For many years, countries in sub-Saharan Africa have spent large amounts on subsidizing fuel and electricity. For both sources of energy combined, this averages around 3-4 percent of GDP. That’s about the same magnitude as public spending on health in many countries. Now we need to ask some important questions. Is this a good use of scarce resources? Where does this money go? Is it helping to support the livelihood of the poorest in African economies? Is it helping to boost the country’s competitiveness? The answers are largely, no. I believe this money can and must be used better to invest in the critical physical and social infrastructure required to sustain growth in sub-Saharan Africa. A recent IMF paper backs this up.
Let’s face it. Everybody loves cheap energy. Almost all human activities require energy consumption and, if something is so basic, it seems pretty obvious that it should not be denied to anyone and government should make it as cheap as possible to both households and companies, including through subsidies. This can help households avoid paying exorbitant energy bills at the end of the month, something that the poor may not be able to afford even for basic needs like heating and cooking.
Companies may also need energy subsidies to help them stay competitive. Energy subsidies appear even more appropriate, and even the obvious thing to do, in countries that have a large supply of energy, like oil producers. After all, this natural wealth in the form of energy belongs to the people; why shouldn’t it be cheap?
Filed under: Africa, Economic research, Español, Finance, Financial Crisis, Fiscal policy, Français, growth, Inequality, International Monetary Fund, Low-income countries, Middle East, Politics, عربي | Tagged: education, energy subsidies, energy taxes, environment, fiscal policy, GDP, infrastructure, reform | Leave a Comment »
By Masood Ahmed
Of all the regions in the world, the Middle East and North Africa region stands out as the one that relies the most on generalized energy subsidies. In energy-rich countries, governments provide subsidies to their populations as a way of sharing the natural resource wealth. In the region’s energy-importing countries, governments use subsidies to offer people some relief from high commodity prices, especially since social safety nets are often weak.
The question is: does this well-intended social protection policy represent the most efficient way to channel aid to the most vulnerable? The answer is no!
Filed under: Emerging Markets, Finance, Fiscal policy, growth, IMF, Investment, Middle East, Politics, عربي | Tagged: energy subsidies, environment, fiscal policy, governments, inequality, MENA, oil, oil prices, reform | Leave a Comment »
by José Viñals
Version in Español
It is still winter in the northern hemisphere, but there is never a bad time for spring cleaning. I suggest that policymakers de-clutter their to-do lists by focusing on three priorities.
These policies will help economies grow and will significantly improve financial and monetary stability in 2013 and beyond.
Filed under: Advanced Economies, Europe, Finance, Financial Crisis, Financial regulation, Financial sector supervision, growth, IMF, International Monetary Fund, Politics | Tagged: banks, Basel III, iMFdirect blog, liquidity, macroprudential, to=do list, Vinals | Leave a Comment »
By Nemat Shafik
During the years that followed the euro’s introduction, financial integration proceeded rapidly and markets and governments hailed it as a sign of success. The widespread belief was that it would benefit both south and north—capital was finally able to flow to where it would best be used and foster real convergence.
But in fact, a lasting convergence in productivity did not materialize across the European Union. Instead, a competitiveness divide emerged. As the financial crisis gripped the euro area in 2010, these and other problems came to the fore.
Three years later, the financial symptoms of the crisis are thankfully receding with a new sense of optimism in markets. But the underlying problems—lack of convergence of productivity and the structural flaws in the architecture of the monetary union—have only been partially addressed.
Filed under: Advanced Economies, Economic Crisis, Employment, Europe, Finance, Financial Crisis, Financial regulation, Financial sector supervision, Fiscal policy, growth, IMF, International Monetary Fund | Tagged: central banks, emerging economies, euro zone, Europe, European Union, financial integration, fiscal integration, fiscal union, Germany, IMF, iMFdirect, International Monetary Fund, Italy, monetary union, productivity, Spain | Leave a Comment »
It’s not news that emerging markets can be vulnerable to bouts of market volatility. Investors often pull sudden stops—they stop buying or start selling off their holdings of government bonds.
But what has become apparent in recent years is that advanced economy government bond markets can also experience investor outflows, and associated runs. At the same time, some traditional and new safe haven countries have seen their borrowing costs drop to historic lows as they experience rising inflows from foreign investors.
Our new research shows that advanced economies’ exposure to refinancing risk and changes in government borrowing costs depend mainly on who is holding the bonds— the demand side for government debt.
