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Economic Policy & Debt

Infant mortality rates in Africa will increase by 30,000-50,000 - Girls will fare worse

Submitted by Norbert Schady on Tue, 2009-08-11 02:00

The impact of the global financial crisis on infant mortality is a topic of great policy importance. However, estimates of the likely impacts of the crisis, cited by international institutions and in the popular press, differ wildly.

This blogpost summarizes the main conclusions from some of my own recent research on this topic, jointly with various colleagues.

These conclusions include:

1. The effect of negative growth on child health, including infant mortality, varies a great deal across countries. In developed countries, such as the US, infant mortality decreases when there are negative economic shocks. In low-income countries, including in India and countries in Sub-Saharan Africa, infant mortality increases in those periods (see Ferreira and Schady 2009 for a discussion). The picture for middle income countries is mixed, but on balance, it is closer to that found in the US. Important exceptions are cases in which the economic contraction was very severe--maybe 15 percent or larger. That was the case in two crises in Peru, and in Indonesia in 1998 (see Paxson and Schady 2005 and Schady and Smitz 2009).

African economic policies and the global crisis: Orthodox responses to a heterodox shock?

Submitted by Shanta on Sun, 2009-08-09 22:02

When the global economic crisis hit Africa, I worried (along with others) that the continent’s economic reforms would be stalled or reversed.  Political support for these reforms may be undermined as economic growth slowed.  Furthermore, the response of high-income countries in response to the crisis—large fiscal deficits and greater government participation in the banking sector—was in the opposite direction of the reforms that African countries had been pursuing in the past decade.

In fact, the response of African governments has been largely to maintain, and in some cases accelerate, their reform programs: 

- Zambia, for instance, is running a modest fiscal deficit (2.6 percent of GDP) while maintaining the medium-term expenditure program it had established before the crisis. 

- Tanzania’s emergency program includes government support to the banking sector that is strictly time-bound, something that the U.S. program lacks. 

- The Democratic Republic of Congo used an emergency credit from the World Bank to finance infrastructure maintenance and teachers salaries. 

- Nigeria is planning to deregulate its downstream petroleum sector, which will generate substantial savings from reduced subsidies.

The reasons for these responses are many.  First, in low-income countries, a large fiscal stimulus can have impact only if it is financed with additional external resources and with the exception of “front-loading” of already-committed aid, these additional resources have been lacking during the crisis. 

Education and Finance in Africa

Submitted by Shanta on Fri, 2009-07-17 17:48

At a recent conference that brought together African Finance and Education ministers, the keynote speaker, Tharman Shanmugaratnam, finance minister (and former education minister) of Singapore gave a beautiful speech about Singapore's experience that contained some potentially difficult and controversial messages for Africa.

1.  There is a virtuous circle of education and growth, but you need to create it.  This means that finance ministers should be concerned about education, and education ministers about economic growth. [At the conference, one participant, when asked a question about education in his country, said "I'm the finance minister, not the education minister."]

2.  Singapore emphasized technical and vocational education by giving it prestige that was almost equal to academic education.  This involved, among other things, a public relations campaign.  As participants at the conference said, in Africa, we also need to deliver on the quality of vocational and technical education.

3.  Singapore's insistence on education being a meritocracy (students advance purely on merit) has led to equity.  For instance, the top 5 percent of the students come from 95 percent of the schools.  But to make this work, the education system needs to be insulated from politics.  As Tharman said, the role of political leaders is to keep politics out of education.

4.  In Singapore, universities charge full fees, and give scholarships to low-income students.  The government encourages private donations to universities, matching them one-for-one.  How many African universities can overcome the political resistance to charging fees?.

Why Don't We See Poverty Rates Converging?

Submitted by Martin on Tue, 2009-07-07 14:30

Sub-Saharan Africa now has the highest incidence of extreme poverty, such as judged by the World Bank’s $1.25 a day poverty line. Granted, Africa has shown encouraging signs since the mid 1990s of reversing its past record of relatively poor performance against poverty.

A South African puzzle

Submitted by Sandeep on Mon, 2009-07-06 16:35

In recent months, the external sector in South Africa has strengthened in ways that are somewhat perplexing. The strengthening has partly to do with weak import demand due to the economic slowdown.  But the surprising aspect has been sustained inflows of foreign portfolio investment in South African domestic securities.  Just as the news on the real sector and fiscal balances has gotten worse, somewhat paradoxically foreign investors’ appetite for South African securities has grown. Negative reports on economic performance have been unrelenting -- recession and higher unemployment, biggest declines on record in manufacturing and mining, battering of the automobile industry, and a much-larger-than-anticipated fiscal gap.  Yet, the Rand stood at a 10-month high against the US dollar on June 30, whereas currencies in Brazil, India and Russia had lost much more ground against the greenback. The country issued a 10-year, US$1.5 billion bond on international markets in May, and it was oversubscribed several times over at a modest spread of 368 bp over LIBOR.  By end-June, foreigners had net purchased about US$4.5 billion of bonds and stocks on South African markets.

