RP must spend on poor to bag GDP, MDG goals

The Philippines should channel its fiscal stimulus package to social spending to achieve economic growth of as much as 12 percent in the coming years, while speeding up progress in meeting Millennium Development Goals (MDG), a joint study released by three multilateral agencies on Wednesday said. Allocating a big chunk of its package to social protection — measures that provide a social floor that can cushion the impact of the crisis on the poor — could also lead to a greater short-term economic boost, the report titled "Achieving Millennium Development Goals in an Era of Global Uncertainty" said. According to the report, the Philippines is off track in more than 40 per cent of the 21 development indicators, including poverty, hunger, infant mortality and maternal health. It was only better than Laos, Cambodia, Myanmar and Timor Leste among 11 countries in Southeast Asia. The study, which examines the level of the Asia-Pacific region's MDG achievements, coincides with the upcoming 2010 MDG Summit in New York. It was released in Manila and prepared by the United Nations Economic Commission for Asia and the Pacific, Asian Development Bank and United Nations Development Programme. "If fiscal stimulus packages have a strong component of social expenditures, this is likely to produce a double dividend — not only boosting growth more rapidly but also aiding progress towards the MDGs," the report said. The Millennium Development Goals are eight international development goals that 192 United Nations member-states and at least 23 international organizations have agreed to achieve by the year 2015. They include reducing extreme poverty, cutting child mortality rates, fighting disease epidemics such as AIDS, and developing a global partnership for development. Governments around the world have been unleashing economic stimulus packages in an attempt to boost growth and lead their economies out of a recession or economic slowdown. On the revenue side, the Philippines has cut tax rates and on the expenditure side, it has tried speeding up public spending on infrastructure to generate additional employment. MDG score Minar Pimple, regional director of the UN Millennium Campaign in Asia and the Pacific Region, said reducing inequalities through more equal distribution of growth is the only way to have long-term sustainable poverty eradication. "One of the critical issues is social sector investment — health, education, water santitation, basic services to the poor. Those investments are the ones that make a major difference," he told GMANews.TV. The Philippines, however, must plug resource leakages to ensure that these really go to the intended beneficiaries. Pimple said the country still has a chance to meet the 2015 MDG targets provided the incoming administration will focus on a true development agenda. The study said the Philippines had regressed in indicators for primary enrollment, primary completion and schoolchildren reaching the last grade. It has also relapsed on forest cover, while it is expected to meet the targets of getting people out of the $1.25/day poverty trap; underweight children; infant mortality; antenatal care; and births by skilled professionals, but only after 2015. In contrast, the country has been an early achiever of targets for gender equality, TB incidence and prevalence, protected areas, carbon emissions, consumption of ozone-depleting substances, and water provisions. It will likely meet the 2015 targets for under-5 mortality, HIV prevalence and water sanitation, the report said. Pimple said the Philippine government must reach out to the poorest sectors of society — indigenous groups, the Muslim minority, women across the board and the the poorest provinces. "Growth is not inclusive and is not translated in terms of real benefits for the lowest sections of the population," he pointed out. He said the country has one of the highest awareness of MDG goals. "We need to harness that awareness and transform it to meaningful change in terms of accelerated achievement of the goals in the next five years." (Click here for table of Asia-Pacific countries and their MDG achievements) Pro-poor stimulus According to the study, the Philippine government had allocated a stimulus package equivalent to 4.4 percent of the gross domestic product (GDP), but only 0.7 percentage point has a bias for Millennium Development Goals, mainly limited to social security benefits. The rest is "MDG-neutral," meaning the projects are unlikely to benefit the poor directly. These include government employment, rehabilitation of public buildings, infrastructure development and tax cuts. "In the Philippines, a stimulus that was fully pro-MDG would, accumulated over several years, have increased GDP by 12 per cent rather than the 6.2 percent that the current stimulus package is expected to deliver," it pointed out. The growth is over a number of years, with the largest increases in the initial years and the impact gradually tapering off. It said reallocating the MDG bias would have reduced the Philippine poverty ratio by 7.5 percent and its under-five mortality rate by 3.8 percent. The study noted that many rich and poor countries often default to infrastructure spending to stimulate their economies. "For the poorer developing countries, this may not be the wisest policy. Such countries might do better by bringing in greater balance to their stimulus measures, thereby stimulating additional short-term growth as well as progressing further towards their social development goals through pro-MDG spending," it said. "This may well include infrastructure — but of a type whose construction is more likely to benefit the poor. Packages of this type will not only give a larger boost to economic growth but also help achieve the MDGs — a double dividend," the report pointed out. Social protection It said many Asia-Pacific countries could expand their very limited "automatic stabilizers" by strengthening their system for social protection, which includes social insurance and assistance, labor market services, a range of social services particularly for women and children, and many types of local funds such as microcredit schemes. The report further noted that in the short term, the most practical way of filling the gap left by declining exports is through a fiscal stimulus. In the medium and longer terms, however, many countries would want to generate domestic demand in a more sustainable way by increasing household incomes and consumption, apart from boosting corporate investments. "Consumption is also likely to increase if a greater share of national income goes to the poor. Investing in the capacities and capabilities of the poor is also likely to increase their contribution to GDP, thus ensuring a more inclusive pattern of growth," it pointed out. Reducing poverty by broadening the economic base can unleash latent demand, it added. Governments should also give incentives to the private sector through policies on exchange rates, taxation and subsidies to make it more profitable for companies to invest in sectors that are oriented less towards exports and more towards meeting domestic demand, and especially the needs of the poor.