Rising income inequality around the world is putting anti-poverty efforts at risk by hurting global economic growth and stability, according to International Monetary Fund Managing Director Christine Lagarde.

In a speech to the annual Bretton Woods Committee in Washington, DC on May 15, Lagarde outlined three critical points: economic stability is essential for poverty reduction; growth and equity are mutually reinforcing and important parts of sustainability; and fiscal policies can improve income equity and lower poverty rates.

The theme of the annual Bretton Woods meeting was “ending poverty in a generation.”

Over 35 percent of the world’s wealth is controlled by just the top 0.5 percent of the world’s population Lagarde noted in her speech. The trend is a growing concern for the world’s economy, and one the IMF is starting to examine more closely.

Over the past 25 years, rising income inequality has become an emerging issue for policymakers globally with increases in most advanced and developing countries. The global recession in recent years has created a lot of economic upheaval, she noted, and the IMF has stepped up its efforts to help low-income countries cope with crisis. “For this reason, the first best contribution that the IMF can make to reducing poverty is to help avoid crises.”

Global economic growth must be paired with income equity in order to insure stability, Lagarde said. She called for preservation and expansion of the “total size of the economic pie” available, along with a more equitable distribution of resources.  According to IMF research, societies with more equal income distribution are more likely to achieve lasting growth, which also helps alleviate poverty levels, Lagarde said.

“Equality is good for growth, but is growth good for equality? It may be a necessary condition for reducing poverty, but it has not always reduced inequality,” Lagarde said.

– Liza Casabona
Sources: IMF
Photo: Le Monde