4.8 Measuring Development Questionbank

Tajikistan is a mountainous, landlocked country in Central Asia. It faces several development challenges, including a relatively high rate of poverty, a narrow export base (primarily cotton and aluminum), an aging infrastructure, and a heavy reliance on worker remittances sent from abroad—remittances constitute about 28% of the country’s GDP by some estimates. The agricultural sector accounts for about 20% of GDP but employs around 45% of the labour force. While the country has achieved steady growth in recent years, much of the population remains vulnerable to external shocks such as declining global commodity prices, extreme weather events, and reductions in remittances.

The government’s revenue is primarily derived from three main types of taxes: corporate income tax, personal income tax, and a value-added tax (VAT). Despite the relatively low nominal rates, challenges in tax collection remain. Tajikistan’s trade balance has been in persistent deficit for most of the last decade, with imports of consumer and capital goods outstripping exports such as cotton, aluminum, and fresh fruits. The country’s real GDP growth, unemployment rate, and Gini coefficient are presented in Table 1.

Below is a snapshot of key macroeconomic indicators, the country’s tax structure, selected data on income distribution, and information on cotton as a key export.

Table 1: Macroeconomic Indicators in Tajikistan (2017–2021)

Table 2: Tax Structure in Tajikistan

Table 3: Income Distribution by Population Groups (2021)

Figure 1: Market for Cotton in Tajikistan (2021 → 2022)

Assume the price of cotton per bale (in TJS) increased from 10 to 12 between 2021 and 2022. Over the same period, the quantity demanded decreased from 500 000 bales to 470 000 bales, while the quantity supplied increased from 400 000 bales to 420 000 bales.

In 2021, the government introduced a stimulus package injecting TJS 600 million into the economy (for infrastructure projects and social spending). Economists estimate the marginal propensity to consume (MPC) in Tajikistan to be about 0.75.

Tajikistan’s heavy reliance on foreign remittances has raised concerns about macroeconomic vulnerability. A sudden drop in remittance inflows could constrain households’ consumption, reduce revenue from indirect taxes, and undermine the country’s balance of payments.

Finland is a Nordic country with a population of approximately 5.5 million people. It has long maintained high living standards and one of the world’s most comprehensive welfare systems. Exports play a significant role in Finland’s economy, particularly in forestry products (timber, pulp, and paper) and technology equipment. In recent years, Finland’s real GDP growth has fluctuated due to global economic conditions and the COVID-19 pandemic.

Finland is also renowned for having one of the highest per capita coffee consumption rates in the world. Domestic coffee producers face strong competition from international suppliers, yet Finnish consumers display relatively high brand loyalty. In addition, Finland’s top marginal personal income tax rates are steep by international standards, helping to fund generous social programs. However, some policymakers are concerned about maintaining competitive tax rates to attract more foreign direct investment and to stimulate economic growth.

Table 1: Selected Macroeconomic Indicators for Finland (2019–2022)

*Estimate based on provisional data

Table 2: Income Distribution and Inequality Measures (2021)

Table 3: Coffee Consumption in Finland

Figure 1: Hypothetical Domestic Demand and Supply for Finnish Forestry Exports (Price measured in EUR per cubic meter; D and S represent domestic demand and supply functions. Pw indicates the world price. A shift from Pw to Pw1 represents a 10% increase in the world price for forestry exports.)

Assume the following:
• When the price for forestry exports rises from Pw to Pw1, Finland’s forestry export quantity remains the same (perfectly elastic world demand).
• The value of forestry exports before the price increase was EUR 8 billion per year.

Finland’s government has recently announced a new social infrastructure program worth EUR 2 billion to stimulate the economy. The marginal propensity to consume (MPC) is estimated at 0.75. Some policymakers argue that Finland should reduce its top personal income tax rate (currently 31% for the national share, excluding municipal taxes) to promote innovation, attract more businesses, and reduce the risk of a slowdown in growth. Others worry that reducing taxes too much could threaten Finland’s commitment to strong social services.

Pakistan’s Economic Recovery Challenges

Pakistan faces persistent economic challenges as a developing nation with a rapidly growing, youthful population. The country’s fiscal position remains precarious, characterized by a large budget deficit fueled by rising defense spending and debt servicing costs, with interest payments consuming approximately 40% of total government revenue. This fiscal strain is further aggravated by persistent current account deficits and a dependence on external financial assistance from international institutions.

In response, the Pakistani government has engaged with the International Monetary Fund (IMF) and other multilateral lenders. Under its latest IMF bailout program, Pakistan has committed to a set of structural reforms, including the privatization of state-owned enterprises to improve efficiency, reforming energy subsidies to lower government expenditure, enhancing tax collection mechanisms to increase revenue, tightening monetary policy to control inflation, and maintaining a market-determined exchange rate to stabilize the external sector.

Government officials stress that international financial support is critical for economic recovery, as it restores investor confidence, attracts Foreign Direct Investment (FDI), and facilitates access to additional funding from institutions like the Asian Development Bank (ADB) and World Bank. However, critics argue that IMF programs often lead to austerity measures that can slow economic growth and disproportionately impact low-income households.

