This report examines the impact of the global financial crisis on the budgets of low-income countries, especially their spending to reach the Millennium Development Goals (MDG).
The crisis created a huge budget revenue hole of $65 billion, of which aid has filled only one-third. As a result, after some fiscal stimulus to combat the crisis in 2009, most Low income Countries (LIC) (including those with IMF programs) are cutting MDG spending, especially on education and social protection. They have also had to borrow expensive domestic loans, and increase anti-poor sales taxes. Almost all LICs could absorb much more aid without negative economic consequences (whereas they have much less space to borrow or to raise taxes).
The report therefore urges the international community to make strong new aid commitments at the Millennium Summit in September 2010, funded by financial transaction taxes or other innovative financing:
- the IMF to encourage LICs to spend more on MDG goals and on combating climate change and to report regularly on such spending;
- and LIC governments to increase spending on social protection and education; taxation of income; property and foreign investors; and efforts to fight tax avoidance.
About the authors
Katerina Kyrili is Researcher at Development Finance International, focusing on the impact of the financial crisis on Low Income Countries, South-South cooperation and aid trends. She was previously a Research Officer at the Centre for Development Policy and Research of the School of Oriental and African Studies (SOAS) in London and at the Institute of Social Studies (ISS) in the Hague.
Matthew Martin is Director of Development Finance International, a non-profit economic policy capacity-building, research and advocacy organization which specializes in enhancing developing country capacity to design and implement policies for financing their development. Matthew has worked on development financing issues for 18 years, including at the Overseas Development Institute, Oxford University and the World Bank.
A Crisis Multiplied: How the global economic crisis, coming on top of other shocks, is worsening poverty in Burkina Faso (report published 24 June 2010)