Financing the MDGs and inclusive growth in the time of fiscal consolidation

The progress made by the national government in consolidating its fiscal position between 2002 and 2006 proved unsustainable as its revenue effort started to go down once again in 2007 after a brief improvement in 2005-2007. With the more expansionary stance taken by the government in 2009 as part of its effort to shield the economy from the effects of the global financial and economic crisis of 2008/9, the national government fiscal deficit jumped to 3.9% of GDP in 2009 and national government debt started to rise when measured relative to GDP. Clearly, turning around the national government`s fiscal health should be high on the policy agenda. In previous episodes of fiscal consolidation, the easiest way to address the fiscal imbalance is by cutting expenditures. However, this option does not appear to be consistent with the government`s avowed commitment to achieving the Millennium Development Goals and inclusive growth. After estimating the budgetary requirements of achieving the MDGs and inclusive growth, this paper shows that national government revenues need to increase from 14.3% of GDP in 2009-2010 to 17.5%-17.9% in 2012-2016 if fiscal consolidation were to be achieved while providing the fiscal space for the much needed basic social services and infrastructure ... -- fiscal consolidation ; fiscal sustainability ; inclusive growth ; Millennium Development goals ; tax effort ; tax gap ; zero-based budgeting