Seventy percent of the world’s poorest people live in countries rich in oil, natural gas or minerals, making effective taxation of these extractive industries critical to alleviating poverty and achieving sustained growth. But national borders make that task much harder, opening possibilities for tax avoidance by multinationals and raising tough jurisdictional issues when resource deposits cross frontiers. (more…)
“The human influence on the climate system is clear and is evident from the increasing greenhouse gas concentrations in the atmosphere, positive radiative forcing, observed warming, and understanding of the climate system.” —Intergovernmental Panel on Climate Change, Fifth Assessment Report
Fossil fuel prices are likely to stay “low for long.” Notwithstanding important recent progress in developing renewable fuel sources, low fossil fuel prices could discourage further innovation in and adoption of cleaner energy technologies. The result would be higher emissions of carbon dioxide and other greenhouse gases.
Policymakers should not allow low energy prices to derail the clean energy transition. Action to restore appropriate price incentives, notably through corrective carbon pricing, is urgently needed to lower the risk of irreversible and potentially devastating effects of climate change. That approach also offers fiscal benefits.
By Min Zhu
(version in Español)
The growth story for frontier economies isn’t the same as China’s in the last two decades, or the United States a hundred years ago. These fast growing, low-income countries have their own story, and it’s not what you might think.
In May of this year, I wrote about who they are and how they are different, and now I want to go into a bit more detail about how their economies have been on the rise and how they have moved themselves to the frontier.
(Versions in Español)
The Finance Minister answers her mobile. On the line is the Minister of Energy, who informs her that the country has struck oil and that he expects revenues from its sale to start flowing into the budget in the coming four years. While excited by the prospects of higher revenues—indeed the average resource-rich country gets more than 15 percent of GDP in resource revenues—she starts to ponder how to use these revenues for her country’s development. She is aware that only in rare cases have natural resources served as a catalyst for development; too often they have led to economic instability, corruption, and conflict or what has been termed as “the resource curse.”
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.
The IMF blog has helped stimulate considerable debate about economic policy in the current crisis, on events in Europe and around the world, on fiscal adjustment, on regulating the financial sector, and the future of macroeconomics, as economists learn lessons from the Great Recession. As readers struggled to understand the implications of the crisis, our most popular post by far was IMF Chief Economist Olivier Blanchard's Four Hard Truths, a look back at 2011 and the economic lessons for the future.
In our study, we analyze how fiscal frameworks for resource-rich countries be made more flexible in practice from a practitioner’s perspective, proposing specific options to effectively anchor fiscal policy while allowing for a sustainable scaling up of spending in the context of increased resource revenue.
It wasn’t all that long ago when virtually all of sub-Saharan Africa’s exports were destined for Europe and North America. But the winds of Africa’s trade have shifted over the past decade. There has been a massive reorientation towards other developing countries, in particular China and India. Like Janus, the Roman god, Africa’s trade is now, as it were, facing both east and west. Our latest Regional Economic Outlook for sub-Saharan Africa looks closely at these developments and its policy implications. In addition to the well-known gains from international trade, Africa’s trade reorientation is also beneficial because it has broadened the region’s export base and linked Africa more strongly to rapidly growing parts of the global economy. These changes will help reduce the volatility of exports and improve prospects for robust economic growth in Africa.
Economists care about growth. Governments care about what it can achieve: more jobs and more income for more people. An increasing number of African countries have been growing robustly for more than a decade. But while growth is a necessary condition for poverty reduction and employment creation, is it also sufficient?
Governments in Africa have a prime objective—to reduce poverty. To improve living standards and create jobs, they need to provide their citizens with better health care, better education, more infrastructure. They need to build hospitals, schools, and to pay doctors, nurses, teachers. All this costs money, and how to pay for this—in a way that is both fair and efficient—is a major challenge. With limits to how much a government can receive as grants or borrow, raising tax revenues will be a crucial element for governments to deliver more of these essential services and, in turn, reduce poverty. Policymakers will have an opportunity to exchange views on the challenges of Revenue Mobilization in Sub-Saharan Africa at a conference in Nairobi this week. To help frame that conversation, here are some ideas about priority areas for action.