Albert Einstein once said: “The only source of knowledge is experience.” For years I have wondered about this. Surely you can understand something without actually having done it. After all, mankind’s understanding of the vast universe is greater than what can be directly experienced, and some of it is derived from theoretical reasoning. I was on my way to the 2018 Africa Carbon Forum to share fiscal policy lessons under the CAPE program and the debate was still raging in my head when I arrived at the UN campus in Nairobi Kenya.
The recent reversal of capital flows to emerging markets has pointed to the continuing relevance of the sudden stop problem when capital inflows dry up abruptly.
In a recent paper as well as a Vox column, we analyze these episodes in emerging markets over the past quarter century. We contrast their incidence, impact, correlates, and policy response before and after 2002, and establish similarities as well as differences.
Reforms of public financial management (PFM) systems – pursued by many countries and supported by development partners -- have attracted quite a bit of debate and analysis in recent years. Significant variation in progress achieved and lack of broad-based and sustained improvements in metrics of PFM performance, as reflected in CPIA ratings and PEFA scores, suggest to many observers that outcomes have not matched reform efforts and expectations.
This has led to a search for better solutions in two directions. First, grounding reform efforts in stronger problem analysis, and based on this, developing a better fit of reform approaches to specific country circumstances. Second, seeking a better understanding of non-technical aspects and, in particular, the role of political economy drivers in influencing which PFM reforms are pursued where and with what degree of success. ‘Doing things differently’ along these lines sounds promising – but reformers and development partners may well question whether we know enough to pursue such alternative approaches on a wider scale.
Recently, while reviewing a document, I came across a statistic about age dependency* in the Republic of Mauritius. Mauritius already had an age dependency ratio of 10.9 in 2010 and this is projected to rise to 25 by 2030 and 37 by 2050, which is at par with many East Asian economies. Aging issues in Europe and parts of Asia have already become an economic and fiscal policy concern over the last few years and will remain so for the foreseeable future, could it also become a problem for Sub-Saharan Africa (SSA) sooner than realized?
With 43 percent of the population below the age of 15 and only three percent above the age of 65, Sub-Saharan Africa is a predominantly young continent. The problems emanating from an ageing population, such as rising age dependency ratios and increasing health care costs, are far over the horizon as far as the continent is concerned. However, this may not remain so for long and definitely not for all the countries. Let me explain why.
Spring in DC draws more than just tourists. Last week, government officials, policy makers, civil society representatives and other thought leaders converged to take stock of the global economy during the IMF-World Bank spring meetings. The tone in the hallways was optimistic, but cautious. Growth in advanced economies still remains tepid, weighed down by lingering effects of the global financial crisis, demographic challenges, as well as weakening innovation and productivity growth. At the same time, there are encouraging signs that developing countries are in good shape, thanks to fiscal buffers that helped them to weather the storm.
Nevertheless, we must be mindful of the work ahead: the IMF warned of a ‘3-speed recovery’, where emerging markets are growing rapidly, the United States is recovering faster than most other advanced industrial countries, but Europe continues to struggle. Where does this leave developing countries? At a meeting with the G24 – a group of developing countries - I had the privilege of discussing the prospects for growth, and policies needed to achieve productivity growth essential for eliminating extreme poverty and for creating shared prosperity.
In recent weeks, fiscal policy – once the domain of policy wonks – has become part of dinner-table conversations. As Washington attempts to put its fiscal house in order, catchy metaphors from "fiscal cliff" to "fiscal calamity" to "austerity bomb" (and even "hostage crisis") permeate the media. Amidst the media spin and misnomers however, there lies a crucial debate.
As part of their response to negative shocks coming from advanced economies after Lehman's collapse in 2008, most developing countries resorted to countercyclical fiscal policy.