Reform to avoid middle-income trap, IMF advises
Brian Benza | Tuesday February 2, 2016 18:00
While sub-Saharan Africa remains the second fastest–growing region in the world, the small middle-income countries, including Botswana, are among the slowest growing in the region and there are significant downside risks to their outlook.
Delivering a keynote address at a regional conference jointly hosted with the Bank of Botswana (BoB) in Gaborone on Friday, IMF deputy managing director, Min Zhu, warned that unless new growth plans are carved, fears of the middle-income trap could become a reality.
The conference was entitled, “Small Middle-Income Countries in Sub-Saharan Africa - Raising the Bar.'
Faced with major headwinds such as climate change, commodity prices slump, and a slowing global economy, SMICs are facing stagnant or negative growth, which has resulted in high unemployment and income inequality. “The earlier growth model for small middle-income countries based on factor accumulation that allowed them to graduate from low-to-middle income status may no longer be well suited.
“To deal with these headwinds and recapture the earlier growth momentum over the medium-term will require governments to rethink the possible sources of growth, along with new policies. Crucially, countries need to implement previously delayed structural reforms to enhance their competitiveness and resilience,” he said.
Botswana’s economic growth, which hovered around an average 8.7 percent in the period 1996-2001, slowed down to 4.4 percent during 2002-2006 before further easing to an average 3.9 percent during 2007-2013.
In the period 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, according to the IMF.
A high-income economy is defined by the World Bank as a country with a Gross National Income (GNI) per capita above $12,746 (P147,300) Botswana’s GNI per capita currently stands at around $7,700 (P89,012)
According to Zhu, in many cases the reform priorities will have to be country-specific and consistent with their stage of development, but five areas of common interest among SMICs have been identified.
“Countries have to craft policies to reduce government debt and deficits and spur private sector development, inclusive growth, job creation and strengthening pubic financial management.
“Given multiple reform needs, countries need to prioritise and sequence reforms to maximise pay-offs.
The pace of reform appears to matter for productivity growth as much as the type of reform,” he added. At the end of the conference, BoB Governor, Linah Mohohlo, noted through a statement that the conference had touched on various policy challenges that SMICs have in common - on the one hand ensuring economic stability and sustaining growth while promoting inclusion and social equity, and on the other hand recalibrating the growth strategy to facilitate the transition to high-income status.
“We had an excellent opportunity to discuss the lessons and prospects of policies being implemented in several SMICs as well as on other countries that successfully tackled their developmental challenges and have now well-functioning and developed markets.
The wide forum in which the conference took place and the related peer-to-peer learning strengthened the dialogue among SMICs and offered novel views on how to tackle these countries’ challenges,” she said.
Delegates at the conference included senior officials from a number of countries, representatives of the private sector, academia, the executive board of the IMF and IMF staff.