The Case for Reforming the Price of Water

David Lipton2012By David Lipton

Versions in عربي (Arabic), 中文 (Chinese), Français (French), 日本語 (Japanese), Русский (Russian), and Español (Spanish)

One of the first things most students of economics learn is the diamond and water paradox. How can it be that water is free even though life cannot exist without it, while diamonds are expensive although no one dies for lack of diamonds?

The answer is that water can be free if its supply is abundant relative to demand. Nevertheless, it is abundantly clear that worldwide, the demand for water outpaces supply. This imbalance is the clearest sign that water is underpriced. Yet, many governments are reluctant to price water like other goods.

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Managing the revenue from natural resources—what’s a Finance Minister to do?

By Sanjeev Gupta and Enrique Flores

(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.”

SDN on Resource Wealth.Chart1

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The Evolving Role of the Banking Systems in Central, Eastern and Southeastern Europe

moghadamBy Reza Moghadam

What has been the role of foreign banks in financing growth and convergence in Central, Eastern and Southeastern Europe, and how is that role changing? This is discussed in the first issue of a new series of analytical work on the region called Regional Economic Issues, which we launched at a joint IMF/Czech National Bank conference two weeks ago in Prague.

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India’s Slowdown May Have a Silver Lining

India's long-run challenges have turned into short-run problems. Supply constraints, particular in power, mining and land, have become increasingly binding. As these constraints have raised costs and inflation, investor sentiment has suffered. But other measures to remove bottlenecks also matter, such as streamlining taxation and facilitating business investment via additional financial reforms.

Why the Arab World Needs an Economic Spring

Just as the "Arab Spring" opened a debate about politics in the Middle East, we now need an "Economic Spring" on how to rethink the region's economic future. Of course each country will have to define its own strategy, but there will be some common issues that will have to be addressed.

Making Sure Middle East Growth Is Inclusive

We know that social exclusion and unemployment, especially among young people, are very painful and that the challenges ahead are formidable. We should not let the hopes and aspirations of the people who took to the street go unfulfilled. We must strive to ensure that the people of the Arab countries in transition have the opportunity for a fairer and more prosperous future.

Lively Debate on the Dead Sea Shores

One of my biggest (and heartening) takeaways was that there were more young people bubbling with ideas and entrepreneurial spirit (ready to take risk) than ever before at this regional forum—which reflects a growing recognition of their current role in the Arab Spring and the role they will have to play in the future as drivers of economic change.

What the Arab Spring Has Taught Us

A clear lesson is that even rapid economic growth cannot be maintained unless it is inclusive, creates jobs for the growing labor force, and is accompanied by social policies for the most vulnerable. F from the Arab Spring is that economic reforms to be sustainable, their gains must be broadly shared, not just captured by a privileged few. Widespread corruption is not just an unacceptable affront to the dignity of citizens, it also deprives them of the economic benefits. And the absence of transparent and fair rules of the game will inevitably undermine inclusive growth.

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