Poverty increases : Government Needs To Reshape Economic Development Policies

Children wait for food distribution at an internally displaced persons (IDP) camp in Bunia, Ituri province, eastern Democratic Republic of Congo, April 12, 2018. REUTERS/Goran Tomasevic – RC1AF66091D0

A Commentary By Ranger

Population in the Western Area and the provincial cities will inevitably continue to grow by leaps and bounds well into 2050 because of uncontrolled birth rate and one-way migration from the rural areas by mostly young people in search of greener pastures.

With a population nearing 2 million, it can be safely guessed that over half of the Western Area population live in slums along the extensive coastline and in highly overcrowded communities where those that earn less than $2 a day box themselves with very little housing, water, sanitary and employment facilities.

Children wait for food distribution at an internally displaced persons (IDP) camp in Bunia, Ituri province, eastern Democratic Republic of Congo, April 12, 2018. REUTERS/Goran Tomasevic – RC1AF66091D0

What should worry the Government’s policy makers is that the locus of poverty is rapidly moving to the cities, a process known as the ‘urbanization of poverty’.

Without concerted action on the part of municipal authorities, the central Government, civil society actors and the international community, the number of slum dwellers will continue to increase dangerously.

This is against the background that with real incomes of the poor falling because of inflation, the larger the informal sector, the lower is its fiscal capacity—the maximum amount Government can collect in tax revenue on a sustained basis.

On the other hand, to meet the demand for public services in the face of reduced fiscal capacity, Government is forced to impose high tax rates on formal-sector income and turn to other revenue sources that are inherently inefficient, resulting in highly distortionary fiscal systems.

This diminished revenue-raising capability, relative to the size of the economy, restricts the scale and scope of expenditure programs that Governments can and should undertake, and encourages the use of regulation, both to direct the economy and to collect revenue. What many poor citizens honestly ask is: what does the Government do with all the money that it collects in taxes and other forms of revenue to impact on the living conditions of the poor?

The consensus amongst the educated poor is that redistribution of wealth to favour the majority poor living in the urban areas would go a long way in drastically reducing poverty as inflation continues to relentlessly shrink the purchasing power of citizens living on low fixed incomes and those that are underemployed and unemployed. This can best be undertaken by the central Government since doing so reduces welfare-induced migration.

Within the context of decentralization, local Governments and community organizations are better able than the central Government to identify the truly needy, which argues for more decentralized redistribution.

First, poverty cannot be reduced in isolation from economic growth—an observation that has been overlooked in the thinking and strategies of all the Governments that we have had since independence – hence the continued mass poverty.

All countries have a formal economy and an informal economy. But, on average, in developing countries the relative size of the informal sector is considerably larger than in developed countries. In our case, this has important implications for the growing number of poor people in the country.

Most poor households derive their income from informal employment which effectively precludes income-contingent transfers as a method of redistribution.

Also, holding fixed real economic activity, the larger the relative size of the informal sector, the lower is fiscal capacity, and the more distortionary is Government provision of a goods and services, which restricts the Government’s policy of poverty reduction.

Against this background, Government and its local and international development partners need to start a serious debate on how the economy can be calibrated to move into high productivity gear within the short to medium term in order to meet growing demands for employment and social welfare facilities by especially the youths.

Courtesy of Cocorioko 23rd July 2021

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