Pakistan has a long history of engagement with the IMF, having participated in more than twenty IMF programs since the 1980s. A recurring pattern has emerged: temporary improvements in external balances followed by economic reversals, raising questions about the effectiveness of IMF-led reforms and Pakistan’s ability to sustain long-term economic stability.

Beyond macroeconomic stabilization, development economists emphasize the need for human capital investment to unlock Pakistan’s demographic dividend. Key policy recommendations include expanding education and vocational training programs to improve workforce productivity, promoting gender equality in labor markets to increase economic participation, and encouraging youth employment initiatives to leverage Pakistan’s young population.

While multilateral development banks support initiatives like green energy projects, infrastructure development, and digital transformation, concerns remain about policy implementation, governance challenges, and environmental sustainability. Some critics argue that economic stabilization efforts often overshadow long-term development goals, leading to an ongoing policy dilemma: how should Pakistan balance short-term fiscal stability with long-term economic development?

Table 1: Pakistan’s Government Expenditure and Debt Servicing

Table 2: Foreign Direct Investment and Current Account Balance in Pakistan

Ghana to Seek Help from International Monetary Fund

Ghana has said it will seek financial aid in the form of a loan from the International Monetary Fund (IMF) to help stop the rapid decline in the value of the cedi, Ghana’s currency, and close a large budget deficit. Ghana’s transformation from one of Africa’s fastest-growing economies to the home of the world’s worst-performing currency has become a concern. The exchange rate depreciated by 40% against the US dollar in 2014. The fall in the currency has led to increases in the price of consumer goods such as sugar and fuel; inflation is at an unacceptable 15%.

Despite being a major exporter of gold, oil, and cocoa, Ghana’s current account deficit has risen sharply to 12% of its gross domestic product (GDP). This is partly due to a rapid increase in demand for imports and falling gold prices. Additionally, oil revenues have not been as strong as expected.

The government is also struggling with a wide budget deficit, which stood at 10% of GDP last year. Ghana’s good reputation for fiscal responsibility has worsened considerably as the government tripled salaries for police officers and soldiers.

It is expected that the news of talks with the IMF will be positively received in international financial markets. The finance minister has said the step would help to stabilize the currency, to bring domestic prices under control, and also to restore investors’ confidence in Ghana’s economy.

A Ghanaian spokesperson noted that the IMF would insist on the government introducing measures to tackle inflation and reduce its budget deficit. The IMF says that Ghana needs to tighten its budget immediately, by reducing public sector wages, lowering subsidies, and increasing taxes. The IMF is likely to demand a limit on borrowing and perhaps some privatization of power and water companies.

Earlier this year, problems in the economy had led to nationwide protests, with thousands of workers across the country protesting in the streets about the rise in the cost of living. The country’s largest trade union says the government has been mismanaging the economy. In response to the protests, a government minister said that the government would work very hard to achieve economic development to make life easier for the working people of Ghana but that all Ghanaians would have to make “some sacrifices for the economy to recover.”

Table 1: Ghana’s Macroeconomic Indicators

Table 2: Selected Macroeconomic Data for IMF Evaluation

Recent Economic Trends and Policy Developments in Algeria

Algeria is a North African country whose economy has traditionally relied on hydrocarbon exports, primarily oil and natural gas. In recent years, the Algerian government has undertaken significant policy reforms to diversify the economy, reduce unemployment, and alleviate poverty especially in rural areas. Despite these efforts, challenges related to public finances, income distribution, and trade barriers remain.

After an uptick in oil prices between 2019 and 2021, the Algerian government increased public spending on infrastructure, including road construction and energy projects. Authorities hope these projects will boost competitiveness and stimulate manufacturing and service sectors over the longer term. However, the resulting larger budget deficit has prompted concerns about fiscal sustainability, especially as some new social programs like higher expenditures on household electricity and fuel subsidies remain in place.

To address structural imbalances, policymakers have also turned to trade policy. Algeria introduced new import tariffs on selected food products, aiming to protect domestic producers of staples such as wheat and dairy. Certain agricultural producers favor these tariffs for ensuring higher local prices, but critics worry about potential increases in consumer costs and reduced choice. Meanwhile, the government maintains a price floor on wheat to safeguard farmers’ incomes. Although this policy aims to support domestic agriculture, some analysts suggest it could lead to surpluses if local production outstrips demand.

High unemployment registering above 14% in some reports and persistent income inequality continue to pose social and economic challenges. The Gini coefficient, used to measure income distribution, remains relatively high, indicating that wealth is unevenly spread across urban and rural areas. A significant portion of Algeria’s rural population still experiences low incomes, often attributed to limited access to quality education and inadequate health infrastructure. Poverty rates remain more pronounced in the country’s southern and remote highland regions, where opportunities in non-hydrocarbon sectors are less available.

Algeria’s currency, the dinar, tends to fluctuate with the international oil market. In years of strong export revenues, the dinar has appreciated, improving the current account balance but sometimes making non-oil exports less competitive. When oil prices fall, foreign exchange revenues drop, and the dinar frequently depreciates. This volatility contributes to uncertainty for foreign investors. Although foreign direct investment (FDI) flows have increased in industrial projects near major ports, many local businesses emphasize that limited credit access and bureaucratic barriers hamper expansion.

