Questions like those – focusing on the private sector as the principal driver of growth, with deft public policy as an indispensable catalyst – inspired a dialogue among some of the developing world’s most experienced policymakers at a major forum, “Powering Up Growth: Ideas for Beating the Slowdown,” during the recent Spring Meetings of the World Bank Group and the International Monetary Fund. All four government Ministers on the panel – from both commodity-exporting and -importing countries – voiced a sense of urgency, describing their efforts to attract private investment to spur job creation, amid a global economy that seems destined for prolonged weakness.
Before the policymakers ascended the Preston Auditorium stage, sobering updates had arrived from the Bank and the Fund: The Bank’s latest forecast for global growth has been lowered from 2.9 percent to 2.5 percent – with the caveat that this latest forecast is subject to further downside risks. That downward revision is in parallel with the Fund’s similar projection, which sees global growth this year in the neighborhood of just 3 percent.
Policymakers worldwide are eager to explore any option to try to lay the foundation for an eventual return to a long-term economic expansion. It was clear that the panelists in the “Powering Up Growth” event – which was convened by Jan Walliser, the Vice President for the Bank Group’s practice group on Equitable Growth, Finance and Institutions (EFI) and organized by the Global Practice for Macroeconomics and Fiscal Management (MFM) – were focused on long-term structural changes that can energize the private sector’s ability to drive growth.
The panelists – from Bolivia, Pakistan, Angola and Ukraine – represented countries from different regions and at various levels of economic development, but they shared a determination to jump-start growth through reforms that will strengthen the private sector’s long-term confidence. The Ministers, at times, seemed to envision opportunities, not just for short-term structural adjustment of their priorities or medium-term structural reform of their policy farmeworks, but for far-reaching structural transformation of their economies and societies.
The policymakers’ reformist ideas – detailed in their discussion with panel moderator John Authers, a senior investment columnist for The Financial Times – included these shrewd insights:
- Beyond financial aid, many developing countries are now seeking greater technology exchange with advanced economies. “It’s clear to us that Bolivia can no longer depend on selling commodities” like oil and natural gas, said Luis Alberto Arce, the Minister of Economy and Public Finance of Bolivia. “Bolivia has to engage in an industrialization process [to] diversify our production. . . . There has been a qualitative leap in terms of need for the greater technology. The support that we need from developed countries is . . . technological cooperation.”
- Many commodity-exporting countries are bracing for an extended period of low energy prices – and are committed to finding a way “to cope with the new normal” that may endure for many years, said Armando Manuel, the Minister of Finance of Angola. Policymakers in Luanda have removed fuel subsidies and are realigning the electricity sector to encourage private investment and innovation. Angola has also taken careful steps to “manage the fiscal space,” trying to balance fiscal policy with monetary changes, such as greater flexibility in currency exchange rates.
- The sudden fluctuations in global commodity prices have been “a mixed bag” for many countries, according to Waqar Masood Khan, the Finance Secretary of Pakistan. Pakistan’s exports, such as cotton and rice, have endured unfortunate price reductions, he said, but the country has gained significant breathing room thanks to the lower cost of energy imports. Pakistan, like Angola, has reduced energy subsidies, and it is taking steady steps to bring its fiscal budget closer to balance. The country’s financial system is “fairly strong,” said Khan – and the fact that it is “not that deeply integrated with the rest of the world” allowed it to escape most of the damage of the global financial “unraveling of 2008.”
- The help of international financial institutions and other development partners remains indispensable, noted Natalie Jaresko, the former Minister of Finance of Ukraine. The country was on the brink of financial disaster in 2014, when Jaresko arrived in office and found the Finance Ministry’s coffers almost totally depleted by earlier governments’ mismanagement. With the help of international partners, including the Bank and the Fund, Ukraine has ushered in a series of reforms that focused on realigning the banking system, adopting governance reforms and promoting greater trade and investment by implementing new free-trade agreements (notably with the European Union). Jaresko emphasized that the continuing reform program aimed to “loosen up, lighten up, free up the environment for increasing investment” by the private sector – trying to build confidence among potential investors by embracing good-governance initiatives “to tackle and improve [the] rule of law” and enforce anticorruption measures.