Public finances have had a rough year. A new reality is emerging. Against this backdrop, countries need to act now to boost growth and build resilience. They must also be prepared to act together to fend off global risks.
When meeting with people outside Africa, I’m often asked whether Africa’s growth takeoff since the mid-1990s has been simply a “commodity story”—a ride fueled by windfall gains from high commodity prices. But finance ministers and other policymakers in the region, and I was one of them, know that the story is richer than that.
In this spirit, in our latest Regional Economic Outlook: Sub-Saharan Africa a team of economists from the IMF’s African Department show that Africa’s continued success is more than a commodity story. In fact, quite a few economies in the region have become high performers without basing their success on natural resources—thanks in no small part to sound policymaking.
Central Banks, Financial Regulators, and the Quest for Financial Stability: 2011 IMF Annual Research Conference
The global financial crisis gave economists pause for thought about what should be the future of macroeconomic policy. We have devoted much of our thinking to this issue these past three years, including how the many policy instruments work together. The interactions between monetary and macroprudential policies, in particular, remain hotly debated. This topic goes to the core of central banks’ mandates, and their role in achieving macroeconomic and financial stability. While the financial crisis triggered a fundamental rethinking of these issues, much research—both conceptual and empirical—remains to be done. I hope this year’s IMF Annual Research Conference will contribute to expanding the frontier of knowledge on this topic.
Latin America has enjoyed tremendous economic dynamism and a rising quality of life over the past decade. But the region’s transformation is not yet complete. Leaders across the region should capitalize on today’s favorable conditions, transforming their countries to the next level, and ensuring that the benefits of growth are more widely shared. The question is: how best to do that? As I travel through the region next week—visiting Panama, Uruguay, and Brazil—I’m looking forward to hearing the views of government officials, parliamentarians, and university students on the key challenges facing their countries today.
The crisis has forced economists and policy makers to go back to their drawing boards. Where did they go wrong, and what implications does the crisis have for both macroeconomic theory and macroeconomic policy making? This was the topic of this year’s IMF Jacques Polak Research Conference. The twelve papers presented at the conference provided rich fodder for discussion. Here, Olivier Blanchard shares some flavor of the major themes, including: (i) the increased attention to fiscal policy; (ii) the scope for monetary policy to lessen the adverse ‘real economy’ effects of financial disruptions; (iii) the role of international capital flows in weakening financial stability; and (iv) the prominence of regulatory issues and the interplay with the real economy.
Today, fiscal problems are a key concern of policy makers in many industrial countries, and a reassessment of sovereign risk is a palpable threat to global recovery. At the heart of the issue is the extent to which governments have room for fiscal maneuver—“fiscal space”—before markets force them to tighten policies sharply and, relatedly, the size of adjustments needed to restore or maintain public debt sustainability. Yet, much of the talk about fiscal space—how to measure it and the policy implications—has so far been rather fuzzy. In this blog, Jonathan Ostry discusses a new staff position note that he co-authored with several IMF colleagues, which aims to remedy this by providing an operational definition of the fiscal space concept as well as estimates of fiscal space for 23 advanced economies.
When it comes to the crisis, most of the media attention is focused on advanced and emerging market countries. But low-income countries have been badly hit too, reflecting their growing integration in the world economy. We can see sharp declines in exports, FDI, tourism, and remittances. Output growth in 2009 will be less than half of the pre-crisis rate of over 5 percent. Sub-Saharan Africa is the worst affected, with a contraction of real per capita GDP of almost 1 percent.
This is the bad news. But there is some good news in all of this. Low-income countries have been able to use fiscal policy as a countercyclical tool this time around, far more than in the past. Fiscal deficits are expected to increase in three-quarters of low-income countries in 2009, with an average expansion of 3 percent of GDP. Revenues have grown slower than GDP, reflecting the disproportionate impact of the crisis on trade and commodity revenues, as well as weakening tax compliance. Expenditures are expected to increase by about 2 percentage points of GDP.
One obvious fallout of the global financial crisis is a huge deterioration in fiscal conditions, particularly in advanced countries. The numbers are nothing short of staggering. Gross general government debt in the G-20 advanced economies is projected to approach 120 percent of GDP by 2014, up from about 80 percent in 2007, and this is even assuming no renewal of fiscal stimulus beyond 2010.