## IMF Survey : Strong Reforms Offer Countries Path to High-income Status

_IMF News, December 17, 2014_

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## Bibliographic details
- Authors: Lamin Leigh, Marshall Mills IMF African Department December
- Published: December 17, 2014

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### Overview
- Publication: IMF Survey
- Authors: Lamin Leigh and Marshall Mills, IMF African Department
- Date: December 17, 2014
- Event: Seminar organized by the IMF African Department and the Africa Training Institute (November 18–21)
- Focus: Policy challenges and reform approaches for seven small middle-income countries in sub-Saharan Africa aiming for high-income status and seeking to avoid the “middle-income trap.”

### Small middle-income countries and context
- Countries examined: Botswana, Cabo Verde, Lesotho, Mauritius, Namibia, Seychelles, and Swaziland.
- Background: Seminar built on initial discussions during two earlier high-level meetings on the sidelines of the 2013 and 2014 IMF–World Bank Spring Meetings and on joint work toward a forthcoming book titled “Africa on the Move: Unlocking the Potential of Small Middle Income Countries (SMICs).”
- Sponsorship: IMF’s African Technical Assistance Centers in Ghana and Mauritius, the Africa Training Institute in Mauritius, the Regional Multi-Disciplinary Center of Excellence in Mauritius, and the European Union.

### Avoid the trap
- Key concern: The “middle-income trap” — middle-income countries graduate to high-income status far less often than low-income countries graduate to middle-income status.
- Historical statistic: From 1960–2012, fewer than 20 percent of middle-income countries—and none from sub-Saharan Africa—became high-income states, compared with more than half of low-income countries graduating to middle-income status.
- Current challenge: While growth remains positive, growth has slowed as previous growth drivers weaken and the rise in per capita income wanes.

### Boosting growth — seminar focus areas
Participants explored policy responses in five key areas:
- Macroeconomic vulnerability
- Employment and inclusiveness
- Productivity growth
- Financial inclusion
- Political economy of economic reform

Seminar format: Peer-to-peer learning with small breakout sessions, group discussions, and country presentations reviewing experience and failures of specific policy initiatives.

### Consensus findings and policy implications
- Macroeconomic buffers and trade-offs:
  - Small middle-income countries are highly vulnerable to shocks.
  - Importance of building sufficient policy buffers to absorb external shocks, especially since official financing flows for these countries will fall over time.
  - Recognition of significant opportunity costs of buffers such as holding large reserves, given important infrastructure gaps that restrain long-term growth.
- Labor markets and diversification:
  - Need for policies to reduce skills mismatch to promote diversification.
  - Properly designed policies could “crowd in” private sector employment while the state fosters labor market functioning and provides safety nets.
  - Need to implement public employment and wage policies that improve labor market outcomes and avoid the government becoming the “employer of last resort”.
- Productivity and public spending:
  - Returning to strong growth is necessary to achieve high-income status and will require deeper reforms and innovative policies to boost productivity.
  - Quality of public spending—especially for education and economic governance—is an important tool for supporting productivity growth.
- Financial inclusion:
  - Emerging evidence that financial inclusion is crucial for structural transformation and inclusive growth.
  - Small middle-income countries have some of the most uneven distributions of income in the world.
  - Need to go beyond relaxing financing constraints (e.g., loan subsidy programs) to address underlying market failures and structural weaknesses that keep intermediation costs high.
  - Efforts to promote financial inclusion should be pursued in a manner that preserves financial stability.
- Political economy of reform:
  - Effective communication important to build support for reforms.
  - Appropriate sequencing can reduce chances of reform fatigue.
  - Value of “reform champions” insulated from short-term political cycles.
  - Strategies to advance reforms need to be driven by country-specific circumstances.

### Benefits of peer learning and next steps
- Peer learning viewed as an untapped potential to help move reforms forward in these countries.
- The forthcoming book was seen as a vehicle to foster peer learning; country participants offered to contribute experiences to enrich analysis.
- Interest in cost-effective knowledge-sharing tools, including online platforms, which the IMF African Department and the Africa Training Institute will help explore.
- Capacity building and regional training institutions could become vehicles for peer-to-peer learning and support.
- Long-term vision: Countries could set common policy goals among themselves, with better-performing countries helping those lagging behind.

*Source: IMF African Department; December 17, 2014.*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Turkey’s middle-income recipe](http://blog-imfdirect.imf.org/2014/12/15/turkeys-recipe-to-escape-the-middle-income-trap/)
- [Productivity key to growth](http://www.imf.org/external/pubs/ft/survey/so/2013/car051313a.htm)
- [Ghana’s middle-income target](http://www.imf.org/external/pubs/ft/survey/so/2013/car061213a.htm)
- [Rwanda’s middle income aim](http://www.imf.org/external/pubs/ft/survey/so/2014/car122214a.htm)
- [African Technical Assistance Centers](http://www.imf.org/external/np/exr/facts/afritac.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar121614a_