On the developmental front, the government has set up programs to improve educational outcomes and vocational training, especially in underserved areas. Yet a cycle of low literacy, poor job prospects, and persistent poverty continues in some regions. Economists and international organizations point to a “poverty cycle” in rural Algeria, where limited educational opportunities constrain productivity growth, resulting in low incomes that, in turn, impede access to improved living conditions.

Table 1: Selected Macroeconomic Indicators for Algeria (2019–2022)

Table 2: Income Distribution and Poverty Data

Country A has seen a significant increase in the consumption of soft drinks, leading to concerns about rising health issues such as obesity and diabetes. To address this, the government introduced a 20% excise tax on sugary beverages, aiming to reduce consumption. The tax has resulted in an increase in the price of soft drinks by 15% and a 10% decline in quantity demanded.

Some beverage companies have adapted by offering low-calorie alternatives, while others have lobbied for tax exemptions, arguing that the tax disproportionately affects low-income households. Meanwhile, the government has launched public health campaigns and introduced $50 million in subsidies for local farmers to grow fruits and vegetables, aiming to promote healthier diets and reduce dependency on sugary beverages.

Table 1: Price and Quantity of Soft Drinks in Country A Before and After Tax

Country B is a member of a regional economic bloc that recently transitioned from a free trade area to a customs union. This change led to the removal of tariffs on intra-bloc trade and the introduction of a 10% common external tariff on imports from non-member countries.

Trade within the bloc has flourished, with exports increasing by 25%. However, some domestic businesses struggle to compete with larger firms from neighboring countries. Additionally, while integration has boosted investment in infrastructure and renewable energy, it has widened income inequality between urban and rural areas, as rural communities lack access to the same economic opportunities.

Table 2: Trade and Income Inequality in Country B

Economic Developments and Challenges in Azerbaijan

1. Azerbaijan, situated at the crossroads of Eastern Europe and Western Asia, has experienced significant economic reforms over the past decade. Historically reliant on hydrocarbons—mainly oil and natural gas—for export revenues, the country has sought to diversify its production base through agriculture, tourism, and technology sectors. In 2019, oil and gas accounted for about 85% of Azerbaijan’s total exports, providing substantial government revenue but leaving the country vulnerable to global commodity price fluctuations.

2. In recent years, policymakers have introduced multiple initiatives to modernize infrastructure and reduce dependence on hydrocarbons. Between 2019 and 2022, the government invested over US$3 billion in roads, railways, and energy transmission lines, aiming to expand the country’s capacity to produce and transport goods. According to the State Statistical Committee, Azerbaijan’s real GDP grew by 2.2% in 2020 and rebounded to 4.6% in 2022, partly due to a recovery in global oil prices. However, structural unemployment persists, especially in rural areas, where older agricultural practices lag behind modern production techniques.

3. Inflation, driven by rising global commodity costs, reached 8.4% in 2022, up from 2.6% in 2019. The Central Bank of Azerbaijan responded with conservative monetary policies that have stabilized the exchange rate of the Azerbaijani manat. Meanwhile, the government introduced tariffs on certain imported agricultural goods in 2021, aiming to protect local farmers from competition and stimulate domestic production. Critics argue that these tariffs lead to higher prices for consumers, while supporters believe they create incentives for farmers to modernize and invest in capital-intensive farming techniques.

4. Foreign direct investment (FDI) centered on the energy sector remains strong, although officials are eager to attract investment in manufacturing and services. Improvements in transport connectivity—facilitated by ongoing infrastructure projects—have encouraged discussions about further liberalizing trade regulations to boost exports of textiles, food products, and tech services. Yet logistical barriers at border checkpoints persist, contributing to delays and raising costs for exporters looking to access regional markets.

5. Socially, Azerbaijan has implemented targeted measures to address income inequality, including subsidies for utilities and food staples. Observers note that the impact of these subsidies can be uneven; while they help low-income households cope with rising prices, they can also create fiscal pressure if oil revenues decline. The government has recently introduced pilot programs that tie subsidies to specific income thresholds, with the objective of reducing misuse of public funds.

6. Despite ambitious diversification plans, the oil sector continues to dominate. Economic analysts warn that reliance on hydrocarbons could impede sustainable growth, especially if global oil prices weaken or external demand slows. As part of its long-term development strategy, the government is promoting investment in green energy, incentivizing solar and wind power projects in the hope of creating new export opportunities for electricity.

7. Nonetheless, concerns about structural unemployment remain. Skill mismatches persist between job seekers and the needs of modern industries, particularly in the technology sector. Rural-urban migration has become more common, pressuring housing and public services in Baku, while leaving some villages with labor shortages. Recognizing these challenges, the Ministry of Education has partnered with private companies to revamp vocational education programs, aiming to align training with rapidly evolving market demands.

Table 1: Selected Macroeconomic Indicators for Azerbaijan (2019–2022)

Table 2: Trade and Social Indicators