Global income inequality declines from 68 to 62 – IMF

The International Monetary Fund (IMF) has said that the Global Income Inequality has declined in recent years, indicating perfect equality dropping from 68 in 1988 to 62 in 2013.

According to the IMF, this decline reflects relatively strong growth in many emerging and developing economies, particularly in China and India.

With the Gini index – a statistical measure of income distribution with a value of zero, the Fund said tackling inequality is not only a moral imperative, but it is critical for sustaining growth.

However, the IMF in a report released on Tuesday, observed that inequality has increased within many countries, including in many advanced economies.

The IMF said that they have studied the economic impact of inequality since the late 1980s, when there was growing recognition that some policies intended to kick start growth had negative consequences for poverty and inequality.

According to the IMF, analysis of the relationship between inequality and growth, and inequality and fiscal policy, continued to evolve in the following years.

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The Daily Times recalls that in 2015, as part of its commitment to help deliver the 2030 United Nations Sustainable Development Goals Nations and help countries achieve strong, sustainable, and inclusive economic growth, the IMF pledged to further its analysis on inequality issues, and to use this work in the development of its policy advice.

The IMF said, since then, it has conducted two waves of pilot studies on inequality topics in 27 countries around the world while a third wave of a further 16 countries is currently underway.

The Fund outlined five ways it is helping countries assess and adopt their policies which include; calibrating fiscal policies, protecting social spending and increasing its effectiveness, balancing labour market policies and managing commodity boom and bust cycles as well as promoting financial inclusion.

It stated: “As a government’s primary mechanism for redistributing income across populations, fiscal policies are key to addressing inequality issues. Recent work in Costa Rica, Guatemala, Honduras, and Togo focused on related topics. The 2017 Fiscal Monitor focuses on how governments can use tax and transfer policies, as well as education and health policies, to address inequality concerns.

“Reallocating resources away from ineffective spending programs, such as on fossil fuel subsidies, to effective social spending programs such as cash transfers, can strengthen social assistance, and help counteract the negative impact sometimes associated with needed economic reforms. In Brazil, an IMF study of regional inequality documented the positive contribution of redistributive policies, namely the Bolsa Família program, to the decline in inequality. In Pakistan, IMF policy recommendations included increasing safety-net spending and consolidating some of the smaller, less efficient safety net programs into the well-performing Benazir Income Support Program. The IMF has also been working with countries to protect social spending—especially in health and education—and since 2010, minimum social spending levels have been included in virtually all low-income country programs.

“Work by the IMF staff reveals how differences between formal and informal workers in Colombia, ethnic and religious communities in Israel, regions in Brazil and Slovakia, and between workers in the United States, all contribute to income inequalities. In Poland, IMF staff advocated for policies that support structural transformation in the less developed eastern regions to reduce regional disparities and promote inclusive growth. A further study in 2015 focused on the relationship between labour market institutions and the distribution of incomes in advanced economies.

“Lower commodity prices threaten to reverse reductions in inequality and poverty in Bolivia, following a period of increased public spending funded by the last commodity boom. IMF staff developed a model to help the authorities analyze the driving forces behind the reduction of inequality and poverty, and determine which policies would best help retain these gains, while conducting needed fiscal consolidation.

“Limited access to financial services in rural areas of Ethiopia and Myanmar compounded issues of inequality following financial sector reforms. A recent IMF study looked at how countries can deploy complementary policies to offset any unfavourable consequences for inequality of pro-growth reforms in low-income developing countries.

As well as discussing these issues with governments, many IMF staff also exchange views with other partners such as civil society organizations and labour unions. For instance, recent inequality pilots in countries such as Brazil, Korea, and Kosovo included discussions with national International Trade Union Confederation-affiliated labour unions.”

Further engagement is planned for other selected inequality pilot projects, as well as for some gender and climate pilot projects, the IMF said.

Mathew Dadiya, Abuja