IMF Survey : Productivity Is Key to Growth in Small Mid-income Countries
IMF News, May 14, 2013
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- Published: May 14, 2013
Overview
- Publication: IMF Survey
- Date: May 14, 2013
- Context: Conference held on the sidelines of the 2013 IMF-World Bank Spring Meetings focused on policy priorities for small middle-income countries in sub-Saharan Africa in a rapidly changing external environment.
- Key summary point: Small middle-income countries must boost the contribution of productivity to growth because they can no longer rely on capital deepening as a growth driver; better productivity will also make these countries globally competitive.
- Noted past strengths: Positive growth record raised overall incomes and reflected sound policies including keeping inflation low and pursuing fiscal prudence.
- Concern: Trend growth has softened in recent years; returning to strong growth and transitioning to high-income status requires reform-oriented and innovative policies to boost productivity.
Better productivity (policy levers identified)
- Improve the effectiveness of public spending.
- Improve the efficiency and effectiveness of the tax system.
- Deepen structural reforms including easing the cost of doing business.
- Minimize the impact of macroeconomic volatility on growth by:
- Rebuilding sufficient policy buffers to deal with shocks.
- Reducing dependence on trade taxes.
- Diversifying the economy and trade.
- Quotation: Cape Verde Finance Minister Cristina Duarte — “We are at a new starting point in our growth process—we need efficiency-driven growth and a shared vision to deliver an innovation-based economy.”
Financial inclusion and stability
- Observation: Financial soundness indicators are benign in many small middle-income countries, but shadow banking could affect financial stability, particularly given that supervision of this sector is in its infancy.
- Recommendation: Deepen financial inclusion as part of a broader development strategy while preserving financial stability amid rapidly emerging global financial challenges.
- Central bank role: Monitor risks such as elevated levels of household indebtedness at historically low interest rates and respond to new supervisory demands.
- Quotation: Bank of Namibia Deputy Governor Ebson Uanguta — “Striking the balance between financial inclusion and financial stability is particularly prominent in Namibia, which suffers from one of the most uneven distributions of income in the world.”
Jobs and growth (inclusive growth and labor policy)
- Inclusive growth is desirable but elusive; policies must be flexible and adaptable to country circumstances.
- Labor market policy recommendation: Aim to “protect the worker rather than the job.”
- Support worker transitions during downturns through social insurance and job training programs.
- Avoid keeping nonviable industries open merely to protect jobs.
- Role of the state: Provide minimum safety nets while allowing an increasing role for the private sector.
- Quotation: Mauritius Financial Secretary Ali Mansoor described his country’s embrace of measures that protect the worker rather than the job.
Capacity building (public sector and skills)
- Issue: Relatively large wage bills partly driven by intense competition for scarce skilled labor in the region.
- Policy responses:
- Wage decompression to allocate higher wages to higher-skilled staff.
- Motivate skilled staff through nonmonetary benefits such as training abroad.
- Develop leaner, smarter, and more effective governments to support macroeconomic policy implementation and long-term growth.
- Priority areas for capacity building:
- Budget preparation.
- Sound medium-term fiscal framework.
- Budget reporting.
- Tax administration.
- Quality of macroeconomic statistics.
- Objective: Improve quality of public spending and strike an appropriate balance between enhancing financial inclusion and minimizing risks to financial stability.
Peer support and learning
- Proposal: Use peer support and peer learning to explore synergies among small middle-income countries.
- Peer-to-peer learning among policymakers.
- Peer learning among technicians.
- Capacity building and training institutions as vehicles for peer-to-peer learning.
- Setting common policy goals with better-performing countries helping those lagging behind.
- Quotation: Mauritius Financial Secretary Mansoor advocated peer-to-peer learning among policymakers and technicians.
IMF Survey : Productivity Is Key to Growth in Small Mid-income Countries, May 14, 2013