Filed under: Advanced Economies, Asia, Emerging Markets, Europe, Finance, Financial Crisis, Financial regulation, Financial sector supervision, G-20, growth, IMF, International Monetary Fund | Tagged: advanced economies emerging economies, Australia, Austria, banks, Belgium, borrowing costs, Canada, debt, debt-to-GDP ratio, demand, Denmark, financial institutions, financial markets, Finland, France, Germany, government bonds, Greece, IMF, iMFdirect, International Monetary Fund, investors, Ireland, Italy, Japan, Korea, Netherlands, New Zealand, Norway, Portugal, refinancing risk, risk, Slovenia, sovereign risk, Spain, supply, Sweden, Switzerland, United States, World Economic Outlook | 4 Comments »
The planet’s most successful species are the great cooperators: ants, bees, termites, and humans.
In an article in the new issue of Finance & Development magazine, President Bill Clinton shares his experience working with governments, business, and civil society as part of his Clinton Global Initiative.
He says they are making the most progress in places where people have formed networks of creative cooperation where stakeholders come together to do things better, faster and cheaper than any could alone.
Filed under: Advanced Economies, Africa, Asia, Civil Society, Debt Relief, Economic Crisis, Emerging Markets, Employment, Europe, Finance, Fiscal policy, Globalization, growth, IMF, Inequality, International Monetary Fund, Latin America, Middle East, Multilateral Cooperation | Tagged: Africa, agriculture, Bolsa Familia, Brazil, business, business leaders, Canada, capital markets, Clinton Global Initiative, Coca-Cola, Colombia, cooperation, developing countries, domestic food security, Economics, economy, exports, farmers, Fundacíon Carlos Slim, Fundacíon Pies Descalzos, Gap Inc., governments, growth, Haiti, HIV/AIDS, IMF, iMFdirect, imports, infrastructure, International Monetary Fund, investment, Ira Magaziner, Ireland, Latin America, Malawi, mining industry, networks, NGOs, Norway, philanthropists, poverty, President Bill Clinton, private sector, small and medium-sized enterprises, the United Kingdom, tourism, United Nations General Assembly, vocational training | 4 Comments »
(Version in Español)
Four years after the Lehman Brothers crisis, private companies in the largest and most financially integrated Latin American countries are doing relatively well, despite continuous bouts of global uncertainty. Like firms in other high-performing emerging markets in Asia, companies in Brazil, Chile, Colombia, Mexico, and Peru (the “LA5”) have benefited from abundant external financing, strong domestic credit, and generally robust demand growth.
These favorable conditions have resulted in robust corporate profitability and valuation, reasonably contained debt ratios, and lower short-term maturity exposures than those observed in other emerging markets.
But some vulnerabilities are starting to build up.
Filed under: Asia, Economic Crisis, Emerging Markets, Finance, growth, IMF, International Monetary Fund, Latin America | Tagged: Brazil, Chile, Colombia, corporate sector, currency, growth, IMF, International Monetary Fund, LA5, Latin America, María González-Miranda, Mexico, Peru, vulnerable | 1 Comment »
By David Lipton
(Version in عربي)
Almost two years since the Arab Awakening started, the future of the Middle East and North Africa is in a flux, with fledgling democracies struggling to find their way and renewed outbreaks of violence adding to the challenges the region is facing. Some are starting to worry aloud that the revolutionary path may hit a dead end.
To me, a useful way to think about the present situation is that the region could end up taking any one of three alternative paths, as far as its economic future is concerned. We could witness either:
- Economic deterioration, if squabbling over political power prevents stabilization, let alone reform;
- Stabilization through a reassertion of vested business interests that would offer a respite from eroding economic conditions, but condemn the region to a return to economic stagnation or at best tepid growth;
- Or we could see a new economy emerge, as newly elected governments gradually find a way to end economic disruptions and undertake reforms that open the way to greater economic opportunity for their people.
While the first two paths would be undesirable, they could come to pass. Needless to say, the third path of transformation would be best.
No doubt the Arab countries in transition will chart their own paths. But I strongly believe that the international community also has a role in helping them avoid the unfavorable outcomes. Let me share some thoughts on how we can provide support.
Filed under: Africa, Economic Crisis, Economic research, Employment, Europe, Finance, Financial Crisis, Globalization, growth, IMF, Inequality, Investment, Middle East, Politics, Public debt, عربي | Tagged: Arab, Arab Awakening, Arab Spring, Belgium, David Lipton, EBRD, European Union, exports, Gulf Cooperation Council, Hamadi Jebali, iMFdirect, Jordan, Libya, MENA, Morocco, transformation, Tunisia, Turkey, United States, Yemen | 3 Comments »