- International Monetary Fund
- Published Date:
- August 2002
One of the challenges facing the international community is to achieve sustainable development. Sustainable development has three pillars— economic development, social development, and environmental protection.1 It entails “…balancing the economic, social, and environmental objectives of society…integrating them wherever possible through mutually supportive policies and practices and making trade-offs where (this) is not possible. This includes, in particular, taking into account the impact of present decisions on the options of future generations.”2 In September 2000, the member states of the United Nations underscored the importance of sustainable development by re-affirming the Millennium Development Goals (MDGs), a set of time-bound targets for improving human development along several important dimensions.3
Fiscal policy—the range of the government’s taxing and spending decisions—has important effects on all aspects of sustainable development: economic, social, and environmental. Fiscal policy affects sustainable development through its effects on growth, the environment, and human resource development. These effects operate at both a macroeconomic level and through the myriad ways in which governments’ tax and spending decisions affect incentives to work, spend, save, and invest.
Fiscal policy is central to the work of the IMF. The IMF’s mandate is to promote international monetary cooperation, the balanced growth of international trade, foreign exchange rate stability, and orderly foreign exchange arrangements among countries. Fulfilling this mandate is the IMF’s primary contribution to sustainable development. Within this general setting, fiscal policy plays a key role in all three main aspects of the IMF’s work: IMF-supported programs, surveillance, and technical assistance. In IMF-supported programs in countries facing balance of payments crises, the IMF often finds that reestablishing the credibility of the government’s fiscal position is key to restoring sustainable growth. In its support to low-income countries, the strengthening and reorientation of tax and spending structures often has a central role. In its surveillance work, the IMF often focuses on the sustainability of the fiscal position as a key to preventing crises. Indeed, it is the prevention of crises—the burden of which often falls on the poor—that the IMF sees as one of its major contributions to sustainable development. In its technical assistance work, the IMF responds to countries’ requests for expert advice in improving their tax and spending systems.
This paper explores the relationships between fiscal policy and sustainable development and how the IMF seeks to promote sustainable development in its fiscal policy advice. The paper also discusses lessons learned thus far and how governments, the international community, and international financial institutions (IFIs) can more fully support sustainable development.