Download A Monitoring Framework for Niger

Building Strategy Papers
for Human Development (SPAHD)
A Monitoring Framework for Niger
Emmanuel Pinto Moreira
Senior Economist, LAC Region, World Bank

Joint program of technical assistance; Bank, UNDP, and the
Government (CAPED and SRP Team).

Background papers:

Pinto Moreira and Bayraktar (2005); Niger

Agénor, Bayraktar, and El Aynaoui (2005); Ethiopia..

Agénor, Bayraktar, Pinto Moreira, and El Aynaoui (2005);
link between model and MDGs.
Issues in Niger and many other low-income
countries:

High and sustained growth.

Public investment in infrastrures (low infrastructure
indicators).

Governance issues: low indicators.

Foreign aid.

Poverty and MDGs.
Issues in Niger and many other low-income
countries:

Low human development indicators.

Focus on human development and not only poverty: SPAHD.

Income/asset distribution may not be the critical issue.

There are very good reasons to worry about inequality
(social justice, morality), but growth is not one of them.
Issues in Niger and many other
low-income countries:


Those who advocate a greater role for redistribution
(income or assets) are either misreading the
evidence…
…or fail to acknowledge the possible adverse
effects of redistribution on the poor.

Examples:

Lower saving and investment rates (weaker
collateral constrains borrowing).

Taxation can discourage the accumulation of
skills and/or encourage informality (reduces the
capacity to invest).

The consequence may be lower growth in the
medium and long run.

In fact, tackling inequality may be easier in a
growing economy.

Some of these issues are difficult to account for in a
macro framework.
IMF, Working Paper No. 05/179 (pp. 13-14):


“Once appropriate consideration is taken of the
supply-side impact of aid flows, there is no clear
presumption as to whether, over the medium term,
there will be a real exchange rate appreciation or
depreciation or whether the tradable sector will
contract or expand.”
Also recognition that the empirical evidence is
mixed--some studies of African countries find that
aid inflows appear to be associated with a real
depreciation.
Africa Action Plan, September 2005:


Objective: “Help countries build outcome-driven
development strategies… Countries must lead,
manage, and monitor progress toward
development outcomes such as the MDGs.”
Objective: Closing the infrastructure gap. Explicit
recognition of the central role that infrastructure
investment should play in a strategy to accelerate
growth in Sub-Saharan Africa.
Source: Infrastructure and the World Bank: A Progress Report (2005, p. 2).



Most studies of “MDG costing” tend to focus only
on the direct costs of providing services in the
sectors associated with the goals themselves (e.g.,
education and health)…
…and ignore the need for investments in
complementary, growth-oriented sectors such as
infrastructure.
Need for a macro approach, to capture the potential
externalities associated with infrastructure.
The Macro Component

The Economy produces one good which is
imperfectly substitutable to an imported good.

Domestic production requires effective labor, private
capital, and public capital in infrastructure and
health.

Public capital in infrastructure improves the
productivity of the private factors used to generate
output.

Public capital in health improves the quality of labor
employed in production.

Effective labor is a composite input, produced by
the actual stock of educated labor and public capital
in health.

Congestion effects in the provision of health
services: the stock of public capital in health is
scaled by the size of the population.

Congestion effects in domestic production: lagged
output is used as an indicator of the intensity of use
of public services in infrastructure.

Congestion effect in the stock of public capital in
education: scaled by raw labor to capture pressure
on the education system.

Domestic production is allocated between exports
and domestic sales.

Income from production is entirely allocated to a
representative household.

Disposable income is obtained by subtracting direct
taxes from total income. It determines domestic
demand.

Domestic demand and domestic supply determine
domestic prices.

Domestic supply is a combination of domestically
produced goods and imported goods.

6 MDGs indicators are integrated: poverty rate,
literacy rate, infant mortality, malnutrition, life
expectancy, and access to safe water.

Poverty is linked directly to the macroeconomic
model through partial growth elasticities (growth
rate of real private consumption per capita): -1; -0.5;
-1.5 and Ravallion’s adjusted elasticity.

Literacy rate is also a direct output of the model.

Literacy rate is also a direct output of the model.

All other MDG indicators (malnutrition, infant
mortality, life expectancy, and access to safe water)
are linked to the model through cross-country
regressions.

