• Financing the MDGs

Financing the MDGs

An alternative macroeconomic framework oriented towards achieving the Millennium Development Goals (MDGs) in Sub-Saharan Africa is known and feasible. Currently, the effects of neoliberal reforms have been counter-productive with non-intervention leading to increased volatility of nominal exchange rates. A large proportion of foreign exchange flows consist of Official Development Assistant and remittances which tend not to be responsive to exchange-rate movements while IMF conditionalities targeting inflation make exchange-rate management extremely difficult when the price of primary products like petrol go up. In fact, inflation-targeting is particularly detrimental to expanding investment which helps accelerate growth and human development. Another major obstacle to effectively implementing MDG-based macroeconomic policies is the underdevelopment of financial institutions.

The authors suggest three changes to the current framework: 

• Fiscal policies to become more expansionary focusing on public investment and raising domestic revenue 
• Managing the exchange rate to promote export competitiveness and currency stability 
• Monetary policy which achieves low real rates of interest that promote private investment and alleviate public-sector debt

Such a framework would allow macroeconomic policies to be aligned with national MDG-based strategy focused on accelerating investment, economic growth and human development. Over the longer term, such an orientation would also imply greater reliance on mobilising domestic development finance instead of banking indefinitely on Overseas Development Aid which has often been unreliable.

[Adapted from Authors]

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