No doubt, foreigners are attracted by the country's good record on macroeconomic stability, financial sector discipline, and rapidly rising investment in infrastructure, although they may be deterred by its large current account deficit.  But that record has not changed in recent months. So what explains this seeming dichotomy between progressively bad news on economic performance and strengthening interest of foreign portfolio investors?  A penny (or 8 South African cents, which would have been 10 cents in April) for your thoughts.

Romance and economics

Submitted by Shanta on Wed, 2009-07-01 10:17

A friend sent this photograph, with the following caption: “Don't let the recession take the flame out of your romantic lives!  There's always sunshine in Africa! Resourcefulness at its best.... Anything to keep the wheels turning!”

The picture and caption reminded me of the song “Girl, your marginal benefits…” which could be viewed as a painless way to learn microeconomics, or a quirky love song.

How have policies and institutions in low-income African countries fared?

Submitted by Shanta on Tue, 2009-06-30 15:02

Last Friday, the World Bank released its Country Policy and Institutional Assessment (CPIA) of low-income countries.  While the assessments are mainly used to determine the allocation of concessional IDA resources to poor countries, they can also provide a useful picture of the evolution of policies and institutions in Africa, as a recent note by my colleagues Delfin Go and Vijdan Korman shows.  They find that:

  • Over the past eight years, African countries’ performance is about average compared with East Asia and South Asia.
  • Within Africa, Cape Verde, Tanzania, Uganda and Ghana have consistently had strong CPIA scores, while Zimbabwe, Comoros, Central African Republic and Eritrea seem to be stuck at the low end of the scale.
  • Over the past five years, the biggest improvements in CPIA scores were registered by Ghana, Rwanda, Zambia and Mozambique, while Eritrea, Chad and Zimbabwe experienced the largest deterioration.  Seven of Africa’s nine oil exporters (Angola and Nigeria were the exceptions) saw their CPIA scores decline.
  • For Africa as a whole, most of the improvement in policies and institutions was in the category called “economic management”—essentially macroeconomic and fiscal policies.  The average scores on the other dimensions—structural policies, equity and social inclusion, and public management—stagnated.  While some countries showed improvements along these other dimensions, an equal number of countries saw their scores go down.

Madagascar: a transition...but challenges are coming soon

Submitted by Noro Andriamihaja on Mon, 2009-06-22 16:30

So far the dialogue between the main political parties has failed to produce an agreement on the way forward for a return to a democratic Government. For the time being, the economy continues to deteriorate but has shown some resilience due to two factors; 

(i) Fiscal Policy: The strict fiscal policy pursued by the authorities has helped stabilize key financial indicators (interest rates, inflation, and the exchange rate) 

(ii) The dual impact of the crisis on private sector and households: A segment of the economy has been seriously affected (such as tourism, textile and construction) resulting in job losses in urban areas. In contrast to these vulnerable sectors, a large fraction of the Madagascar economy has been isolated from the current recession (likewise they benefited less from growth in good times) because of the good rice harvest.  

Three main challenges in the near future: (i) the payment of salaries to community teachers when classes will open in September, (ii) the reaction of textile companies to the uncertainty surrounding the US decision to maintain Madagascar as part AGOA, (iii) investment and planting decisions for the rice counter-season.

The question is will the Government be able to pass those tests in the absence of a political agreement?

To see the full report on the Madagascar economy, click here

Critiques from inside the World Bank

Submitted by Shanta on Tue, 2009-06-09 09:08

While my blog posts seemed to elicit a fair number of comments, I had been wondering how many of them, if any, were coming from my World Bank colleagues. Last Friday, I got to find out. Our Internal Communications department ran a story on the Bank’s intranet with the headline “The effects of the global recession on Africa will be permanent, says Africa Chief Economist.” The story then linked to my blog post, “Why aid to Africa must increase”. My first reaction to some of the comments was “Ouch!”

One person said, “[Please] note that this is the same man who was saying (not too long ago) that South Asia would not be impacted by the crisis!” Touché. I had a blog post in January 2008 in my former South Asia blog that took the forecast for U.S. economic growth at that time, and inferred that the effect of the subprime crisis on South Asia would be mild. But most people were not forecasting such a big recession in the U.S. and elsewhere at that time. Of course, the bigger recession had a bigger impact on South Asia, although every South Asian country benefited from the fall in oil prices.

Another person said:  "The effects of global recession on Africa will be permanent! What nonsense. Who is the presumed seer who knows all about the future? And what will the effect on other places be? This is not a conversation rather it is purveyance of stereotypes under the guise of analysis, something that is very common at this institution. Disgusted."

Does Africa need industrial policy?

Submitted by Shanta on Mon, 2009-06-08 09:04

My good friend and predecessor John Page gave a provocative seminar with the title of this post the other day. His main point, echoed in this year’s UNIDO Industrialization Report, was that Africa’s industrial sector was declining, and some type of collective action (he called it “policies for industrialization” rather than the maligned phrase “industrial policy”) is needed so that the continent could resume industrial growth.