Composite index is calculated: unweighted
geometric average of all the individual indicators.
Useful to provide a synthetic view of progress
toward achieving the MDGs.
Simulating the Impact
of an Increase in Aid

Aid are defined as grants only and is accounted for
as an item “above the line”. It is therefore a potential
substitute to domestic sources of revenue.

Public investment is positively related to both tax
revenue and foreign aid.

Maintenance expenditure are accounted for and
related to depreciation of stocks of public capital.

Efficiency of public investment is accounted
for: possibility that a fraction of resources
invested in investment projects may be
wasted and may not have a positive impact
on the public capital stock (Prichett 1996).


Assumptions for baseline scenario:

Calibration on 2004.

Constant aid-GDP at 10.7%.

Allocation of public investment: according to
initial shares.

No terms-of-trade effects.

Limited domestic financing, highly concessional
external borrowing.
Note: no account of the volatility of aid flows (see
Bulir and Hamann (2005)).

Assumption for the initial experiment: investment is
fully efficient.

Specification of the Perpetual Inventory Method to
calculate the public capital stock in category h:
Kh(t) = (1 - h)K(t-1) + hIGh(t-1)

h  (0,1): depreciation rate; IGh: investment in h.

h  (0,1): efficiency of investment in h.

Two cases:


h = 1, h: investment is fully efficient in all
sectors.
h < 1: investment is partly wasted in sector h.

Pritchett (1996): half of capital outlays do not serve
to accumulate public capital.

Arestoff and Hurlin (2005), for total public capital
stock:  varies between 0.4 and 0.6.

Poverty decreases in the best case by 21
percentage points (from 63% in 2003 to 42.3 in
2015). But in the case of -0.5 (Besley-Burgess
case), poverty drops by only 8.3 percentage points.

Literacy rate increases from 11.4% in 2003 to
25.7% in 2015.

Infant mortality drops from 191 per 1,000 in 2002 to
125 in 2015.

Malnutrition prevalence drops only slightly from 42.6
% in 2000 to 37.5% in 2015.

Life expectancy increases from 42.1 years to 49.9
years.

The percentage of population with access to safe
water rises from 53% in 2000 to 66.1% in 2015.

Composite MDG indicator improves.

But Niger will not be able to achieve the MDGs.

Poverty decreases in the best case by 10
percentage points compared to the baseline (from
42.3% to 32%). But in the case of -0.5 (BesleyBurgess case), poverty drops by only 4.6
percentage points compared to the baseline (55.3%
to 50.7%).
What Happens with Inefficient
Public Investment?


Alternative case: investment is only partly efficient.
Case shown:  = 0.5; mid-point value estimated by
Arestoff and Hurlin (2005).

Good approximation for Niger? Open for debate.

But if so: results are quite telling.

Without deep reforms aimed at improving the
management of public resources, aid inflows would
have to rise to considerably higher levels.

Baseline: Poverty decreases from 63% in 2003 to
47.7 in 2015 in the best case. But in the case of -0.5
(Besley-Burgess case), poverty drops only from
63% to 57.5%.

Poverty decreases by 8 percentage points
compared to baseline in 2015 (from 47.7 to about
40%) in the best case. But in the case of -0.5
(Besley-Burgess case), poverty drops only by 3.3
percentage points compared to baseline (from
57.5% to 54.2%). So the poverty rate drops from
63% in 2003 to only 47.7% (best case) or to 54.2%
(worst case) in 2015.
Linking Public Investment
Programs and Macro Models:
A “bottom up” Approach
“IMF and Bank contributions to developing a better
understanding of country-specific micro-macro
linkages have been fairly limited. Although both
institutions place greater emphasis than before on
poverty and social impact assessment (PSIA), they
have not yet devised a way to ensure that the
priorities for such assessments (especially in the
area of macroeconomic policy) will reflect the
strategic priorities of the PRSP.”

Joint World Bank OED-IMF IEO Report (2005, pp. 6-7).


Declaration adopted at the UN World Summit:
All countries “…agree to adopt, by 2006 and
implement comprehensive development strategies
to achieve the internationally agreed development
goals and objectives, including the MDGs.”

What it means: country needs, based on their
development goals (MDGs), should determine aid.

However, reality checks are needed (potential
absorption problems).

Process should be viewed as iterative.