For Africa, Good Policies Bring Good Prospects


Antoinette SayehBy Antoinette M. Sayeh

Once again, the latest review of growth prospects for sub-Saharan Africa shows that the region’s economy is in strong health. Growth in the region is set to pick up to 5½ percent in 2014 compared to 4.9 percent last year (see Chart 1). My view is that this growth momentum will continue over the medium term if countries rise to new challenges and manage their economies as dexterously as they have over the past decade or so.

So what explains this continued strong growth performance? Apart from good macroeconomic policies in the region, the growth has been underpinned by investment in infrastructure, mining, and strong agricultural output. And favorable global tailwinds—high demand for commodities and low interest rates—have played a major supporting role.

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If China Sneezes, Africa Can Now Catch a Cold


By Paulo Drummond and Estelle Xue Liu

(Version in  中文)

Growing links with China have supported economic growth in sub-Saharan Africa. But the burgeoning commercial and financial ties between the developing subcontinent and the world’s second-biggest economy carry risks as well. These links also expose sub-Saharan African countries to potentially negative spillovers from China if the Asian giant’s growth slows or the composition of its demand changes.

The old aphorism “If America sneezes, the world catches a cold” referred to the U.S. economy’s role as a locomotive for the global economy, but it can now apply to any symbiotic relationship between a dominant economy and its clients. China has become a major development partner of sub-Saharan Africa. It is now the subcontinent’s largest single trading partner and a key investor and provider of aid.

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The Power of Cooperation


by iMFdirect

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.

Building on Latin America’s Success


Christine Lagarde

By Christine Lagarde

(Version in Español)

Next week, I will travel to Latin America—my second visit to the region since November 2011. I return with increased optimism, as much of Latin America continues its impressive transformation that started a decade ago.

The region remains resilient to the recent bouts in global volatility, and many countries continue to expand at a healthy pace. An increasing number of people are escaping the perils of poverty to join a growing and increasingly vibrant middle class.

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Middle East and North Africa Face Historic Crossroads


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.

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Bridging the Gap: How Official Financing Can Ease the Pain of Adjustment


By Nicolás Eyzaguirre

After three and a half demanding and fulfilling years at the International Monetary Fund, I’ve had a chance to see, up close, countries trying to cope with the global economy in the same way a cook might operate a blender without the lid on—carefully, while creating as little mess as possible.

As I step down from my position as Director of the IMF’s Western Hemisphere Department, I would like to share some reflections on one of the central issues facing many countries—adjustment under fixed exchange rates.  It goes without saying that these reflect a personal and not an institutional view.

A lot of ink has been spent over the question of why you would lend money to a country trying to bring down its government debt and deficit. The answer is simple: to give the reforms needed to make economies competitive again time to kick in.

In the old days, fixed exchange rates were the norm rather than the exception. A body of literature and a wealth of country experience have accumulated on how to adjust under such exchange rate regimes, mostly in emerging economies. The expression “adjustment and financing” came to summarize what economies should do when faced with severe funding constraints brought on by high borrowing costs for government debt in financial markets.

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The Logic and Fairness of Greece’s Program


By Olivier Blanchard

(Version in ελληνικά عربي)

To get back to health, Greece needs two things. First, a lower debt burden. Second, improved economic competitiveness. The new program addresses both.

Bringing down the debt

Some countries have been able to work down heavy public debt burdens. Those that were successful did it through sustained high growth. But in Greece’s case, it had become clear that high growth—let alone sustained high growth—was not going to come soon enough. Debt had to be restructured.

The process was long and messy. After all, bargaining between creditors and debtors is rarely a love affair. In the process, foreign creditors were often vilified in Greece as bad guys—rich banks, who could and should be willing to take a hit. But in the end, banks belong to people, many of them saving for retirement, who saw the value of their bank shares go down in value.

All said, the PSI (private sector involvement) dealthe largest ever negotiated write-down of public debt—has reduced the debt burden of every man, woman, and child in Greece by close to €10,000 on average, a sizable contribution on the part of foreign savers.

Greece now has to do its part―with sustained political commitment to implement the difficult but necessary set of fiscal, financial, and structural reforms that have been agreed as part of the program supported by Greece’s partners in the eurozone and the IMF. It is a huge challenge, no doubt. But it is also an opportunity–to take advantage of the economic space opened up by private and official creditors. Will Greece seize it?

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Latin America’s Commodity Dependence: What if the Boom Turns to Bust?


By Gustavo Adler and Sebastián Sosa

(Version in Español)

As a commodity exporting region, Latin America has greatly benefited from the commodity price boom of the past decade. But with talk of a new global recession, what will happen to the region if the boom turns to bust?

The IMF’s latest Regional Economic Outlook: Western Hemisphere sheds light on Latin America’s reliance on commodities from a historical perspective. Our study also looks at the effect of a sharp decline in commodity prices on emerging market economies and on the policies that could shield countries from that shock.

More dependent but also more diversified

The reliance on commodity exports can be looked at as a share of GDP (commodity dependence) as well as relative to total exports of goods and services (export diversification). Continue reading

Africa’s New Janus-Like Trade Posture


By Antoinette M. Sayeh

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.

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