arbitrary but moderate and sustained increase of external finance for illustrative purposes. 20 This contrasts with scaling-up scenarios presented for a few other countries (for example, Mattina, 2006 ) based on costing the MDGs and

International Monetary Fund
This Selected Issues paper on the Republic of Mozambique reports key policy and institutional issues in the macroeconomic management of scaled-up aid and in promoting sustainable private-sector led growth. A further moderate scaling-up of foreign aid could continue to be fully spent and focus on productive priority sectors. This would help achieve the Millennium Development Goals while at the same time eliciting a supply response to mitigate potential Dutch-disease effects brought on by an appreciating real exchange rate.
International Monetary Fund
The Poverty Reduction Strategy Paper (PRSP) assesses the main exogenous and endogenous risks affecting the implementation of the strategy, including terms-of-trade shocks and absorptive capacity weaknesses. The medium-term expenditure framework identifies the priorities and needs of the country to meet the Millennium Development Goals. The PRSP provides extensive sensitivity analysis of the impact of the main exogenous risks. The effective channeling of the resources freed from debt relief in favor of growth-enhancing and social development programs constitute a critical challenge for the government.
International Monetary Fund

inequality evolved favorably over the past five years. Deeper analysis would be needed to confirm the sustainability of this trend (roughly 2 percentage points reduction in poverty incidence per year for a 2 points per capita income growth per year). Should this trend continue and the above results be validated, Cameroon will likely meet the key income poverty MDG target of halving the poverty rate by 2015 under the base case scenario assumptions on growth and demographic changes. 13. The staffs welcome the extensive analysis in the PRSP to assess the potential