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Many Countries Fall Short

Written by: International Monetary Fund

Article Overview: There is substantial scope to make budgets more growth oriented.

Many Countries Fall Short

There is substantial scope to make budgets more growth oriented. Significant
budget imbalances remain in many low-income countries, which
have an average central government deficit and debt of 4!/2 percent and
83 percent of GDP, respectively (Table 1). Just under one-fifth of these
countries have deficits above 7!/2 percent of GDP and about one-third have
debt exceeding 100 percent of GDP. Given the positive relationship between
fiscal sustainability and growth, many countries could promote economic
growth by embarking on fiscal consolidation.
Low levels of social spending—and lags in social indicators relative to
other countries—also indicate that there is room to reallocate public outlays to pro-growth spending. For example, public health spending in the poorest
countries is only US$40 per person (in purchasing power parity terms); as a
share of GDP, low-income countries spend only about one-third of the Organization
for Economic Cooperation and Development (OECD) average
(Table 2). This low level of spending is partly reflected in these countries’
health indicators; for instance, average life expectancy is only 55 years,
compared with 78 in OECD countries. Spending for education is somewhat
more generous in low-income countries (Table 3); nevertheless, low literacy
rates (63 percent) indicate significant room for upgrading the human capital
and productivity of the workforce. Also, recent estimates of subsidies in
non-OECD countries for the exploitation of natural resources and the energy
and industry sectors suggest that during 1994–98, the cost of environmentally
harmful subsidies amounted to US$340 billion per annum, or
6.3 percent of GDP (Table 4), which was roughly equivalent to total public
spending on education and health. Thus, there may be room to further reorient
expenditure toward more productive areas.31

Improving the efficiency and targeting of social spending are also essential
for promoting growth. Higher spending will only contribute to better health
and education outcomes if it is efficient and well targeted—an issue we turn
to in the section on “Fiscal Policy, Human Development, and the MDGs.”

Fiscal Dimensions of Sustainable Development
Prepared for
World Summit on Sustainable Development
Johannesburg, August 26–September 4, 2002

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Article Tags: average life expectancy, development oecd, economic cooperation, exploitation of natural resources, fiscal consolidation, gdp table, government deficit, health indicators, industry sectors, literacy rates, low income countries, oecd countries, organization for economic cooperation and development, outlays, poorest countries, productive areas, public spending, purchasing power parity, social indicators, substantial scope



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